Strathcona expects to be able to eliminate a substantial majority of this future carbon tax liability through the development of CCS, and the unique structure of its arrangement with CGF is expected to allow Strathcona to achieve these reductions without a meaningful upfront capital outlay post-investment tax credits.
Under the terms of the arrangement, CGF will invest up to $1 billion toward CCS infrastructure on Strathcona’s assets, with an initial commitment of $500 million. Strathcona will construct, operate and own the CCS infrastructure, with 50% of the initial capital costs funded by CGF and 50% by Strathcona. Substantially all of Strathcona’s share of capital costs is expected to be recouped through the federal CCS investment tax credit and other grants.
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. The repayment of CGF’s investment will not be subject to any fixed payments or minimum volume commitments and will be driven by the actual performance of each CCS project.
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. Each CCS project’s fixed price per tonne will be set at the time of final investment decision (FID).
The arrangement between Strathcona and CGF has been made possible in part due to the unique characteristics of Strathcona’s oil sands properties. All of Strathcona’s oil sands facilities in the Lloydminster and Cold Lake regions lie directly atop suitable CO2 storage reservoirs, allowing for local injection. 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. In 2024, the Government of Saskatchewan granted Strathcona subsurface CO2 sequestration rights, making Strathcona the first and only oil sands producer in Canada with approval to capture and store CO2.
Strathcona currently produces approximately 90,000 bbls / d of heavy oil and bitumen from its SAGD assets, with associated emissions of approximately three million tonnes of CO2 per annum. The up to $2 billion of combined capital to be deployed through the partnership is expected to capture up to two million tonnes of CO2 per annum, based on preliminary capital cost expectations.
For Strathcona, the economic rationale for investing in CCS is to mitigate its current and future carbon tax obligations. Carbon taxes form a significant part of Strathcona’s current operating costs, totaling approximately $65 million per annum under the current carbon tax regime, a figure which may increase over time based on current legislation. 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 on a PV-10 basis, or $8.78 / share, at year end 2023 ($2 billion and $9.31 / share on a PV-10 basis for its proved plus probable reserves).
Over the past three years, Strathcona has made significant progress towards bringing its first CCS project to FID. The signing of a definitive agreement today with CGF will allow Strathcona to begin its final stage front end engineering design (FEED) work, with a targeted FID date for its first commercial project in mid-2025. Strathcona expects its first CCS project to be in Saskatchewan, given approval to capture and store CO2 in Saskatchewan has already been received. Strathcona is in active dialogue with the Alberta government regarding a similar approval for dedicated carbon sequestration pore space beneath its Cold Lake assets.