Re: Bitumen Royalties & Project Payout - Part 2
in response to
by
posted on
Feb 26, 2010 10:02AM
Connacher is a growing exploration, development and production company with a focus on producing bitumen and expanding its in-situ oil sands projects located near Fort McMurray, Alberta
From a document on the Alberta Governments website they define the payout as shown below. You can see that "cumulative costs" include both capital and operating costs plus a Return Allowance. One way to think of it as starting with two empty buckets. Into the "Cumulative Revenue" bucket you pour all your gross revenues. Into the "Cumulative Costs" bucket you pour all your initial and (ongoing) capital costs plus all your annual operating costs plus a return allowance. When the two buckets are equal the project has reached payout. Of course there are lots of fine print which defines what costs are allowable, etc but the concept is straightforward and makes sense to me.
If the cumulative cost bucket contains only capital costs, from where does the money come to pay the operating costs?
Payout definition:
When an oil sands royalty project reaches payout, its
cumulative revenue equals or exceeds its cumulative costs. Costs include specified allowed capital and operating costs related to the project, plus a Return Allowance. Gross revenue for a project can be based on either bitumen (no upgrader) or synthetic crude oil (project includes upgrader).