Terra Nova project partners sue over royalty calculations

The companies running the Terra Nova offshore oil project are going to court over how the Newfoundland and Labrador government calculates royalties.

In the simplest of terms, the oil companies believe they are being forced to pay both levels of royalties in certain circumstances when they move from one royalty tier to the next.

They say that was never the intent of the system.

"The applicants have been obligated to overpay royalties contrary to the terms of the [1996 letter of intent], public statements made by the province, and the Royalty Regulations 2003 properly construed, which provide that the interest holders are to pay 'the greater of' basic royalty and Tier I incremental royalty in a period, but not both," documents filed at Newfoundland and Labrador Supreme Court note.

The companies are looking for a court ruling on the correct interpretation of the royalty rules, and how certain deductions are applied.

The declaration they are seeking would be "with respect to all past, current and future royalties payable for the Terra Nova project."

There is no dollar figure referenced in court filings.

The Terra Nova partners who are participating in the court action, and their shares of the project, are:

• Suncor Energy: 37.675 per cent;
• ExxonMobil Canada: 19 per cent;
• Statoil Canada: 15 per cent;
• Husky Oil: 13 per cent;
• Murphy Oil: 10.475 per cent;
• Mosbacher Operating Ltd.: 3.85 per cent.

The remaining one-per-cent share in the Terra Nova production licences is owned by Chevron Canada, which is not named as a plaintiff.

Previous dispute settled out of court

The current proceedings follow a previous dispute that was settled out of court in 2010.

But the Terra Nova partners say subsequent amendments to royalty regulations only partially fixed the problem identified then.

Suncor Energy, the operator of Terra Nova, told CBC News it could not say much while the case is before the courts.

But spokesman John Downton wrote in an emailed statement that "Suncor's court application relates to an anomaly in the royalty regulations which has the unintended result that Terra Nova interest holders periodically have to pay both the Basic and the Tier 1 royalties, which we do not believe was the intent of the regulations."

He added that "the Terra Nova interest holders look forward to a resolution in this matter."

The province did not respond to inquires before deadline.

The matter is due back at Newfoundland and Labrador Supreme Court in St. John's next month.