CALGARY,
AB, July 10, 2024 /PRNewswire/ - Strathcona
Resources Ltd. ("Strathcona" or the "Company") (TSX: SCR) today
announced a strategic partnership with Canada Growth Fund ("CGF"),
a $15 billion arm's-length public
investment vehicle, for the development of carbon capture and
sequestration (CCS) infrastructure on Strathcona's steam-assisted gravity drainage
(SAGD) oil sands facilities across Saskatchewan and Alberta.
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).
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.
For further information regarding Strathcona's year end 2023 reserves, please
see Strathcona's Annual
Information Form for the year ended December
31, 2023 available www.sedarplus.ca and its letter to
shareholders available here.
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.
Strathcona will provide further
details in coming quarters as the initial project
progresses.
About Strathcona
Strathcona is one of
North America's fastest growing
oil and gas producers with operations focused on thermal oil,
enhanced oil recovery and liquids-rich natural gas. Strathcona is built on an innovative approach
to growth through the consolidation and development of long-life
oil and gas assets. Strathcona's
common shares (symbol SCR) are listed on the Toronto Stock Exchange
(TSX).
For more information about Strathcona, visit
www.strathconaresources.com.
Forward Looking Information
This press release contains certain forward-looking statements
and forward-looking information (collectively "forward-looking
information") within the meaning of applicable securities laws,
which are based on Strathcona's
current expectations, estimates, projections, assumptions and
beliefs. The use of any of the words "believe", "estimate",
"anticipate", "expect", "plan", "predict", "outlook", "target",
"project", "plan", "may", "could", "will", "shall", "should",
"intend", "potential" and similar expressions are intended to
identify forward-looking information. These statements are not
guarantees of future performance, and involve known and unknown
risks, uncertainties and other factors that may cause actual
results or events to differ materially from those anticipated in
such forward-looking information.
In particular, but without limiting the generality of the
foregoing, this press release contains forward-looking information
pertaining to the following: the arrangement between Strathcona and CGF; the construction,
operation and funding of the CCS facilities; CGF's expected
investment in the CCS facilities and Strathcona's repayment thereof; Strathcona's ownership of the CCS
Infrastructure and associated carbon credits; Strathcona entering into an area dedication of
the CO2 volumes from its SAGD facilities; Strathcona's guarantee of a fixed price of
carbon under the arrangement and the expected impact thereof on
Strathcona's carbon tax
obligations; the expected CO2 capture of the CCS facilities; and
targeted FID date and location for Strathcona's first CCS commercial project.
All forward-looking information reflects Strathcona's beliefs and assumptions based on
information available at the time the applicable forward-looking
information is disclosed and in light of the Company's current
expectations with respect to such things as: expectations regarding
current and future carbon tax regime and regulations; ability to
obtain federal CCS investment tax credit and other grants to fund
Strathcona's portion of the
investment under the arrangement; expectations regarding
Strathcona's operations and
financial performance; expectations regarding Strathcona's production volumes, and its
capital program; the availability of third party services;
prevailing and future royalty regimes and tax laws; future well
production rates and reserve volumes; fluctuations in energy prices
based on worldwide demand and geopolitical events; the impact of
inflation; the integrity and reliability of Strathcona's assets; decommissioning
obligations; Strathcona's ability
to generate sufficient cash flows, repay debt and comply with its
financial covenants; and the governmental, regulatory and legal
environment. Management believes that its assumptions and
expectations reflected in the forward-looking information contained
herein are reasonable based on the information available on the
date such information is provided and the process used to prepare
the information. However, it cannot assure readers that these
expectations will prove to be correct.
The forward-looking information included in this press release
is not a guarantee of future performance and involves known and
unknown risks, uncertainties and other factors that may cause
actual results or events to differ materially from those
anticipated in such forward-looking information, including, without
limitation: the risk that the arrangement with CGF may not provide
the anticipated benefits to Strathcona; the risk that CGF may not meet its
funding obligations under the terms of the arrangement; the risk
that the CCS facilities may not reduce emissions attributable to
Strathcona's operations; the risk
that the CCS investment tax credit and other grants may not be
available or available on the terms expected; changes in general
economic, market and business conditions; industry conditions;
actions by governmental or regulatory authorities including
increasing taxes, amending or revoking permits and changes in
investment or other regulations; changes in tax laws and incentive
programs; changes in carbon tax and credit regimes; competition;
the lack of availability of qualified personnel or management;
credit risk; changes in laws and regulations including the adoption
of new environmental laws and regulations and changes in how they
are interpreted and enforced; ability to comply with current and
future environmental or other laws; stock market volatility and
market valuations; ability to obtain required approvals of
regulatory authorities; ability to access sufficient capital from
internal and external sources; and the other factors discussed
under the "Risk Factors" section in Strathcona's Management's Discussion &
Analysis and Annual Information Form, each for the year ended
December 31, 2023, and from time to
time in Strathcona's public
disclosure documents, which are available at www.sedarplus.ca.
The foregoing risks should not be construed as exhaustive. The
forward-looking information contained in this press release speaks
only as of the date of this press release and Strathcona does not assume any obligation to
publicly update or revise such forward-looking information to
reflect new events or circumstances, except as may be required
pursuant to applicable laws. Any forward-looking information
contained herein is expressly qualified by this cautionary
statement.
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SOURCE Strathcona Resources Ltd.