Stelmach Decision Unveiled

The day finally arrived on Thursday, October 24, where the new royalty regime in Albertavala, I mean Alberta was revealed. In a nutshell, new royalty rates (about 20% higher than currently) will take effect in January 2009. This will amount to an investment lost of approximately 1.4 billion dollars by Alberta's Oil Patch. If you couple that with the Trust Decision of last year, companies bottom lines will be hit. Add in low natural gas prices and high labor/material costs and you have a recipe for financial disaster in the so called "economic engine" of Canada.

It appears Premier Stelmach has chosen to take quite a different path than his predecessor by sticking it to Big Oil and instead has chosen to represent the little guy. This decision might get the government in trouble legally and from an investment standpoint. Legally, they have broken a binding agreement with Suncor and Syncrude by raising taxes. The investment community does not like uncertainty, and with the Trust Decision last Halloween and now the Royalty Decision, foreign investors have lost all faith in Canadian government.

So what does this all mean for us, the investors out there. I was a little surprised by the markets strength on Friday, especially in companies with big exposure to Alberta. I don't know if people are just taking a few minutes to take in the decision or if they believe that commodity prices will make up for any extra taxes. I wouldn't be surprised to see a sell off next week.

I have sold out of my last energy trust. Being double dinged is not my idea of "investor friendly" and I have a sneaky feeling that many are going to do just as I have. I have decided to reallocate my money into gas weighted plays outside of Alberta. The north sea has been rejuvenated by some very aggressive and ambitious juniors which will benefit from the slow down in Alberta. Two companies I really like out there are Antrim Energy and Ithaca Energy. Antrim has been hitting on every well drilled and has discovered what looks to be a huge reservoir of oil. Ithaca has been hot lately and recently hit a high of $4.00 a share. Their share prices will continue to rise with more drilling results and investor interest in the North Sea. I have also allocated some of my oil money to Argentina. With recent drilling success by Petrolifera and others, a junior has caught my eye by the name of Argenta Oil and Gas. They are brand new (just started trading in September) and have an aggressive drilling program set for the fall/winter. They are currently trading at $0.55 with a market cap of about 50 million. I have added links to both Antrim's and Argenta's websites on our watch list.

Overall, I am still quite bullish on commodities in general and gold/silver in particular. Gold has had an amazing run since September and is now ready for a little breather. It is tough to predict when gold might correct due to all the other factors occurring in the world right now. We have tensions in the middle east getting higher, mortgage defaults in the US, Bernake's rate decision, high oil prices, etc. etc. that just seems to keep gold powering ahead. No matter what happens in the short term, it is good knowing that we are definitely entrenched in a commodity bull market that has many more years to go.