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Syncrude pockets $18.5B bonanza

Syncrude pockets $18.5B bonanza
Liberals slam 'sweet deal' negotiated in 1997 worth billions of dollars to oilsands producers
Darcy Henton, The Edmonton Journal
February 24, 2009

Oilsands giant Syncrude stands to earn a extra $18.5 billion over the life of its operations as a result of cashing in late last year on a royalty option it negotiated more than a decade earlier with the Alberta government, says Liberal MLA and energy critic Kevin Taft.

The "sweet deal" is expected to boost total future net revenues for its oilsands operations to a "mind-boggling" $172-billion over the next four decades, he said Monday.

"This is like taking more than the entire wealth of the Heritage Savings Trust Fund and giving it to Syncrude," Taft said. "For seniors on a fixed income facing cuts to drug benefits, or university students facing escalating tuition fees, it ought to be enraging that their own government is transferring billions of dollars of potential wealth to a highly profitable company."

Both Syncrude and Suncor were given the option in 1997 to elect to pay royalties on lower-valued bitumen rather than synthetic crude. They exercised that option Jan. 1.

Canadian Oil Sands Trust, which owns 37 per cent of Syncrude, announced in November that it expected the switch to increase its forecast after-tax future net revenues by 12 per cent.

Taft said that would boost the trust's projected after-tax revenue to nearly $6.8 billion and generate a total of $18 billion for all of Syncrude's partners, including Imperial Oil, Nexen, Mocal Energy, ConocoPhillips, Murphy Oil and Petro-Canada.

That isn't even counting the benefit Suncor might glean from its switch to bitumen.

Taft said the deals highlight the trillions of dollars involved in oilsands development and how ill-equipped the provincial government is at negotiating a fair share for Albertans.

"You can't fault the companies for driving good bargains for their shareholders, but you can fault the Alberta government for striking a lousy deal for its citizens," he said.

"The companies were right to exercise this option. It's a no-brainer, but it raises the question of how we're managing the whole royalty system for the oilsands."

Taft also slammed the government for not telling people about the impact of the policy change, saying the companies have provided more information to their shareholders than the province has provided to Albertans, the owners of the resource.

Canadian Oil Sands Trust spokeswoman Siren Fisekci said she can't comment on Taft's numbers because there are too many variables, but the earnings forecast the trust made in its filings to shareholders may come in much lower if oil prices don't rebound.

"If crude oil prices are higher, which we believe they will be going forward, then the agreement will ultimately be good for us," she said. "But if they stay at these levels, then it probably would not be."

Energy Minister Mel Knight said oilsands companies had every right to exercise the option. "They have made a case that this is what they want to do and they have a legal right to do that. It's in their contract."

When asked how taxpayers will fare as a result of the change, he said: "They fare the same as they would under any circumstance relative to the production of bitumen and the royalties that will be collected under those circumstances."

Alberta Energy spokesman Bob McManus noted that at the time the option was offered, the province was trying to negotiate a "generic" oilsands deal that would consolidate separate deals negotiated by Syncrude, Suncor and Imperial Oil.

"It was all about developing the oilsands when oil prices were fairly depressed, $12 to $22 US per barrel," he said.

It became apparent that some newcomers to the oilsands would be selling bitumen rather than upgrading it to synthetic crude, so the royalty structure had to change, he said.

"It was decided that to be fair to all players, including Syncrude and Suncor, they would be allowed the same option as the new entrants into the market."

Andre Plourde, a University of Alberta energy economist, said the switch to bitumen had nothing to do with the royalty regime change that took effect the same day. "It's clear this is not something that was newly introduced by this government," he said.

As a result of their decision to pay royalties on bitumen rather than the finished product, Syncrude and Suncor can no longer deduct the costs of building upgraders against the royalties they pay and must return to the Alberta government over the next 25 years the benefit they received over the previous years.

Fisekci said that amounts to $1.25 billion plus interest that Syncrude has to repay on top of an additional $975 million in royalties it has agreed to pay under the new royalty regime. Syncrude and Suncor had signed royalty deals that were to run to 2015, but both eventually agreed to renegotiate those deals with the province.

© The Edmonton Journal 2009


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