Alberta's auditor general says oil sands giants Syncrude Canada Ltd. and Suncor Energy Inc. are challenging their royalty deals with the province and he suggests billions of dollars are at stake.
The two oldest players in the oil ands have special royalty agreements based on the value of the tar-like bitumen they process. All other oil sands producers fall under a new tax structure that took effect in January, but Syncrude and Suncor were allowed to renegotiate their long-time deals.
The two companies are challenging the valuation of the bitumen they mine, and auditor general Fred Dunn estimates that $100-million in royalties are in question for 2009 alone. If the companies won their appeal, it would reduce the royalties they pay until 2016, and that could result in a costly legal battle that could drag on for years, said Mr. Dunn.
The auditor general also expressed dismay that the companies are disputing their royalty calculations so quickly after their new agreements with the province took effect.
"You don't expect that when you go into signing an agreement that there's uncertainty on either side as to what is expected or required."
Officials with Suncor did not return calls Friday and a Syncrude spokesman declined comment. Nor was provincial Energy Minister Mel Knight available for comment. But spokesman Jerry Bellikka said the ministry did not see the dispute as a major issue.
"It's a difference in the forecasted price of bitumen for this year, based on the January prices, and a forecast for the remainder of the year," Mr. Bellikka said. "We feel is should be the set price that was agreed upon and the company feels it should be different."
He noted that there's a dispute resolution mechanism the two sides can use to try to resolve the dispute. "But as far as we're concerned, the price is the price is the price," said Mr. Bellikka, who added the $100-million mentioned by the auditor general is a worst-case scenario.
Mr. Dunn also revealed Friday that Alberta's natural gas producers may be facing major recalculations of the royalties they owe the province for the past year. He says producer's claims of allowable costs totalling $1.1-billion in 2009 may have to be paid back to the department in June of next year.
Mr. Bellikka said it's a complicated issue that has been magnified by the fact that natural gas prices have fallen dramatically over the past year. He added that the $1.1-billion figure used by the auditor general is "the outer range of the swing" between what companies paid and what they actually owe the province.