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Canada's Alberta temporarily tweaks environmental liability for oil sands mines

05/06/2021 | 05:01pm EDT
FILE PHOTO: A truck drives down a street at Syncrude's oil sands operation near Alberta

CALGARY, Alberta (Reuters) - The Canadian province of Alberta said on Thursday it will allow oil sands mining companies to change how they calculate environmental liabilities this year, to take into account the wild swings of 2020, when oil prices turned negative.

Producers would be on the hook for billions of dollars in extra security payments if they calculated liabilities under the old formula, Alberta government officials told a news conference. However, that cash would likely have to be repaid to companies next year because oil prices have recovered.

Canada's oil sands hold the third-largest crude reserves in the world. Around 50% of oil sands output, roughly 1.5 million barrels per day, comes from seven huge strip-mining operations in northern Alberta owned by Imperial Oil, Canadian Natural Resources Ltd and Suncor Energy.

The province requires companies to pay security to cover the cost of environmental clean-up at the end of the mines' lives. If the value of a company's assets drop too low compared with its liabilities, it is required to pay extra security.

The crude price collapse last year dragged down the value of oil sands mining assets, which would have triggered billions of dollars in additional payments.

"This is meant to be a more accurate calculation of the actual asset value," said Lisa Sadownik, an official with Alberta Environment and Parks. "It is a short-term blip in the price of oil that has caused this impact to their assets."

Additional security payments have never been triggered before and the companies did not ask for the one-off change to the formula, she added. Producers will be able to base asset value on a formula known as "deemed netback," which is revenue, minus operating costs, divided by sales volume.

In 2015 Alberta's auditor general said the calculation for liability payments should be reviewed. Sadownik said a longer-term solution will be in place next year.

Alberta holds just under C$1 billion ($822.37 million) in security for oil sands mines.

($1 = 1.2160 Canadian dollars)

(Reporting by Nia Williams; Editing by Dan Grebler)

By Nia Williams


© Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
IMPERIAL OIL LIMITED 1.66% 41.67 Delayed Quote.72.48%
SUNCOR ENERGY INC. 2.09% 31.27 Delayed Quote.46.46%
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