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By Jeffrey Jones and Scott Haggett
CALGARY, Alberta, Nov 18 (Reuters) - Syncrude Canada Ltd has signed on to Alberta’s new royalty terms after holding out for nearly a year, but the world’s largest oil sands producer will get a six-year transition, it said on Tuesday.
Meantime, Syncrude will pay an additional C$975 million ($792 million) to the province between 2010 and 2015.
The deal, which follows a similar one with Suncor Energy Inc (SU.TO) in January, caps Alberta Premier Ed Stelmach’s quest to move his province’s main industry to a royalty system aimed at capturing C$1.4 billion a year more for Albertans.
Energy companies start paying higher economic rent for oil and gas production under a generic system at the start of 2009, but Syncrude and Suncor had contracts guaranteeing terms through 2015, requiring the negotiations.
“We said right from the beginning that we would not rip up contracts — instead we would work together to renegotiate some of the terms as we have done in the past,” Stelmach told reporters in the provincial capital of Edmonton.
“The goal was to make sure Albertans continue to receive value for the oil sands development while providing certainty for this important industry. I’m happy that we’ve been able to achieve both.”
The oil sector has been highly critical of the royalty changes since they were announced in Oct. 2007, and companies have said the recent downturn that has pulled oil to just above $50 a barrel from highs of $147 in July means a double whammy.
Energy Minister Mel Knight has said the changes will go ahead, but he is open to discussing ways to cushion the blow.
Under Syncrude’s deal, its joint-venture owners will start paying royalties based on raw bitumen, less operating and capital costs, rather than on fully upgraded synthetic crude, starting in January.
The move will mean C$1.25 billion in additional payments for the province over 25 years
Syncrude owners, led by Canadian Oil Sands Trust COS_u.TO, and the government also agreed to establish new transition terms for the project, the two sides said.
Until the end of 2015, Syncrude will pay base royalty rates of 25 percent of net bitumen-based revenues or 1 percent of gross revenues, whichever is higher, plus another royalty of up to C$975 million, paid in six installments.
Genuity Capital analyst Phil Skolnick said the changes should not mean a major shift in the outlook for Syncrude, which has said it may double its production to 700,000 barrels a day in the next several years.
“There are some puts and takes in there but all in all it doesn’t seem to do be doing a whole lot,” Skolnick said. “Everyone knew they had the option to switch to bitumen.”
Still, the agreement provides stability for Syncrude to proceed with day-to-day operations and expansions, and adds to the provincial coffers, Canadian Oil Sands Chief Executive Marcel Coutu said.
In the past two months, numerous oil sands developers have announced delays to billions of dollars in projects as oil prices have fallen and financial markets have sputtered.
$1=$1.23 Canadian Editing by Rob Wilson