Blog | May 04, 2012

Alberta is suing the partners of Canada’s second-largest oil sands project for $100-million over a dispute tied to royalty payments.The provincial government filed a lawsuit against Syncrude Canada Ltd. and its six joint venture partners Monday. The battle is tied to the government’s decision to change the royalty framework effective January, 2009. However, the new rules are not in dispute. Instead, the two sides disagree on how much Syncrude must pay for the oil processed as it transitioned to the new payment structure.While government has turned to the courts, it says negotiations have not turned sour.“Negotiations have been going on and they continue to go on and we don’t plan to pursue legal action any further than this at this time,” said Bart Johnson, a spokesman for Alberta Energy. Had the government not filed the lawsuit, its legal window for doing so would have closed, he said. By filing, it keeps its options open if negotiations break down.“We just needed to file the statement in order to beat the possible two-year limitation period to ensure we can take legal action in the future if that’s what it comes to,” he said.Syncrude and Suncor Energy Inc. (SU-T30.19-1.13-3.61%) are Canada’s two oldest oil sands projects. In their infancy, the government supported the mines in order to spur the multibillion-dollar industry. As a result, parts of Syncrude and Suncor’s operations paid royalties under a framework different from the companies that followed them into the bitumen-rich slice of northern Alberta.When Ed Stelmach’s Progressive Conservatives phased out the old royalty framework, Syncrude opted to pay royalties based on the bitumen it produces, rather than the synthetic crude it spits out of its upgrader. Suncor’s royalty structure also changed.Syncrude and its owners “have been unjustly enriched by retention of the royalty proceeds owed” to the government, Alberta says in its legal filing. The province “has been correspondingly deprived of the value of its royalty share.”None of the allegations have been proven in court.Alberta leans heavily on bitumen royalties to fund its coffers. Bitumen is the most important, and fastest-growing, resource in Alberta. The province raked in more than $3.7-billion in royalties from the oil sands in 2010-2011.Canadian Oil Sands Ltd. (COS-T21.92-0.56-2.49%) owns 36.7 per cent of Syncrude, followed by Imperial Oil Ltd. at 25 per cent. Imperial, controlled by Exxon Mobil Corp., operates the mine and upgrading facilities. Suncor Energy Inc., Nexen Inc., Murphy Oil Co. Ltd., Mocal Energy Ltd., and China’s Sinopec also hold stakes.Spokespeople for Canadian Oil Sands and Imperial did not immediately return messages seeking comment. Syncrude and the other defendants have 20 days to respond to the legal filing.Syncrude and Alberta signed an agreement in November, 2008 outlining the new royalty framework, which took effect in January, 2009.This article was published in the Globe and Mail on May 3, 2012. Read the full article on the Globe and Mail website.