Petro-Canada still plans oil sands developments

Petro-Canada is still planning major oil sands developments in Alberta, following announced changes to the province's royalty structure, although it is clear that the moves will mean higher costs, an executive said on Friday.

Imperial Oil Ltd., meanwhile, said it was still assessing the potential impact on its plans for the C$8 billion ($8.3 billion) Kearl oil sands project, also in northern Alberta.

Petro-Canada is conducting detailed engineering and design work on the C$26 billion Fort Hills oil sands mining development and the steam-driven MacKay River expansion, with decisions on funding expected next year.

"With what we've seen, that still is the right path for us to be taking, so we're still going full speed ahead to get to those decision points," Petro-Canada's vice-president, Andrew Stephens, said.

"There's no question that the decisions yesterday have had an impact on the economics, but what we're saying is: Let's keep working."

In the new fiscal regime, Alberta Premier Ed Stelmach rejected the idea of a new tax on oil sands production.

But the amount companies pay for oil sands projects before capital costs are recovered will range between 1 percent and 9 percent of revenues, with increases starting when oil trades at $55 a barrel and a cap set at $120 a barrel.

After capital costs are recovered, royalties will range from 25 percent to 40 percent of net profits.

Imperial spokesman Pius Rolheiser said the changes are "substantial" and will mean a jump in costs at Kearl, a project his firm is planning jointly with Exxon Mobil Corp.

"Before making a decision on project funding, we'll complete further evaluations and we will obviously take into account the higher royalties that will be imposed on Kearl," he said.

Imperial and Petro-Canada are among the partners in the Syncrude Canada Ltd. oil sands development. Rolheiser said his company supports negotiating with the Stelmach government over a transition from the development's current royalty structure.