Request for Proposal (RFP) Frequently Asked Questions
How did the BRIK RFP process begin?
Does the BRIK RFP imply a subsidy for the bitumen upgrading industry?
Has the economic underpinning for an Alberta RFP merchant upgrader disappeared with the narrowing of the gap between Canadian heavy and light oil prices?
Bitumen streams have significant differences in qualities and components. How would an RFP upgrader deal with these different qualities of BRIK volumes?
How would BRIK be transported to the RFP upgrader? Is there adequate pipeline capacity?
How will the BRIK RFP proposals be evaluated?
What are the next steps?
Bitumen sales by the Government to Proponents under the “Purchase” option will be completed based on market pricing. Is it correct then that the Government is not open to the concept of a bitumen pricing formula which includes a fixed heavy / light differential?
Is it considered that the allocation of minimum 50,000 bpd to a maximum of 75,000 bpd of neat bitumen is for the whole BRIK program? And if the selection process considers more than one proponent then, this volume will be distributed among the selected proponents?
By 2016, a fully operational processing facility should have a capacity of at least 100,000 bpd. If the selection process considers more than one proponent then, the processing capacity would be distributed among the selected proponents?
Further to your announcement and issuance of the expression of interest, a key question for our group is who is going to pay for the transportation costs from the well to the upgrader. I would assume that this cost would be the governments and that the government would be taking care of the logistics to transport bitumen. Could you please clarify these points above so that we can submit our comments? These are big issues for independents.
Document Questions
Section 2.1
When referring to current best estimates (CBE) and capital cost estimates will the Crown follow American Association of Cost Engineers (AACE) classification and accuracy levels?
It is mentioned that benchmark operating costs may include an allowance for anticipated sustaining capital expenses. We assume turnaround costs are included in this. Are we correct?
In referencing Benchmark Costs, what do you mean by “benchmark”? Is this in reference to a third party assessment? If so, can you provide the reference?
What activities are considered as full project sanction for the Processing Facility? (page 4)
Section 2.2
There is mention of actions by the federal Government of Canada. Can you clarify what that is in reference to? What do you mean by “tantamount”? Can you give an example?
Section 4.6
What would be considered as materially detrimental to the Province's objectives when the Department is assessing a change in the Proponent Structure? (page 9)
Section 7.7
Will the names of the companies that submit proposals to the RFP for processing Crown Royalty bitumen be made public?
Evaluation Criteria and Metrics - Economic Assumptions
On foreign exchange sensitivities and their correlation to WTI pricing: Should these be looked at independently or as a family? It is generally accepted that Canadian exchange rates increase with increasing WTI. Should the high FX sensitivity also include a high WTI or should they be delinked?
This section specifies the commodity forecasts we should use but it does not specify the price of CO2 emissions. What CO2 price should proponents assume?
Evaluation Criteria and Metrics - Section 8
Project Economic Viability mentions 6%, 8% and 10% real discount rates. Please clarify what you mean by the difference to “real” discount rates and whether this is something different from a conventional present value calculation using each of the rates you have specified.
For calculation of the Crown benefits, we assume discounting begins in the first year bitumen is available for processing (2013). Is this correct?
Bitumen sales by the Government to Proponents under the “Purchase” option will be completed based on market pricing. Is it correct then that the Government is not open to the concept of a bitumen pricing formula which includes a fixed heavy / light differential?
How did the BRIK RFP process begin?
The Department held an information meeting in the Edmonton area on the afternoon of August 6, 2009 in order to answer questions and provide any clarifications requested in regard to this Initial RFP.
The Information meeting was held at the:
- Executive Royal Inn Hotel & Conference Centre,
- 8450 Sparrow Drive, Leduc, AB
- Bitumen Royalty-in-Kind Program Request for Proposals“Processing of Crown Royalty Bitumen” Technical Information Session
(August 6, 2009) - Information Session Your Questions Answered
Does the BRIK RFP imply a subsidy for the bitumen upgrading industry?
No. The RFP contemplates either a “Processing Agreement” on commercial terms or a “Purchase Agreement” at market price.
Has the economic underpinning for an Alberta RFP merchant upgrader disappeared with the narrowing of the gap between Canadian heavy and light oil prices?
The BRIK policy is not based on short-term market fluctuations as the intent is to ensure Alberta has a globally competitive investment climate for value-added activity. The industry will ultimately make the investment decisions to build upgrading capacity and will undertake to manage the day to day market fluctuations.
Bitumen streams have significant differences in qualities and components. How would an RFP upgrader deal with these different qualities of BRIK volumes?
It is expected that the supply contract between the Crown and the upgrader awarded the RFP would identify the range of specifications. To the extent that this agreed upon specification requirement is different than the volumes received by the Crown Agent pursuant to BRIK, the Crown Agent would actively trade to ensure it can supply feedstock to meet its contractual obligations.
How would BRIK be transported to the RFP upgrader? Is there adequate pipeline capacity?
Analysis undertaken related to pipeline capacity indicates there does not appear to be a constraint in the near term.
How will the BRIK RFP proposals be evaluated?
The Departments of Energy and Alberta Finance and Enterprise will formally establish an evaluation team comprised of representatives from the Government of Alberta. The team plans to engage a select number of consultants to provide technical and analytical support to the evaluation team. A Fairness Monitor will also be in place to provide the necessary oversight and additional confidence that the evaluation protocol is adhered to.
What are the next steps?
The Government is expecting that there may be comments or questions in regard to this RFP so has allowed for this feedback in the timelines as follows:
Information Meeting: August 6
Final Date for Comments on Initial RFP: August 31
Issuance of Final RFP: September 30
Final Date for Submission of Proposals: December 2
Announcement of selected proposals: March 31, 2010
Work on the overall BRIK program design and its implementation will continue over the next several months leading to BRIK’s implementation expected January 1, 2012.
Bitumen sales by the Government to Proponents under the “Purchase” option will be completed based on market pricing. Is it correct then that the Government is not open to the concept of a bitumen pricing formula which includes a fixed heavy / light differential?
The government is not considering fixing a heavy / light pricing differential with a successful bidder at this time. The Pricing formula must be based on market price for bitumen. The economic assumptions defined in Part 2 of the RFP Appendix, are for the purposes of project evaluation only. The appropriate market price for bitumen will be discussed with successful applicants.
Is it considered that the allocation of minimum 50,000 bpd to a maximum of 75,000 bpd of neat bitumen is for the whole BRIK program? And if the selection process considers more than one proponent then, this volume will be distributed among the selected proponents?
The Crown's volume commitment for the first RFP is up to 75,000 bpd of bitumen. RFPs for further tranches of bitumen are expected to be issued as BRIK supply volumes grow, although the timing of such is uncertain at this time. Industry would be notified if and when a subsequent RFP is issued.
By 2016, a fully operational processing facility should have a capacity of at least 100,000 bpd. If the selection process considers more than one proponent then, the processing capacity would be distributed among the selected proponents?
As answered above, the RFP is for the first processing facility. One, two, or three proposals may be selected for further negotiations, but only one proponent will be eventually successful.
Further to your announcement and issuance of the expression of interest, a key question for our group is who is going to pay for the transportation costs from the well to the upgrader. I would assume that this cost would be the governments and that the government would be taking care of the logistics to transport bitumen. Could you please clarify these points above so that we can submit our comments? These are big issues for independents.
This is a key area that is under review. Delivery of the Crown volumes of bitumen to the upgrader will be worked out as the program design progresses and will be addressed with potential RFP winners. A Crown Agent will be responsible for meeting the contractual obligations. We are asking that each proponent should specify its requirements for transportation and storage infrastructure, and outline the approach proposed by the proponent for these aspects of the project. This will be considered in the evaluation and will be part of the contract negotiation process. We welcome your comments and views on this subject.
Document Questions
Section 2.1
When referring to current best estimates (CBE) and capital cost estimates will the Crown follow American Association of Cost Engineers (AACE) classification and accuracy levels?
Yes
It is mentioned that benchmark operating costs may include an allowance for anticipated sustaining capital expenses. We assume turnaround costs are included in this. Are we correct?
Turnaround costs are included in the estimate of operating costs. Sustaining capital expenses will be treated as an operating expense.
In referencing Benchmark Costs, what do you mean by “benchmark”? Is this in reference to a third party assessment? If so, can you provide the reference?
The term “Benchmark Costs” refers to the Proponent’s best estimate of operating costs for its project. It is expected that such an estimate will be based on industry accepted criteria and support for the development of such operating costs. It is up to the Proponent whether to utilize third party assessments to estimate its benchmark operating costs.
What activities are considered as full project sanction for the Processing Facility? (page 4)
Sanction criteria refers to having all approvals in place, both internal and external, including financing, so that the project has approval of capital expenditure and release of funds for project execution.
Section 2.2 - There is mention of actions by the federal Government of Canada. Can you clarify what that is in reference to? What do you mean by “tantamount”? Can you give an example?
No actions are anticipated but the Province is not responsible for changes in Federal policy in their jurisdiction that may impact the Crown’s ability to deliver specified volumes.
Section 4.6 - What would be considered as materially detrimental to the Province's objectives when the Department is assessing a change in the Proponent Structure? (page 9)
This section recognizes the dynamics of a changing business environment so reflects that the Government has the right to re-address the selection if there is a change in the proponent's structure such that it increases the Crown's risk significantly.
Section 7.7 - Will the names of the companies that submit proposals to the RFP for processing Crown Royalty bitumen be made public?
No, the Government does not plan on making the names of the companies that submit proposals to the RFP public. However, as per Section 7.7 of the RFP, the Government will make public the names of the one, two or three proponents that have been selected with a view to negotiating definitive terms of a processing or purchase agreement.
Evaluation Criteria and Metrics - Economic Assumptions - On foreign exchange sensitivities and their correlation to WTI pricing: Should these be looked at independently or as a family? It is generally accepted that Canadian exchange rates increase with increasing WTI. Should the high FX sensitivity also include a high WTI or should they be delinked?
We agree that there are currently linkages between exchange rate and crude oil pricing. However, for simplification, we request that foreign exchange sensitivities be treated as independent sensitivities.
Evaluation Criteria and Metrics- Economic Assumptions- This section specifies the commodity forecasts we should use but it does not specify the price of CO2 emissions. What CO2 price should proponents assume?
Proponents should review the current Alberta GHG Regulations (Specified Gas Emitters Regulations) and incorporate relevant implications on their proposed project. Implications may include a cost for compliance, which for the purposes of analysis, should assume a $15 per tonne purchase price of CO2. Where a carbon management plan (e.g. carbon capture) is proposed as part of the project, for purposes of analysis, a $15 per tonne sale of CO2 should be assumed. The environmental plan should include the anticipated carbon balance and emission mitigation strategy. A Proponent may wish to also include alternate cases (and rationale) based on different assumptions for CO2 prices.
Evaluation Criteria and Metrics - Section 8 Project Economic Viability mentions 6%, 8% and 10% real discount rates. Please clarify what you mean by the difference to “real” discount rates and whether this is something different from a conventional present value calculation using each of the rates you have specified.
We are requesting that the Net Present Values (NPV) of the non-inflated cash flows be provided at these three discount rates.
Evaluation Criteria and Metrics - Section 8 Project Economic Viability - For calculation of the Crown benefits, we assume discounting begins in the first year bitumen is available for processing (2013). Is this correct?
No. The assessment should be based on the first year being the year of start-up of the proposed project. In its evaluation of proposals, the Government will make its own assessment of value to the Crown between 2013 and the first year of start-up if there is a difference.
Bitumen sales by the Government to Proponents under the “Purchase” option will be completed based on market pricing. Is it correct then that the Government is not open to the concept of a bitumen pricing formula which includes a fixed heavy / light differential?
The government is not considering fixing a heavy / light pricing differential with a successful bidder at this time. The Pricing formula must be based on market price for bitumen. The economic assumptions defined in Part 2 of the RFP Appendix, are for the purposes of project evaluation only. The appropriate market price for bitumen will be discussed with successful applicants.
