Enbridge says royalties not main oil sands issue

By Scott Haggett

CALGARY, Alberta, Oct 3 (Reuters) - Enbridge Inc (ENB.TO) said on Wednesday that proposed higher royalties and taxes for oil sands projects in Alberta are unlikely to be the deciding factor in whether tens of billions of dollars in new developments proceed.

The company, whose pipelines carry the lion's share of Canada's crude oil exports to the United States, still expects oil sands output to triple to 3 million barrels a day by the middle of the next decade. That comes even as some analysts fear that projects may be canceled if Alberta moves to boost its take from producers.

Richard Bird, executive vice-president at Enbridge, said royalties are not the biggest factor when it comes to deciding whether to go ahead with an oil sands project.

According to Bird, commodity prices, profit margins and construction costs remain the key drivers for oil sands projects.

"We're doubtful the royalty variable is going to be the make-or-break economic variable in those decisions," he said at an investor conference.

A government-appointed panel last month recommended the province increase its take from oil and gas production by C$2 billion, 20 percent more than its current revenue from the sector.

For oil sands projects, the panel recommended that royalties rise to 33 percent of revenue, from 25 percent today, after project costs are recouped. It also said a new tax should be levied on each barrel of production, which would rise as oil prices climb.

A study by investment bank Tristone Capital warned the proposed changes would force projects that don't upgrade the tar-like bitumen stripped from sand into synthetic crude oil to be re-evaluated, resulting in fewer projects.

As well, a report by energy consultants Woods Mackenzie said the royalty plan could cut the value of oil sands projects by $26 billion if the provincial government adopts the proposals.

There is more than C$100 billion in new projects planned to exploit the oil sands, which boast oil reserves second only to Saudi Arabia. Though some natural-gas producers have said they will cut spending in the province if the levies are raised, the oil sands sector has not yet followed suit.

Bird said Enbridge will likely proceed with new pipelines to take oil sands crude to U.S. refineries in the Midwest and Gulf Coast. That includes its 450,000 bpd Alberta Clipper project to Superior, Wisconsin, to be complete by 2010, and the 2009 expansion of its Southern Access line, which will add 400,000 bpd of new capacity.

($1=$1 Canadian)