The Canadian Growth Fund (CGF) has agreed to shoulder half of the CAD 2 billion ($1.5 billion) capital for planned carbon capture and storage (CCS) projects by oil-sands producer Strathcona Resources Ltd.
The CCS projects would be built on Strathcona’s steam-assisted gravity drainage (SAGD) oil sands facilities in the provinces of Alberta and Saskatchewan, the parties said in separate statements about the new partnership. Calgary, Alberta-based Strathcona expects the projects to capture up to two million metric tons of carbon dioxide (CO2) a year.
After the definitive agreement with the public investment vehicle, Strathcona will now work on the final stage of the front-end engineering design for the first project. Strathcona plans to make a final investment decision (FID) on the first project mid-2025.
Strathcona expects the first project to be in Saskatchewan, where the provincial government awarded it subsurface CO2 sequestration rights earlier this year. According to Strathcona, it is the only oil-sands producer to have obtained government CCS approval in Canada.
All of Strathcona’s oil sands facilities in the Cold Lake and Lloydminster regions sit directly atop reservoirs that are conducive for local CO2 injection, according to the company.
“This differs from the majority of Canada’s oil sands facilities in the Athabasca region of Northern Alberta, which must be captured and transported to a suitable injection site before sequestration”, Strathcona said in its statement.
Associated emissions from its production of 90,000 barrels per day of heavy oil and bitumen in its SAGD assets stand at about three million metric tons per annum (MMtpa), according to Strathcona.
The CGF, which became operational last year with CAD 15 billion ($11 billion) in capital, has committed an initial $500 million under its share of cost for the projects. The deal with Strathcona is subject to agreement between the partners on final investment terms, regulatory approvals and other customary conditions.
“Strathcona will retain full ownership of the CCS infrastructure and associated carbon credits and will repay CGF’s investment over time out of the actual cash flows generated by the CCS infrastructure, based on actual captured volumes and costs”, Strathcona said, adding there are no fixed payments and minimum volume commitments.
“As part of the arrangement, Strathcona has agreed to an area dedication of the CO2 volumes from its SAGD facilities and will guarantee a fixed price of carbon to the partnership which will serve as a hedge to Strathcona’s annual carbon tax obligations”, it said. Each project’s fixed price per metric ton will be set simultaneously with each FID.
Strathcona expects to offset substantially all its share of expenditure through the federal CCS investment tax credit and other grants. “For Strathcona, the economic rationale for investing in CCS is to mitigate its current and future carbon tax obligations”, it said.
“Carbon taxes form a significant part of Strathcona’s current operating costs, totaling approximately $65 million [47.7 million in United States dollars] per annum under the current carbon tax regime, a figure which may increase over time based on current legislation”, the company added. “Expected future carbon taxes are also fully reflected in Strathcona’s independently evaluated reserves, where they reduced the net present value of its proved reserves by approximately $1.9 billion [1.4 billion in U.S. dollars] on a PV-10 basis, or $8.78 / share [6.4 in U.S. dollars], at year end 2023 ($2 billion and $9.31 / share on a PV-10 basis for its proved plus probable reserves)”.
The CGF noted that the partnership with Strathcona, the fund’s sixth investment, is a first-of-its-kind approach to CCS risk-sharing by leaving the carbon pricing risk to the remitter while the financer shares in the risks for project costs and capture efficiency.
“The SAGD CCS Partnership is expected to enhance the long-term competitiveness of one of Canada’s most carbon-intensive industries by advancing large-scale commercial CCS projects over time and demonstrating decarbonization outcomes in a fiscally prudent manner”, the fund said in its statement.
Canada Energy and Natural Resources Minister Jonathan Wilkinson welcomed the partnership, saying, “As the world moves towards a low-carbon future, the Investment Tax Credits are helping to keep Canada’s resource sector and Canadian workers competitive”.
“Since the tax credits were officially established just three weeks ago, we have seen companies act quickly to take advantage of them”, Wilkinson said.
To contact the author, email jov.onsat@rigzone.com