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Suncor Energy takes Alberta to court Files C$250 million claim for ‘extensive financial losses’ stemming from dispute over classification of oil sands project Gary Park Petroleum News Calgary Correspondent
Suncor Energy has ratcheted up a royalty feud with the Alberta government by suing the province for C$250 million in damages.
The oil sands powerhouse filed a statement of claim July 29 against the government and Energy Minister Murray Smith, alleging it has suffered “extensive financial losses” stemming from misrepresentations and breaches of fiduciary duties by the government.
At the core of the dispute is Alberta’s classification of Suncor’s C$500 million Firebag addition to its northern Alberta operation as a new project rather than just an expansion of the existing complex.
That means Suncor must pay a 25 percent royalty, after operating and maintenance costs, on Firebag production rather than 1 percent until capital costs have been recovered.
The ruling would cost the company C$200 million in royalties this year if West Texas Intermediate prices averaged US$34 per barrel this year, compared with C$33 million last year.
Firebag came on stream in January, is currently producing 11,000 barrels per day and is scheduled to reach 35,000 bpd in 2005 and 140,000 bpd in the 2010-2012 period. Government’s call based on different technology Alberta Premier Ralph Klein said in April the difference between a new project and one deemed to be an expansion would be about C$875 million “to the government’s bottom line.”
He told the legislature that Smith’s department was concerned that any change in royalty policy “would have a serious affect on how we treat other oil sands projects.”
Smith argued that because Firebag is employing steam-assisted gravity drainage technology to extract raw bitumen it is different from Suncor’s long-time open-pit mining operations. Suncor says it had assurances A spokesman for Suncor countered that Firebag is connected physically to the existing project for the purpose of providing bitumen for upgrading.
He said Suncor is quite prepared to pay its fair share of royalties, but its concern is that “timing of the royalties and how that affects our growth plans.”
That echoed the comments in May of Chief Executive Officer Rick George, who said Suncor might be forced to reassess its choices on the location of heavy-oil upgrading plants if the government insisted on “changing the rules midstream.” Suncor has insisted it has assurances dating from 1998 on how Firebag would be treated.
He said Suncor is not threatening to back away from its next expansion phase, which has a price tag of C$3 billion, but it has “lots of options on how we design future growth.” That could include shipping more raw bitumen to the company’s Ontario refinery or the 62,000 bpd Denver refinery purchased from ConocoPhillips last year.
Although the suit had to be filed by July 31 to preserve Suncor’s right to a legal review, the company said it continues to seek a negotiated settlement. The government won’t comment on a case that is before the courts.
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