[November 09, 2008]

Alberta oilsands giant Syncrude still hasn't agreed to pay more royalties

(Canadian Press (delayed) Via Acquire Media NewsEdge) EDMONTON _ Just weeks before a $1.4-billion oil royalty hike takes effect, Alberta's largest oilsands player still hasn't agreed to new rates, but Energy Minister Mel Knight insists there's no legal showdown coming.

Knight concedes billions of dollars in royalties are at stake as lawyers try to secure a deal with Syncrude in advance of the ``drop dead'' deadline of Jan. 1.

But the minister remains optimistic.

``I'm absolutely certain that there's nobody that's actually foot-dragging,'' Knight said in an interview. ``In my opinion, we will not end up in litigation and this thing will be resolved.''

One of the most contentious aspects of Alberta's new royalty structure is the province's insistence that decades-old royalty deals with oilsands pioneers Suncor (TSX:SU) and Syncrude be torn up.

Both deals would have expired in 2015 if Alberta had not taken that position.

Knight confirms that not having a signed deal with Syncrude would have a domino effect on royalty rates paid to Suncor because the company has ``favoured nation status.''

That means that, even though Suncor signed a deal in January to pay up to 20 per cent more in royalties starting in 2010, the company is guaranteed the same rates Syncrude negotiates.

Suncor and Syncrude account for half of Alberta's oilsands production.

Knight said he's clearing his desk until the end of the year to focus on getting this pivotal royalty deal with Syncrude signed.

``There's nothing on my plate today that would be more important to Albertans,'' said the minister.

But not everyone shares Knight's optimism.

``It's getting late,'' said economist Andre Plourde, who served on Alberta's royalty review panel. ``We're looking at billions of dollars hanging in the balance.''

Syncrude is essentially holding veto power over a significant portion of the new royalty structure and this is not a ``comfortable place'' for the government to be in at this point, said Plourde.

Alberta's energy revenue projections are already sagging and falling oil prices have forced a growing list of energy companies to put the brakes on billions of dollars worth of oilsands projects.

Failure to complete a royalty deal with Syncrude would be seen as a major setback for the government and there is no clear indication of what royalties would apply if there is no deal by the new year.

``The rules are really not clear as to what's going to happen after Jan. 1,'' said Plourde. ``So there's a lot of uncertainty that needs to be resolved in a short period of time.''

Although negotiations with Suncor lasted only a few months, things haven't gone as smoothly with Syncrude, a consortium of seven energy players including Imperial Oil Ltd (TSX:IMO).

``Here we're dealing with half a dozen corporate entities,'' said Knight. ``So each step that this thing goes, they have to go back to their shareholders.''

Both the province and the company have been tight-lipped about the bargaining, but Syncrude's reluctance to sign a deal was signalled in a media report last spring.

Just before he retired, Imperial CEO Tim Hearn was quoted as saying Syncrude wouldn't accept a new royalty deal unless its shareholders were compensated for the loss in value.

Hearn said Syncrude might be prepared to accept the same terms as Suncor after the loss in value had been recognized by the province and shareholders were given their due.

Imperial Oil spokesman Pius Rolheiser was somewhat guarded in his comments Friday because of the ongoing negotiations and he would not say whether a deal can be expected before the deadline.

``Our goal remains reaching a negotiated agreement that will meet the needs of all parties and preserve the intent of the original contract,'' Rolheiser said in an interview.

Premier Ed Stelmach told the legislature this week that he expects ``all agreements to be in place'' by the end of the year.

But Liberal Leader Kevin Taft said the premier needs to live up to the tough language he used last fall when Stelmach first talked about the need to sign new deals on royalties with Syncrude and Suncor.

``The deadline passed nine months ago,'' said Taft. ``I'm going to be looking for the government to play hardball with Syncrude if they have to.''

Alberta's Progressive Conservative government waited until the last possible moment to introduce framework legislation Thursday that will allow for the royalty hike to take effect Jan 1.

Knight said the legislation, which will be accompanied later by regulations approved by cabinet, is a signal that Alberta isn't bowing to pressure from the energy industry to delay the royalty hike.

Copyright ? 2008 The Canadian Press

[ Back To TMCnet.com's Homepage ]

Discussions: