Canadians Seek Tax Relief to Develop Sands

CALGARY, Alberta _ Canada's largest oil companies are asking for $2.8 billion Canadian ($2.03 billion U.S.) in tax and royalty relief over the next seven years to enable them to extract oil more efficiently from the sands of northern Alberta.

The tax and royalty changes would stimulate $25 billion Canadian in new investment and produce 44,000 jobs during the next 25 years, said members of an industry group known as the National Task Force on Oil Sands Strategies.

The oil sands of northern Alberta, containing an estimated 300 billion barrels of recoverable oil, make up about one-third of the world's known reserves and are larger than all the deposits in Saudi Arabia. Industry analysts estimate that oil sands represent 90 percent of Canada's remaining reserves.

The task force, made up of some of Canada's largest petroleum companies, is trying to coordinate their oil sands resources and expertise to make Canadian oil exports more competitive.

Members of the group provide a who's who of the Canadian oil industry. They include: Syncrude Canada Ltd., Imperial Oil, Amoco Canada Petroleum Co., Chevron Canada Ltd., Shell Canada Ltd. and Suncor Inc.

"A few years ago, companies such as Syncrude and Suncor would be competing against each other," said Syncrude President Eric Newell.

"Now we recognize Saudi Arabia as our competitor and we are sharing information in an attempt to reduce costs. All we need now is the political will on the federal side to change the tax structure," Newell said.

The government has not responded formally to the task force's request for tax changes.

Toronto-based Suncor Inc. produces 78,400 barrels a day from the oil sands, compared with 34,000 from conventional sources. Syncrude, a joint venture owned by nine large oil companies and the Alberta government, produces 201,000 barrels daily and has no conventional sources.

The cost of mining a barrel of oil from oil-soaked sand and turning it into conventional oil has fallen to about $13.77 Canadian from $30 Canadian five years ago. Oil lifted directly from wells costs $6.50 Canadian a barrel.

Industry analysts said that technological advances will reduce production costs in the oil sands by another $5 Canadian a barrel before the end of the decade.

Oil is extracted from the sands using large-scale mining techniques or by steam injection methods that force it to flow to areas where it can be collected. The task force said the government will gain more in the long run than it loses from providing tax breaks.

It estimated Canada's current account would improve by $106 billion Canadian by 2025, while household disposable income would grow by $100 billion Canadian as a result of expanding oil and petroleum-product exports.

Canadian disposable income is now $500 billion Canadian. In the fourth quarter of 1994, the current account deficit was $4.9 billion Canadian.

"If we don't jump at this opportunity to encourage investment by changing the tax structure, we'll see gradual increases in imports of offshore crude," said Pat Daniel, a task force member who works with Calgary, Alberta-based IPL Energy Inc.

To that end, the task force has asked the government to develop one set of tax and royalty rules applying to all oil sands applications to make it easier to attract investment capital.

"The federal government is embroiled in the near-term financial picture for deficit reduction," said Richard Sendall, an executive with Amoco Canada Petroleum Ltd. "What many of us fail to recognize is that these deficits will increase if the decline in conventional crude oil production continues."

Canadian and foreign investment in the oil sands could triple production to 1.2 million barrels a day by 2020. That would supply half of Canada's oil needs, compared with 21 percent now.

Canada's energy industry now produces about 1.6 million barrels of oil daily. Of that, 1 million is light or medium crude and the remainder either heavy oil or synthetic crude made from oil sands. Roughly half of Canada's production is sold to the U.S.

"Production from conventional sources is steadily declining,"said Thane Waldie, vice-president of technology at Syncrude.

"If we act now, Canadians can capture an enormous prize," said Syncrude's Newell. "If a resource of comparable size were located in Japan or Korea, it would be driven by public interest and enlightened leadership to be a national priority. In Canada, we

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