by Rick Charland
It was all good news from Saskatchewan this morning as the federal and provincial energy ministers announced agreement on fiscal terms with CONSUMER'S S COOERATIVE REFINERIES LTD to build a $600 million upgrader at Regina and amended the former energy pricing agreement such that a full 50% of the province's oil production will now qualify for the world price.
Moreover, Saskatchewan's energy minister PAUL SCHOENHALS also announced that the one year royalty/tax holidays for new drilling, due to expire at the end of 1983, will be extended for a further two years to the end of 1985.
The proposed upgrader plant to be built in conjunction with Consumer's existing refinery at Regina will be able to process about 50,000 bbl/d of a mixture of Lloydminster, Kindersley, Southwest and other Saskatchewan heavy and medium crude oils. Detailed engineering studies will begin shortly and construction could begin by late 1984 or early 1985 with upgrader plant start up in June 1987.
Both the federal and provincial government will back the project financially, but the wording of the agreement suggests other private sector investors are expected to participate in the project.
Schoenhals noted the upgrader will provide an assured market for Saskatchewan's crude streams and assure the oil industry that exploration and development in the province will be viable for years to come. Currently, the province is relatively dependent on a buoyant export market for its heavier crudes to maintain full production.
A market for heavy crudes will also encourage development of enhanced oil recovery in the province generating new investments while the upgrader plant once on stream will require about 10 million cubic feet per day of natural gas, thereby opening a further market for the province's under developed gas reserves.
The federal government, represented by energy minister JEAN CHRETIEN, also announced it will review the current manner in which New Oil Reference Price quality differentials are calculated. The province of Saskatchewan will participate in this review and an amendment to the energy pricing agreement states that the new system which results "must take due regard of the strategic importance to Saskatchewan and Canada of the development of heavy oil."
The governments recognized that currently the method of regulating crude oil prices results in a smaller difference between the price of light and heavy crudes than on the world market and that to allow an upgrader to proceed, world quality differentials are needed.
The amendments to the energy pricing agreement announced this morning basically follow those set out in the accord on June 30 with the Alberta government: there will be no rollback of the wellhead price of conventional old oil while the NORP price will be extended to all oil previously within the Special Old Oil (SOOP) category.
However, in the case of Saskatchewan this will affect more than just oil developed between 1974 and 1980 (the definition of SOOP oil). The NORP price will also be given to conventional old oil reclassified as special old oil by the province for royalty/tax purposes on July 1, 1982. Thus the world price will also be given to pre1974 heavy oil and marginal oil production (10 barrels per day or less).
Moreover, the amendment further extends the NORP price to incremental production from new and expanded waterflood projects starting operation after June 30 of this year.
The extension of NORP to SOOP production will result in an additional 60,000 bbl/d receiving NORP price supplements slightly more than $4 per barrel for the rest of 1983.