Alberta takes 50% stake in troubled Sturgeon Refinery, as CNRL, North West Refining see combined $825-million payday


Experts have repeatedly criticized refinery’s tolling arrangement for saddling Alberta with unlimited risk and costs

Article content

CALGARY – Alberta’s government is taking a direct equity stake in the troubled Sturgeon Refinery in an effort to reduce its tolling costs at the facility.

Advertisement

Article content

“There’s no question that there were problems in the past with the contracts,” Alberta Energy Minister Sonya Savage told the Financial Post on Monday, noting the multi-billion cost overruns and blown deadlines for the facility had created a strain on the province’s balance sheet.

See also  Oil dips, but heads for third weekly rise on demand recovery

In an effort to find cost savings, Savage said the province took a “deep dive” in 2020 into the oil-processing contracts for the Sturgeon Refinery that were signed by former premier Ed Stelmach’s government in 2011.

On Monday, Alberta announced a new deal. North West Refining will be paid $425 million to forego future tolling revenue and for its 50 per cent equity stake in the 79,000-barrels-per-day heavy oil refinery north of Edmonton. Canadian Natural Resources Ltd., which owns the other 50 per cent of the refinery, will also be paid $400 million immediately.

See also  Coronavirus in India Live News: Punjab extends all Covid-19 restrictions till May 31; West Bengal reports 19,117 new cases

Advertisement

Article content

In total, the $825 million in payments to NorthWest Refining and CNRL will eliminate $1 billion in tolling payments to both companies over the next 10 years, as well as transfer North West Refining’s equity stake to the Alberta government.

In addition, the province has agreed to extend the timeframe during which it will process its barrels at the Sturgeon Refinery by 10 years to 2058.

I think that with the deal we’ve got, we’ve definitely reached a better deal for Albertans

Sonya Savage, Alberta energy minister

The province and CNRL, now equal partners in the Sturgeon Refinery, also renegotiated the financing for the facility, which will improve the net present value of the refinery by $2 billion, Savage said.

“There was no legal requirement for the other parties to renegotiate or bondholders to renegotiate,” Savage said, adding that under the previous deal the province was looking at “a money losing proposition for years with no ability for Alberta taxpayers to participate in the upside.”

Advertisement

Article content

“But I think that with the deal we’ve got, we’ve definitely reached a better deal for Albertans,” she said.

The Sturgeon Refinery, which has previously been called the North West Upgrader or Redwater Refinery, is a heavy oil refinery north of Edmonton built with the backing of provincial government contracts signed at an initial cost of $5.4 billion. But the troubled project more than doubled its initial budget and was finally completed last year at a cost of close to $11 billion.

See also  Iran Transfers Oil From Pipeline Skirting Troubled Strait
The gasifier unit at the Sturgeon Refinery.
The gasifier unit at the Sturgeon Refinery. Photo by Supplied

The facility also suffered operational delays amid problems with a critical component, called the gasifier, which prevented the facility from refining heavy oil until April 2020.

See also  Power, pleasure & shame | Book Excerpt — Pha(bu)llus: A Cultural History by Alka Pande

As costs rose, so did the tolls Alberta’s government had to pay to the refinery’s owners to refine its royalty barrels at the facility. Experts have repeatedly criticized the tolling arrangement for saddling the Alberta government with unlimited risk and costs.

Advertisement

Article content

Last year, the Alberta Petroleum Marketing Commission reported a $2.7 billion net loss for the year “due primarily to a provision for the Sturgeon Refinery onerous contract,” according to the province’s annual report.

The Sturgeon Refinery contributed to a $500-million operating loss for the APMC last year.

Canadian Natural will now operate the facility. The Calgary-based oil major wrote the value of its stake in the facility down to nil at the end of 2019.

Alberta’s auditor general has looked into the contracts between the province and the refinery twice, first in Feb. 2018 and then in Nov. 2020, and released scathing reports in both cases.

The auditor general’s report from 2018 found the APMC “has poorly designed risk management processes.”

Advertisement

Article content

See also  Coronavirus India News Live Updates June 7: Covid-19 Daily Cases and Deaths Count in India Live, Coronavirus Vaccine Latest Update, Corona Unlock Guidelines Live, Karnataka, Mumbai, Kerala, Andhra Pradesh, West Bengal, Delhi, Uttar Pradesh Lockdown Live News

In Nov. 2020, the auditor general found the province’s energy department had not conducted a proper analysis on three different oil-related contracts between the government and private-sector energy companies, including the Sturgeon Refinery, the Alberta government’s stake in the now cancelled Keystone XL project and crude-by-rail contracts.

Savage said previous governments had “policy reasons and political reasons” for proceeding with money-losing agreements on the Sturgeon Refinery, and said there were multiple lessons for the government to learn as a result.

See also  MRF rating - Sell: RM headwinds took a toll on performance

“First of all, there wasn’t an offramp for the government. There wasn’t a way to control costs. That’s where you saw a refinery that was estimated to cost $5 billion escalate to over $10 billion, close to $11 billion,” she said.

Financial Post

• Email: gmorgan@nationalpost.com | Twitter:

Advertisement

In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

    Comments

    Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.





    Source link

    Latest

    A Scottish company’s battle to seize planes of India’s national airline

    A Scottish company with only 180 employees seizing the planes of India’s national airline may seem an unlikely scenario. But Cairn Energy is...

    What Do Masonry Contractors Do?

     Contractors that specialize in masonry are known as masonry contractors. They are experts in their field, yet their expertise is not limited to their...

    French nuclear firm seeks to resolve ‘performance issue’ at China plant

    A French nuclear firm said Monday it was working to resolve a "performance issue" at a plant it part-owns in China's southern Guangdong...