Energy miscalculation could cost more than $100M

AG's report points to confusion over pricing in deal with province

Darcy Henton, Edmonton Journal

Published: Saturday, October 03, 2009

Alberta's auditor general says a disagreement between oilsands giants Suncor and Syncrude could cost taxpayers$100 million this year, and much more in the future if it is not resolved in the province's favour.

Fred Dunn said in his annual report that Suncor and Syncrude have been paying royalties based on a bitumen price that is half of what all other oilsands producers pay.

While the companies have since agreed to pay the provincial price, the issue is likely to go before a dispute resolution panel, he said.

Auditor General Fred Dunn releases his semi-annual report on Friday in Edmonton.

Greg Southam, The Journal

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"If the department is unsuccessful in upholding their interpretation of the bitumen valuation methodology applicable to Crown agreements, this could result in significantly less royalty to the Crown," Dunn said in a report released Friday.

The royalty agreements, which were restructured last year following a royalty review, run until 2016.

Dunn said he can't understand why there's confusion over the pricing methodology set out in the deal.

"I can't really answer as to why was it not clear when they entered into these agreements. You would expect in an agreement, when you negotiate over a lengthy period of time, that all parties when they enter into it understand what it means," he told reporters. "You don't expect that when you go into signing an agreement that there's uncertainty on either side as to what is expected or required."

He wouldn't speculate on the cost to taxpayers over the lifetime of the contract, except to say it would be "a very significant amount."

"We want to encourage the department and operators to work this out and avoid what could be a subsequent lawsuit," he said. "It could be lengthy and expensive."

David Swann, leader of the opposition Liberals, questioned the competence of the governing Conservatives.

"What can you say about a government that doesn't know what it is doing?" he said. "This government is incompetent. The question is, is it also corrupt?"

A blue-ribbon royalty review panel had suggested the government impose a new tax on oilsands bitumen, rather than revisiting the generous royalty deals with the oilsands pioneers. But the Stelmach government rejected the recommendation and opted to negotiate new deals with Syncrude and Suncor that were to be more favourable to Albertans.

Alberta Energy spokesman Jerry Bellikka conceded the situation may end up in mediation.

"It will be up to the companies," he said.

"We're taking the stand that the price is the price and that's what is owed, and they're taking the stand that the price is different."

A spokesman for Syncrude said it would be premature to comment on a report that was just released. Suncor officials did not respond to requests for an interview.

The auditor general also found "significant errors" in calculations performed by Alberta Energy.

He said the department has made calculations over the last three years that were off by $60 million to $237 million.

Since the department seldom meets deadlines to file its financial reports with the Treasury Department, there is a risk that the errors may not be found in a timely manner, the auditor general reports.

Bellikka said the department has taken steps to improve its financial reporting and the errors noted in the report were detected by the department-- not the auditor general.

dhenton@thejournal.canwest.com

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