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07/12/2021

Alberta buys Sturgeon Lake refinery stake

Mounting contractual costs force government’s hand.
Kelly Gray
Editor, Octane
Kelly Gray profile picture

Last week the Alberta government announced it had acquired a 50% ownership in the Sturgeon Lake Refinery.

The deal makes the Alberta Petroleum Marketing Commission (APMC) a 50% equity partner and will restructure the refinery project’s finances creating savings of close to $2billion over the term. The province also agreed to supply bitumen to the facility to the year 2058.

The Sturgeon Lake Refinery began processing bitumen feedstock in June of this year. The project initially was expected to cost $5.7 billion. However, cost overruns and delays pushed the price tag to near $11 billion, with an operating loss of $500 million in 2020-2021. Overall, the APMC reported a $2.7 billion net loss last year due to a large extent on the Sturgeon Refinery contract.

According to Alberta Energy Minister Sonya Savage, the best option was to reduce the mounting long-term costs to provincial taxpayers. “We couldn’t get out of the contracts, so we had to step in further,” she said in media reports where she remarked that it took over a year to negotiate the agreement, including refinancing debt to free up about $1 billion in cash flow over five years thanks to preferential interest rates.

Under the new deal, the North West Redwater Partnership will pay Canadian Natural Resources Ltd. (CNRL) $400 million, and Northwest Refining will receive $425 million in accelerated toll payments. Northwest Refining will give up its equity stake, letting CNRL and the government share ownership. In total, CNRL and Northwest Refining would have earned more than $1 billion over the original 30-year tolling agreement. Under the new deal, they receive a total of $825 million earlier.

The facility northeast of Edmonton is designed to process approximately 79,000 barrels per day of diluted bitumen from