Koch Oil Sands Operating (KOSO) sent a letter to the AER on Wednesday, asking the regulator to cancel its Muskwa SAGD project due to serious concerns in relation to government policy which has deteriorated the economic opportunities of the project. KOSO cites regulations and carbon taxation as the main reasons it will not go ahead with the development. Read the letter below:
Attention: In-Situ Applications & EPEA Applications Departments
RE: Cancellation of Muskwa SAGD Project
Koch Oil Sands Operating ULC (“KOSO”) requests that the EPEA and OSCA approval for the subject project be rescinded before December 31, 2016.
The reasons for requesting the rescindment are primarily related to economic and regulatory uncertainty. KOSO does not believe the current nor medium term economic environment in Alberta will provide opportunity to generate an adequate return on the required capital for construction of the Muskwa SAGD project. The longer term economic risk of the project is further burdened with regulatory uncertainty around the Climate Leadership Program and its potential impacts on the project, from carbon tax to the emissions cap, both recently legislated by the Alberta Government.
From an economic perspective, KOSO views the costs to maintain the EPEA and OSCA approvals in good standing, to be excessive when measured against the risk of maintaining the approval and waiting for a change in economic and/or regulatory conditions that would justify project sanctioning and investment.
There has been no initiation of construction of any sort since the Muskwa project was approved in June 2016. Our future plans for the leases will be to maintain them in good standing, continue with any regulatory requirements in the field on the leases, and monitor the economic and regulatory climate over the next several years for any improvements that may justify a re-submittal of an in-situ scheme application.
To reiterate, for the above reasons, we must regrettably request the approvals for this project be rescinded as soon as practically possible. As per my discussions with the AER this past May, my understanding is that this e-mail is sufficient notice and that the process should only take about a week or so to complete. Please advise if you need further or more formal notice.
Byron Lutes, P. Eng.
VP Business Development