Alberta takes 50 percent equity stake in Sturgeon Refinery, estimates saving taxpayers $2 billion

Under the acquisition deal, the Alberta government became a 50 percent equity partner in Sturgeon Refinery, transferring the ownership interest previously held by North West Refining. Canadian Natural Resources Limited (Canadian Natural) will also have 50 percent equity. They were paid $425 million and $400 million to forego future tolling revenue, respectively.

"This timely and necessary step will optimize the refinery's value and give taxpayers greater control over its operations," said Alberta energy spokesperson Jennifer Henshaw. The government now has an equal vote in the control of the refinery, to which it is the majority toll payer.

Before the Alberta government's announcement via press release on Monday, the Sturgeon Refinery was owned and operated by North West Redwater Partnership, which was held in an equal 50 - 50 split by North West Refining Inc. and CNR (Redwater) Ltd., a subsidiary of Canadian Natural.

The Sturgeon Refinery is designed to process approximately 79,000 barrels per day of diluted bitumen from Alberta's oil sands into higher-value products like low-carbon low-sulphur diesel, vacuum gas oil, diluent and natural gas liquids.

The Sturgeon Refinery also incorporates carbon capture into its design. The captured CO2 is exported to the Alberta Carbon Trunk Line, and the end-users sequester it, a source of revenue for the project. The CO2 captured is equivalent to emissions from 300,000 cars annually.

In April 2020, the Sturgeon Refinery successfully transitioned from primarily processing synthetic crude feedstock to bitumen feedstock and reached commercial operations on June 1, 2020.

"This process will not cost taxpayers any additional funds than the government would otherwise be obligated to pay as a toll payer. Through the agreement, the government can capture the value of processing bitumen as both a toll payer and facility owner," continued Henshaw.

The province government signed onto the project at an initial cost of $5.4 billion, but costs have doubled since last year to close to $11 billion.

Canadian Natural will help maximize efficiency and production capacity for the benefit of the entire value chain. This includes looking at ways to improve uptime, enhance operating efficiency and costs.

Henshaw said that by assuming an ownership position, there would be "greater government returns" in the project's upside.

"We are taking action to get a better deal for taxpayers and reducing long-term costs," said Alberta Energy Minister Sonya Savage. "This agreement provides more economic certainty, which will benefit Albertans today and into the future. We look forward to our renewed arrangement with the refinery’s operator, the North West Redwater Partnership, in the years to come."

According to the government press release, the estimated $2 billion in long-term savings improves net present value (NPV) for taxpayers through the government. Henshaw claims this will be less of a financial commitment for the government over time. Net present value is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

The plan also frees up $1 billion in cash flow to the government over the next five years. The additional cash flow is a result of the restructuring. The agreement includes a 10-year extension of the processing agreement to 2058.

The restructured deal also reduces the previous operational risks under the original contracts by significantly streamlining the ownership of the Sturgeon Refinery. The Alberta Petroleum Marketing Commission (APMC) manages the government’s commitment to the Sturgeon Refinery. APMC's previous commitments included responsibility for 75 percent of the refinery's feedstock and a 30-year processing agreement. The Sturgeon Refinery contributed to a $500-million operating loss for the APMC last year.