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Large machinery at the oil sands north of Fort McMurray, Alta. (Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail)
Large machinery at the oil sands north of Fort McMurray, Alta. (Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail)

Energy

Alberta conservation plan stuns oil patch Add to ...

The Alberta government has proposed new environmental rules that would revoke a number of oil sands leases - including those which already have active projects - in an effort to protect sensitive habitat, wildlife and forest land in the most industrialized area of the province.

The government on Tuesday unveiled a plan to set aside two million hectares, or about 20 per cent, of Alberta's oil sands zone, for conservation. Lease maps of the oil sands show that a number of major energy producers have properties in the area, including Nexen Inc., Suncor Energy Inc., Canadian Natural Resources Ltd. and Imperial Oil Ltd.

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Alberta is under harsh international scrutiny for the way it manages the development of the oil sands, but Tuesday's announcement sent shock waves rippling across an industry that has spent vast sums of money to acquire land in the region. The prospect of having parts of it ripped away prompted one executive to compare Alberta to Venezuela, and to warn that any expropriation of land may frighten away investment crucial to developing one of Alberta's most important economic resources.

"It's like taking away money," said a senior industry source who requested anonymity. "It's really messy."

Fourteen energy companies and 10 mineral outfits have assets in the proposed conservation areas. Conventional oil and gas companies will be governed by softer regulations, allowing them to keep their leases and further develop projects, although under greater scrutiny, government officials said. New leases will not be issued for land in the protected zones.

Mel Knight, the provincial minister for Sustainable Resource Development, said he is prepared to deal with any backlash from affected companies. However, he said repatriation plans have happened before, with compensation helping to soothe the pain.

That compensation will be negotiated between companies and the government and could include refunding what companies paid to the Crown for the leases and development and reclamation costs, plus interest.

However, Mr. Knight is willing to consider concerns that energy and mineral companies may have regarding the proposed rules. Tuesday's proposal is still a draft.

"This is not written in stone," Mr. Knight said in a press conference. "This is a consultation."

The consultation process is scheduled to wrap up in 60 days, and the minister said he wants to have the final draft of legislation before Cabinet in 90 days.

While energy companies and other market players were caught off guard by the announcement, Mr. Knight noted the government has been openly working on a plan for the Lower Athabasca Region. Energy companies were part of the consultation process and should have had a reasonable idea whether they would be among those affected by the new rules, he said.

The new rules will hit some of Canada's largest oil sands players, including Canadian Natural Resources Ltd., Cenovus Energy Inc., and international players like BP plc and Statoil. Small outfits also have holdings in the protected zones, and companies are already firing back.

One of them is Sunshine Oilsands Ltd. The government is proposing a massive Birch River conservation area that falls over a substantial swath of land the company spent last summer drilling. It found an estimated 7.6 billion barrels of bitumen in place. It's not clear how much, if any, of that will be recoverable. But it is clearly a substantial resource.

The company says the government was using old data that did not show what it has discovered there - and plans to lobby hard to have the protected area changed. The prospect of having that land expropriated is so surprising that David Sealock, the company's vice-president of operations, said he can't imagine the Alberta government carrying through with its current plan.

The area in question "represents huge amounts of jobs, huge amounts of royalties, huge amounts of upside for the public," he said.

If the government does not back down, however, "it could send a very negative message to those contemplating investment in the oil sands," Mr. Sealock said.

The most controversial issue in the weeks and months ahead is likely to concern compensation. Sveinung Svarte, the chief executive of Athabasca Oil Sands Corp., said companies will resist letting go of their land in exchange for simply a refund of the money they have already paid.

"Compensation is not good enough," he said. "People have bought valuable resources to develop them, and if compensation should be done, it should be for the value you give up."

The protected areas cover 1.5 per cent of Athabasca's land, although those areas do not appear to be highly prospective, Mr. Svarte said.

Indeed, the Canadian Association of Petroleum Producers said it appeared Alberta has attempted to leave the most prospective oil sands areas untouched, moving instead to protect parts of the region less blessed with bitumen.

"Largely, they've kept it on the periphery of the rich lands," said Dave Pryce, CAPP's vice-president of operations. But CAPP is already girding for a fight as it seeks more money for companies that lose land.

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