Alberta conservation plan stuns oil patch

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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.

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.

"We've advocated all along that government needs to go and look with how it deals with lost opportunity [compensation] particularly as companies have booked value and that's been reflected in their shares," he said.

And it remains unclear how much companies will have to give up, even when their land falls under a conservation designation. Part of a lease owned by Cenovus Energy Inc., for example, falls under a newly-designated Gipsy-Gordon Wildland Provincial Park.

"It all depends on what activities can be carried out in these areas," said Alan Reid, Cenovus vice-president for regulatory affairs.

In fact, other Alberta regional plans have allowed for some oil and gas development in conservation areas, he said.

Despite concerns of industry, Alberta Energy Minister Ron Liepert backed Mr. Knight's plan, saying land use planning is long overdue and could not be achieved without impacting some of the region's oil leases.

"We should have been doing this 50 years ago, not today, and we wouldn't have some of the issues we're dealing with today. But sooner or later, you've got to address some of these issues," Mr. Liepert, who is on vacation in California and did not appear at the announcement with Mr. Knight, told The Globe and Mail in a telephone interview. "There's no quiestion there were a number of issues industry had expressed concern about... Obviously, it would be impossible not to impact any of the leases that are currently in existence up there. But I think we managed to bring forward a report that had the minimal impact that was possible."

Asked about Sunshine Oilsands Ltd. and other companies whose leases are affected, Mr. Liepert said his ministry will "work with" the companies to "try and see if there are options that can be explored." He did not speculate on what such solutions would be, or whether compensation would be offered.

For Sunshine, he said their lease was tough to avoid because the bitumen deposits "weren't as positive" as leases to the south.

"Again, we had to make some tough decisions in terms of meeting the 20 per cent conservation area, and we knew that the area that Sunshine had under lease was going to be an issue. We will be working with them as we move forward."

The Lower Athabasca Regional Plan is the first of seven water basin plans the province will put out. Without such plans, the province has essentially ignored any questions about cumulative effect when approving industry projects and has little or no baseline data in the oil sands.

"Land planning is absolutely critical in Alberta right now," he said.

The plans are part of the Alberta Land Stewardship Act, a controversial law passed in 2009. The right-wing Wildrose Alliance has used the law as a wedge, though some of their members used to support it. With the release of Tuesday's plan, the PCs have, in turn, staked a path down the middle of the political spectrum by allowing some environmental conservation efforts to trump industry lease holdings.

Mr. Liepert wouldn't comment on Wildrose's critique of the plan.

"You know what? I don't even bother crediting those guys. They're nothing but people who complain about everything. I'm interested in trying to work together with industry to move forward, and not continue to complain about every issue under the sun," Mr. Liepert said.

It wasn't just Wildrose criticizing the plan. Environmental groups and thinktanks slammed it as too industry friendly, though some were more vigorous than others. Greenpeace called it an example of the government "allowing dirty oil profits to trump the public interest," while the more moderate Pembina Institute was "concerned" that the plan prioritizes "industry interests over science-based environmental protection." Pembina called for an independent scientific review of the plan.

Mr. Liepert took the criticism on both flanks as a sign of success.

"I've been in politics a long time. All I can say is when you've got people unhappy on the right side of you and people unhappy on the left side of you, you've probably found the right middle ground. And I think that's exactly what we've done with the Lower Athabasca," Mr. Liepert said.

Companies that own mineral or oil rights in the Alberta's proposed conservation and recreation areas:

Minerals

• Home Check Incorporated
• Ronald Lyle Smith
• Ronald James Stewart
• Lester Bonnard Vanhill
• 0859953 BC Ltd.
• 547184 Alberta Ltd.
• 877384 Alberta Ltd.
• Athabasca Minerals Inc.
• Fission Energy Corp.
• Graymont Western Canada Inc.
• Thomas Moricet

Energy (Petroleum Natural gas and/or Oil sands tenure)

• Alberta Oilsands Inc.
• Antelope Land Services Ltd.
• Athabasca Oil Sands Corp.
• BP plc
• Canadian Natural Resources Ltd.
• Cenovus Energy Inc.
• Chinook Energy Inc.
• ConocoPhillips
• Harvest Operations Corp.
• Imperial Oil Resources Limited
• Pan Pacific Oils Ltd.
• Scott Land & Lease Ltd.
• Southern Pacific Resource Corp.
• Statoil Canada Ltd.
• Stone Petroleums Ltd.
• Sunshine Oilsands Ltd.
• Bancroft Oil and Gas Ltd.
• Cavalier Land Ltd.
• Koch Exploration Canada G/P Ltd.
• Perpetual Energy Operating Corp.
• Ranger Land Services
• Standard Land Company
• Devon Energy Corp.
• Lende Investments Ltd.
• MEG Energy Corp.
• Rocky Layman Energy Inc.

Source: Government of Alberta