Alberta targets conservation

The Alberta government is poised to turn one-fifth of its prime oil sands region into a conservation area, setting the stage for a legal fight over compensation.

Sustainable Resource Development Minister Mel Knight said 5 million acres of the Athabasca bitumen formation in northeastern Alberta will be set aside for parks and recreation as part of a larger plan to create seven conservation zones across all of the province’s north.

Aiming to complete public consultations and formalize the Athabasca plan within about five months, the government, which plans to revoke existing oil sands and 10 mineral land tenures, has promised to refund what companies paid for leases and development costs, plus interest.

Finance Minister Lloyd Snelgrove said the government was not prepared to estimate compensation costs before negotiations start.

The Supreme Court of Canada ruled in a landmark case in 1985 that owners of resource rights should be compensated for the value of those resources and not simply paid back what they invested. With crude trading above $110 per barrel that could amount to billions of dollars.

But David Pryce, a vice president with the Canadian Association of Petroleum Producers, said the compensation provisions do not include “lost opportunity costs” for companies that have attracted investors by including bitumen reserve values in their financial statements.

He said the immediate market response, which trimmed share prices of leading oil sands produces such as Suncor Energy, Cenovus Energy, Imperial Oil and Canadian Natural Resources, reflected the concern among investors that producers would have to relinquish some of the mineral or bitumen leases.

Pryce said full compensation could be worth significantly more than the government’s proposal, especially for companies whose entire business is tied to a single lease.

Phil Skolnick, an analyst with Canaccord Genuity, said in a research note that the designated conservation land would affect only slivers of leaseholdings by the largest producers.

He suggested the heaviest blow would land on privately held Sunshine Oilsands, which has accumulated 1.15 million acres of 100 percent owned leases and has plans to eventually produce 800,000 barrels per day.

A Cenovus spokeswoman said the identified conservation area overlaps with some of the company’s emerging Borealis lease, but the producing Christina Lake and Foster Creek leases are unaffected.

Knight said the government deliberately avoided including the richest bitumen deposits, but is resolved to “balance our economic development with protection of the Alberta landscape.”

—Gary Park