Alberta, Suncor in royalty arm-wrestle

Gary Park

Petroleum News Calgary correspondent

The Alberta government and Suncor Energy are at odds over oil sands royalties that represent about C$875 million in potential revenues to the province.

Premier Ralph Klein and Energy Minister Murray Smith have indicated the government is adopting a firm stance over whether Suncor’s Firebag project is new or just an extension of the company’s existing oil sands operation.

A new project pays royalty rates of 25 percent from the outset; an expansion pays 1 percent until capital costs have been recovered.

Stage one of Firebag, which Suncor has repeatedly referred to as an expansion, is due to reach capacity of 35,000 barrels per day in mid-2005 and could grow in phases to 140,000 bpd by 2010-2012.

Because it is using steam-assisted gravity drainage technology to extract the raw bitumen, rather than Suncor’s traditional mining methods, it is viewed as a new project, Smith said. He said the government is “standing very hard on its original agreement and is working to protect the resource interests of Albertans.”

The final decision rests with the energy minister and “that is very clear,” Smith said, although he said discussions continue with Suncor.

Suncor said it remains confident there will be “an agreement both sides see as beneficial.”