Regina– In all the furor over the austerity budget brought down by the provincial government on March 22, one item could have a substantial impact on the two refinery proposals currently in the works for Saskatchewan’s oilpatch.
Husky Energy Inc. is proposing a 30,000 bpd asphalt refinery at Lloydminster, adjacent to its upgrader and ethanol plant. Startup Dominion Energy Processing Group, a Canadian subsidiary of Tempe, Az.-based Quantum Energy, Inc., is proposing a 40,000 bpd light oil refinery near Stoughton. Both have held open houses in recent weeks in their respective areas. The Stoughton refinery is now pegged at approximately $750 million, whereas Husky has not yet given a dollar figure for theirs.
Combined, the two refineries would be able to process a little under one-sixth of Saskatchewan oil production.
On page 10 of the budget document, under the heading of “Modernizing and Expanding the Tax System,” it states, “… the Oil Processing Investment Incentive encourages processing of our oil resources in the province, with royalty credits on new production.”
Pipeline Newsspoke to Energy and Resources Minister Dustin Duncan by phone on March 23, asking him to elaborate on what this means.
Duncan said, “It is a new growth incentive that will target value-added oil processing. It’s basically designed to attract new investment into the province, to add value to oil through processing.
“It’s basically for approved investment projects. They’ll have the ability to receive a royalty credit on new production, up to 10 per cent. So all new oil production, up to 10 per cent. There’s a maximum in terms of how much. There’ll be a cap on it.
“Earned royalty credits in the construction phase can also be transferred to an oil producer, so the value-added investor need not produce their own oil feedstock, but they could transfer that credit to whatever oil company that does provide the feedstock for processing.”
When he says processing, refining and asphalt plants operations are included. Saskatchewan currently has the Regina Consumers Co-op Refinery, Lloydminster Upgrader and Moose Jaw asphalt refinery within its borders. (Lloydminster’s existing 30,000 bpd asphalt refinery falls just across the line, in Alberta.) This new incentive would not apply to existing projects, but would apply on expansions to existing facilities.
Duncan added it would also include “anyone else that is looking at doing a capital project that would see value-added processing to oil. It’s not limited to two companies, but we know of at least two that are in discussions that would potentially benefit from this.”
“As a ministry, we’re looking to see if we can attract those types of investments to the province. Those are two that are known, but the program isn’t limited to the two that are publicly known. There may be opportunities for other to take advantage of the processing program.”
The royalty credit would be capped at up to 10 per cent, to a maximum of $75 million per approved project. Duncan explained, “If a company was going to transfer it to an oil producer because they don’t have their own feed stock, they may have one producer, or they may have multiple producers that they would be transferring it to on the feedstock side, but it would be maxed on the feedstock side.”
In the case of a merchant refinery which processes feedstocks it doesn’t produce, that credit could be spread among the producers, but it is $75 million in total for the project, not $75 million per producer.
Those numbers are also in total for the project. There is also a sunset clause. Projects have five years to cash in, after implementation. The government of the day can then decide to continue or allow it to sunset, he explained.
This incentive has been in the works for quite a while. Duncan noted it predated his appointment as Minister of Energy and Resources in August 2016. “I wasn’t involved in the initial concept. My understanding was, certainly on the Husky side, we knew they were interested in doing something on the asphalt side. It was a natural discussion between government and the proponent on what we need to do to be competitive. We know Alberta had announced similar transferable royalty credits for petrochemical processing facilities. I think they announced that last year. We wanted to be in the game, and be competitive to get these types of investments.”
