The Canadian Growth Fund (CGF) has committed to funding 50% of the CAD 2 billion (USD1.5 billion) capital required for Strathcona Resources Ltd.'s proposed carbon capture and storage (CCS) projects. These CCS initiatives will be implemented at Strathcona's steam-assisted gravity drainage (SAGD) oil sands facilities located in Alberta and Saskatchewan. According to statements from both parties, Calgary-based Strathcona anticipates these projects will capture up to two million metric tons of carbon dioxide (CO2) annually.

Following the definitive agreement with the public investment vehicle, Strathcona Resources Ltd. will proceed with the final stage of the front-end engineering design for its initial carbon capture and storage (CCS) project. The company plans to reach a final investment decision (FID) on this project by mid-2025.

Strathcona anticipates that the first project will be located in Saskatchewan, where the provincial government granted it subsurface CO2 sequestration rights earlier this year. Notably, Strathcona is the only oil-sands producer in Canada to have secured government approval for CCS initiatives. All of Strathcona’s oil sands facilities in the Cold Lake and Lloydminster regions are situated above reservoirs suitable for local CO2 injection, enhancing the feasibility and efficiency of the CCS projects.

Strathcona Resources Ltd. highlighted that its oil sands facilities, unlike most in Canada's Athabasca region of Northern Alberta, do not require CO2 emissions to be transported to a separate injection site for sequestration. Strathcona’s facilities, located directly above suitable reservoirs, simplify the sequestration process. Emissions from Strathcona’s production of 90,000 barrels per day of heavy oil and bitumen in its SAGD assets amount to approximately three million metric tons per annum (MMtpa).

The Canadian Growth Fund (CGF), which began operations last year with CAD 15 billion (USD11 billion) in capital, has initially committed USD500 million towards its share of the project costs. The agreement with Strathcona is contingent upon final investment terms, regulatory approvals, and other customary conditions.

Strathcona will retain full ownership of the CCS infrastructure and associated carbon credits. The company will repay CGF’s investment over time based on the actual cash flows generated by the CCS infrastructure, considering actual captured volumes and costs, with no fixed payments or minimum volume commitments.

“As part of the arrangement, Strathcona has agreed to dedicate the CO2 volumes from its SAGD facilities to the project and will guarantee a fixed carbon price to the partnership, serving as a hedge against its annual carbon tax obligations,” the company stated. Each project’s fixed price per metric ton will be established concurrently with each final investment decision (FID). Strathcona expects to offset nearly all its expenditures through the federal CCS investment tax credit and other grants. “For Strathcona, the economic rationale for investing in CCS is to mitigate its current and future carbon tax obligations,” the company explained.

Carbon taxes are a significant component of Strathcona’s current operating costs, totaling approximately CAD 65 million (USD47.7 million USD) annually under the current tax regime, with potential increases based on existing legislation. These expected future carbon taxes are fully reflected in Strathcona’s independently evaluated reserves, reducing the net present value of its proved reserves by approximately CAD 1.9 billion (USD1.4 billion USD) on a PV-10 basis, or CAD 8.78 (USD6.4 USD) per share, at the end of 2023 (CAD 2 billion and CAD 9.31 per share for its proved plus probable reserves).

The Canadian Growth Fund (CGF) noted that its partnership with Strathcona, marking the fund’s sixth investment, introduces a novel approach to CCS risk-sharing, leaving carbon pricing risk to the emitter while the financer shares risks related to project costs and capture efficiency. “The SAGD CCS Partnership aims to enhance the long-term competitiveness of one of Canada's most carbon-intensive industries by advancing large-scale commercial CCS projects and demonstrating fiscally prudent decarbonization outcomes,” the fund stated.

Canada's Energy and Natural Resources Minister, Jonathan Wilkinson, welcomed the partnership, stating, “As the world moves towards a low-carbon future, the Investment Tax Credits are helping to keep Canada’s resource sector and Canadian workers competitive.”