Alberta refinery out of mothballs

Entangled in a legal dispute for eight years, out of action for five years, a small central Alberta refinery is coming back to life.

The 6,000 barrel-per-day facility owned by Parkland Income Fund will resume operations in September, switching from the production of gasoline and diesel to synthetic drilling fluids used by drilling rigs.

Parkland President Michael Chorlton said a deal to obtain feedstock from the nearby Joffre petrochemical plant owned by Ineos Canada Partnership is the “first of many possible opportunities to utilize the full potential” of the 44-year-old plant.

Chief Financial Officer John Schroeder said the resumption of business will also give Parkland a chance to land other industrial contracts, such as fuel storage.

The revival starts with a processing pact that lasts the rest of 2006, allowing time for a long-term contract to be negotiated with Ineos, a British petrochemical and plastics company that obtained the Joffre plant last year when it acquired global manufacturing assets from BP.

Until now, the drilling fluids have been blended in the United States. They fetch premium prices because of their demand as petrochemical plant feedstock and as diluents to facilitate the pipeline transportation of oil sands bitumen.

Future tied up in legal action since ‘98

The Blood Tribe of southern Alberta struck a deal to buy the refinery for C$50 million, but its claim for exemption from C$30 million a year in federal gasoline taxes, based on aboriginal ownership of the facility, was rejected by the Canadian government.

Parkland told its investors that the Blood Tribe is pursuing court action to secure the exemption, but the “timing and ultimate success” of that procedure is uncertain, although the sale could be revived.

The trust said it has been spending C$400,000 a year to keep the refinery in usable condition and spent C$1.5 million last year to prepare the site for alternative uses.

In the meantime, Parkland has written off the refinery, once valued as a C$25.3 million asset and now listed on the trust’s books as a C$3.4 million environmental liability.

—Gary Park