Province says Syncrude Royalty Project owes it $100 million

By Trish Audette, edmontonjournal.com May 4, 2012

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Alberta premier Ed Stelmach faces a grilling by reporters over the issue of oil and gas royalties in Calgary, June 24, 2009.

Photograph by: Calgary Herald, file , edmontonjournal.com

EDMONTON — The Alberta government is suing a handful of oilsands companies for $100 million for allegedly failing to pay the province its share of revenues from the Syncrude Royalty Project.
“Despite demands, the defendants have refused to pay the unpaid royalty proceeds or any part thereof,” says the statement of claim filed Monday with Court of Queen’s Bench in Edmonton.
The lawsuit centres on bitumen produced at the Syncrude project near Fort McMurray, and relates to the changeover of the province’s royalty framework in 2008 and 2009. The owners of the joint venture are named as defendants, including Canadian Oil Sands Partnership No. 1, Imperial Oil Resources, Nexen Oil Sands Partnership, Mocal Energy Ltd., Murphy Oil Company Ltd., Suncor Energy Oil and Gas Partnership, Sinopec Oil Sands Partnership and Syncrude Canada Ltd.
Alberta Energy spokesman Bart Johnson characterized the move as a “placeholder” in ongoing negotiations.
“It’s not news that we’ve been negotiating with them on this for some time now, and the negotiations do continue. It’s not as if they’ve broken down and this is a result,” Johnson said Thursday. “You can characterize it, I suppose, as the government suing Syncrude, but we do not plan to follow up with any further action at this time.”
The province says it was owed outstanding royalties by April 30, 2010. The claim filed in court Monday was two years to the day after that deadline, Johnson said, to ensure negotiations continue between the province and companies.
A spokeswoman for the Canadian Oil Sands Partnership — the largest project shareholder at 36.74 per cent — similarly said the companies understand the statement of claim was filed to preserve the province’s legal rights.
“We continue to negotiate with the Alberta government in good faith,” said Siren Fisekci, the company’s vice-president of investor and corporate relations. “Our view is that we will in time reach a mutual resolution.”
A statement of defence has not yet been filed. None of the allegations have been proven.
In 2008, then-premier Ed Stelmach introduced a new royalty structure for oil companies to pay the province a share of their revenues.
According to the statement of claim, Syncrude arrived at an agreement to pay royalties on bitumen volumes rather than upgraded oilsands products. That change meant the “royalty calculation point” moved from the outlet of the Syncrude upgrader to the outlet of “certain diluent recovery units at the front end of the Syncrude upgrader.”
The royalty changeover Johnson said, put a portion of product “in limbo.”
“There were inventories sort of in place at that time, and there’s a disagreement over what the royalty calculation should be on those inventories for that one snapshot, one period of time,” Johnson said.
Fisekci said there have been sticking points in terms of setting benchmarks for pricing and royalties.
“Because Syncrude doesn’t sell bitumen, it upgrades all of its product, (the problem is) determining how do you determine the value for Syncrude’s bitumen,” Fisekci said. “This is a lot more of a technicality ... We don’t have a benchmark that we can point to for a bitumen value for Syncrude.”