From the Globe & Mail – April 5, 2011

The Alberta government has proposed new environmental rules that would
revoke a number of oil sands leases – including those which already have
active projects – in an effort to protect sensitive habitat, wildlife
and forest land in the most industrialized area of the province.

The government on Tuesday unveiled a plan to set aside two million
hectares, or about 20 per cent, of Alberta’s oil sands zone, for
conservation. Lease maps of the oil sands show that a number of major
energy producers have properties in the area, including Nexen Inc., (NXY-T23.88-0.32-1.32%) Suncor Energy Inc., (SU-T42.76-0.84-1.93%) Canadian Natural Resources Ltd. (CNQ-T47.25-0.70-1.46%) and Imperial Oil Ltd. (IMO-T51.08-0.94-1.81%)

Alberta is under harsh international scrutiny for the way it manages the
development of the oil sands, but Tuesday’s announcement sent shock
waves rippling across an industry that has spent vast sums of money to
acquire land in the region. The prospect of having parts of it ripped
away prompted one executive to compare Alberta to Venezuela, and to warn
that any expropriation of land may frighten away investment crucial to
developing one of Alberta’s most important economic resources.

“It’s like taking away money,” said a senior industry source who requested anonymity. “It’s really messy.”

Fourteen energy companies and 10 mineral outfits have assets in the
proposed conservation areas. Conventional oil and gas companies will be
governed by softer regulations, allowing them to keep their leases and
further develop projects, although under greater scrutiny, government
officials said. New leases will not be issued for land in the protected
zones.

Mel Knight, the provincial minister for Sustainable Resource
Development, said he is prepared to deal with any backlash from affected
companies. However, he said repatriation plans have happened before,
with compensation helping to soothe the pain.

That compensation will be negotiated between companies and the
government and could include refunding what companies paid to the Crown
for the leases and development and reclamation costs, plus interest.

However, Mr. Knight is willing to consider concerns that energy and
mineral companies may have regarding the proposed rules. Tuesday’s
proposal is still a draft.

“This is not written in stone,” Mr. Knight said in a press conference. “This is a consultation.”

The consultation process is scheduled to wrap up in 60 days, and the
minister said he wants to have the final draft of legislation before
Cabinet in 90 days.

While energy companies and other market players were caught off guard by
the announcement, Mr. Knight noted the government has been openly
working on a plan for the Lower Athabasca Region. Energy companies were
part of the consultation process and should have had a reasonable idea
whether they would be among those affected by the new rules, he said.

The new rules will hit some of Canada’s largest oil sands players,
including Canadian Natural Resources Ltd., Cenovus Energy Inc., and
international players like BP plc and Statoil. Small outfits also have
holdings in the protected zones, and companies are already firing back.

One of them is Sunshine Oilsands Ltd. The government is proposing a
massive Birch River conservation area that falls over a substantial
swath of land the company spent last summer drilling. It found an
estimated 7.6 billion barrels of bitumen in place. It’s not clear how
much, if any, of that will be recoverable. But it is clearly a
substantial resource.

The company says the government was using old data that did not show
what it has discovered there – and plans to lobby hard to have the
protected area changed. The prospect of having that land expropriated is
so surprising that David Sealock, the company’s vice-president of
operations, said he can’t imagine the Alberta government carrying
through with its current plan.

The area in question “represents huge amounts of jobs, huge amounts of
royalties, huge amounts of upside for the public,” he said.

If the government does not back down, however, “it could send a very
negative message to those contemplating investment in the oil sands,”
Mr. Sealock said.

The most controversial issue in the weeks and months ahead is likely to
concern compensation. Sveinung Svarte, the chief executive of Athabasca
Oil Sands Corp., said companies will resist letting go of their land in
exchange for simply a refund of the money they have already paid.

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