Alberta's Oil Sands Companies Recommend Royalty Framework that Supports Resource Development

    CALGARY, Oct. 11 /CNW/ - A concerned group of in situ oil sands
development corporations submitted a letter today to the Government of Alberta
in a joint response to the Report of the Alberta Royalty Review Panel (the
"Panel"). The companies assert that the Report fails to account for the many
ways in which Alberta's smaller, entrepreneurial firms contribute to our
economy by taking on huge risks and driving the technologies that make the
Alberta Advantage possible.
    The group, called the Alberta In Situ Oil Sands Alliance (the "Alliance")
says that the Panel appears to have overlooked the fact that Alberta's oil
sands are costly to develop and produce. The economic terms must be fair and
balanced for the province and the industry in order to attract the substantial
financial resources needed to fund these world-scale projects. Alberta-based
corporations, and the citizens of Alberta, will face significant and adverse
consequences if the Panel's recommendations are implemented.
    The Alliance's members and many other small Alberta companies play a very
important role in driving technology forward and unlocking value for the
benefit of Albertans. Their business models depend on finding economic and
environmentally friendly solutions for developing Alberta's largest resource.
The expertise that crafts these technologies resides in the Albertans that
staff these companies.
    For Alberta's homegrown expertise to be mobilized, the province must
continue to be an attractive jurisdiction for investors.
    Multi-billions of new investment dollars will be required in order to
cultivate the untapped in situ resources of Alberta. These untapped resources
represent approximately 80% of the estimated recoverable barrels of bitumen in
the province with associated future royalties representing multi-billions of
dollars for Albertans.
    The Panel has grossly underestimated the costs associated with oil sands
projects. In the Alliance's experience, the costs used in the Panel's
calculations are only two-thirds of actual amounts currently being invested on
oil sands projects - resulting in egregious errors and incorrect conclusions.
    The province has created advantages for all Albertans through its
existing royalty program which is based on a partnership with industry. The
current regime enables reinvestment in technology, improvements in recovery
techniques, emissions management and the development of frontier resources
that will benefit Albertans now and in the future. The economic environment
generated through this process is at risk.
    A workable solution for all stakeholders that will deliver Albertans
continued long-term prosperity is needed. To that end, the Alliance, which
believes such a solution is achievable, has proposed the following five points
for the Government of Alberta to consider:

    Ability to pay: Retain a net profit structure which allows for
risk-taking by companies and a balanced share of benefits for Albertans.

    Share in the upside: Adopt a scaled royalty rate structure that increases
based on oil and gas prices above the break-even price for new projects.

    Current costs: Use credible, up-to-date project costs and projections to
prepare a fair and balanced economic analysis.

    Rates of return: Need to be acceptable and competitive to allow new
projects to attract the necessary capital to develop Alberta's resources for
the benefit of Albertans.

    The Alliance's overall recommendation is for the province to consider all
of the benefits to Albertans from the development of our oil sands resource.
An inappropriate adjustment in the royalty regime may have substantial
unintended negative consequences for employment, income tax revenue, and Crown
bonus revenue for our province.
    The parties involved in the Alliance include Athabasca Oil Sands Corp.,
Laricina Energy Ltd., MEG Energy Corp., and OSUM Oil Sands Corp.
    A copy of the full letter sent to the Government of Alberta from the
Alliance can be found at any of the following links:
    To date, the Alliance members have paid roughly $300 million in bonus
revenue to the province representing recoverable resources of approximately
13 billion barrels. Cumulative estimated capital expenditure thus far by the
Alliance totals approximately $2.5 billion in seismic, core hole drilling,
plant construction and SAGD drilling activities. The Alliance intends to
invest in the range of $7 billion within Alberta over the next five years to
advance its projects.
    In terms of challenging and rewarding jobs, the development of our
resources will generate significant direct and indirect employment throughout
Alberta. It is anticipated that the Alliance will create over 20,000 jobs
during peak drilling and construction times. These well paying jobs provide
significant opportunity for people and organizations across Alberta and
throughout Canada, including aboriginal and rural communities.

    Certain statements contained in this press release are "forward-looking
statements". The projections, estimates and beliefs contained in such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause actual results or events to differ materially
from those anticipated in any forward-looking statements. It is believed that
expectations reflected in those forward-looking statements are reasonable;
however assurance cannot be provided that these expectations will prove to be
    The reader is cautioned not to place undue reliance on forward-looking

For further information:

For further information: Information on each of the parties involved in
the Alliance can be obtained as follows: Bill Gallacher, Chairman, Athabasca
Oil Sands Corp., Phone: (403) 237-9949, Fax: (403) 264-4640,;
Glen C. Schmidt, President and Chief Executive Officer, Laricina Energy Ltd.,
Phone: (403) 750-0810, Fax: (403) 263-0767,,; W.J. (Bill) McCaffrey, President and Chief
Executive Officer, MEG Energy Corp., Phone: (403) 770-0446, Fax: (403)
264-5324,; Richard Todd, Chairman and Chief Executive
Officer, OSUM Oil Sands Corp., Phone: (403) 283-3224, Fax: (403) 283-3970,,

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