CALGARY, Oct. 26 /CNW/ - (TSX - COS.UN) - Canadian Oil Sands Trust
("Canadian Oil Sands") today discusses the impact of Crown royalty changes for
oil sands projects announced yesterday by the Alberta government.
Effective 2009, the government is planning to implement a sliding scale
royalty rate for oil sands projects ranging from one to nine per cent
pre-payout and 25 to 40 per cent post-payout that responds to the price level
of West Texas Intermediate (WTI) crude oil. The pre-payout rate will start at
one per cent of revenue and increase for every dollar oil is priced above
US$55 per barrel, to a maximum of nine per cent of revenue when oil is priced
at US$120 or higher. The net royalty applied post-payout will start at 25 per
cent of net revenue and increase for every dollar oil is priced above US$55
per barrel up to a maximum of 40 per cent of net revenue when oil reaches
US$120 or higher.
"The significant increase in Crown royalties is a choice made by the
Alberta government to respond to voter demands to extract more revenue
directly in the form of royalties as opposed to pursuing the fuller potential
of the resource through higher industry investment, which generates several
times more in value through economic activity, employment and other benefits
than do royalties," said Marcel Coutu, President and Chief Executive Officer
of Canadian Oil Sands. "Furthermore, by reducing our industry's profitability,
these changes likely will reduce oil sands activity. Some projects may no
longer proceed on the same timetable, if at all, and some of the lower grade
oil sands resource, which form part of every project, may never be recovered
due to a now higher economic threshold."
Mr Coutu added: "It remains to be seen whether this new regime will
generate the same strong economic activity and prosperity enjoyed by Alberta
under the generic Crown royalty regime over the past 10 years of its tenure.
Syncrude and Canadian Oil Sands, with their competitive historic cost base,
will persevere with current operations, and will work hard to retain the
economic viability and timeline of Syncrude's expansion plans."
The Alberta government acknowledges that a legal contract exists between
the government and Syncrude, establishing current Crown royalty terms to the
end of 2015, and accordingly, the government has established a 90 day period
during which to renegotiate the terms. Canadian Oil Sands and other Syncrude
owners are willing to discuss any fair and equitable treatment but any
transition to the new generic royalty terms must recognize and preserve our
legal rights to the embedded value in our contract.
Syncrude also retains the option to 2010, as part of this same Crown
Agreement, to convert to a bitumen-based royalty, consistent with the rest of
the industry. Prior to the option being elected, a market-based bitumen
valuation methodology needed to be established, which now appears to have been
addressed under the new royalty framework.
Under the government's initiative, Alberta and Syncrude's owners have
undertaken to negotiate in good faith, both the conversion to a bitumen-based
royalty plus an equitable solution to offset Syncrude's transition to the
higher generic royalty rate prior to 2016.
Said Mr. Coutu: "While we are open to honest and productive discussions
with the Alberta government, we must ensure that our legal rights are
preserved. We would expect that the Alberta government would honour the
contractual commitment it made to the Syncrude owners, which induced the
owners to spend over $8.5 billion of capital in the past five years. Our
investment has resulted in significant benefits to the province: providing
jobs to over 5,000 people, $1.2 billion in Crown royalties expected to be paid
at the 25 per cent net revenue rate by Syncrude in 2007 alone, and further
economic contribution of roughly four times that through capital and operating
activities, with expenditures of $4.2 billion in 2006."
Located near Fort McMurray, Alberta, Syncrude Canada operates large
oil-sands mines and an upgrading facility that produces a light, sweet crude
oil on behalf of its joint venture owners, which include Canadian Oil Sands
Limited, ConocoPhillips Oilsands Partnership II, Imperial Oil Resources, Mocal
Energy Limited, Murphy Oil Company Ltd., Nexen Oil Sands Partnership, and
Petro-Canada Oil and Gas.
Canadian Oil Sands provides a pure investment opportunity in the Syncrude
Project through its 36.74 per cent working interest. The Trust is an
open-ended investment trust managed by Canadian Oil Sands Limited and has
approximately 479.3 million units outstanding, trading on the Toronto Stock
Exchange under the symbol COS.UN.
Advisory: In the interest of providing Canadian Oil Sands (the "Trust" or
"we") unitholders and potential investors with information regarding the
Trust, including management's assessment of the Trust's future plans and
operations, certain statements throughout this press release contain
"forward-looking statements". Forward-looking statements in this release
include, but are not limited to, statements with respect to: the impact of
proposed royalty changes on Syncrude and any potential discussions or actions
involving a renegotiation of the existing Crown royalty agreement.
You are cautioned not to place undue reliance on forward-looking
statements, as there can be no assurance that the plans, intentions or
expectations upon which they are based will occur. By their nature,
forward-looking statements involve numerous assumptions, known and unknown
risks and uncertainties, both general and specific, that contribute to the
possibility that the predictions, forecasts, projections and other
forward-looking statements will not occur. Although the Trust believes that
the expectations represented by such forward-looking statements are
reasonable, there can be no assurance that such expectations will prove to be
correct. Some of the risks and other factors which could cause results to
differ materially from those expressed in the forward-looking statements
contained in this press release include, but are not limited to: government
regulatory changes, the uncertainty of any legal actions and results from such
legal action, and such other risks and uncertainties described from time to
time in the reports and filings made with securities regulatory authorities by
the Trust. We would refer you to the risks and assumptions further outlined in
the Trust's annual information form and annual and quarterly financial
Canadian Oil Sands Limited
President & Chief Executive Officer
Units Listed - Symbol: COS.UN
Toronto Stock Exchange
For further information:
For further information: Siren Fisekci, Director, Investor Relations,
(403) 218-6228, email@example.com, Web site: www.cos-trust.com