Page 5 - NorthAmOil Week 35 2022

NorthAmOil COMMENTARY NorthAmOil

Canada’s oil sands
producers are
contending with longer-
term uncertainties over
federal energy and
climate policy.

this windfall to repay some of its debt, amongst ($64mn), Jackpine’s from CAD16.2mn
other measures. It will pay off CAD13.4bn ($12.3mn) to CAD411mn ($313mn), Jack-
($10.2bn) in debt this year, representing the fish’s from CAD4.3mn ($3.3mn) to CAD25mn
largest single-year debt repayment in its his- ($19mn) and Orion’s from CAD2.8mn ($2.1mn)
tory, as well as allocating CAD5.2bn ($4.0bn) to to CAD30mn ($22.8mn).
debt due in the next fiscal year. Taxpayer-sup- Oil sands producers themselves have contrib-
ported debt is now forecast to fall to CAD79.8bn uted to the pace at which projects are moving
($60.8bn) by March 31, which is CAD10.4bn into the post-payout bracket. Over the past few
($7.9bn) less than originally projected in the years, producers have held off on investing in
current budget. new projects or expanding existing ones, prior-
itising debt reduction and shareholder returns
Paying off projects instead. As a result, more projects are moving
Oil sands producers in the province, meanwhile, from the pre-payout to the post-payout bracket, The Alberta
are taking advantage of higher oil prices to pay but there are few new facilities being added to
off projects earlier than previously planned. The the pre-payout group. government said
Alberta government said five oil sands projects According to the Alberta government, oil and five oil sands
had reached “post-payout” royalty status last gas investment is expected to rise about 35% in
year and that two more were expected to do so the province this year, but most of the increase projects had
each year between 2022 and 2025. reflects higher input costs. No new oil sands
Thanks to Alberta’s two-tier royalty structure, projects are known to be advancing. reached “post-
operators pay lower royalty rates when they are While moving to the higher royalty rate
still paying off the costs of their initial project bracket will mean an extra cost for oil sands payout” royalty
investments. Once they pay off those costs, operators, it nonetheless comes as oil prices status last year.
oil sands projects are pushed into the higher remain high and producers continue to post
bracket for royalty payments. higher profits. But in the longer term, the oil
Those that reached post-payout status sands continue to face considerable uncertainty
recently are Suncor Energy’s Firebag, Strath- as producers consider how federal decarbonisa-
cona Resources’ Tucker and Orion facilities tion policies and other – often environment-re-
and Canadian Natural Resources Ltd’s (CNRL) lated – pressures will affect their future plans.
Jackpine and Jackfish projects. According to Until this is clarified, no new investments in oil
Bloomberg, between 2020 and 2021, Fire- sands projects are likely. And even if it does seem
bag’s royalty rate has risen from CAD19mn as though new projects can go ahead, operators
($14.5mn) to CAD314mn ($239mn), Tuck- look set to run into considerable regulatory hur-
er’s from CAD1.6mn ($1.2mn) to CAD84mn dles and, potentially, public opposition.™

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