11.0 Project Economics

A comprehensive Discounted Cash Flow (DCF) model was developed to understand the economics of the Project. Various estimates of capital and operating costs as well as of revenues were key inputs into the model. A modest 10% after-tax unlevered return was targeted.

Assumptions for plant commissioning, start-up and ramp up to 1 million tonnes of CO2 per year were built into the model. Accounting was made for planned and forced outages to the Keephills 3 facility as well as for the Pioneer facilities. Scenarios were also created to model various performance levels of the CCF. Conservatively, no residual or terminal value was ascribed to the Project in the economic analysis, as the base assumption was that that reclamation costs would be equivalent to the scrap value of the assets if decommissioning occurred.

The period of operations was set at 10 years, from 2016 to 2025, which was determined largely by the availability of government operating funding for this timeframe. Assumptions were made for this period regarding revenues derived from the sale of CO2 for EOR, realization of value for avoided emissions instruments and the receipt of government operating funding. Costs for operating the CCF, pipelines and sequestration facility as well as costs for items such as general and administrative costs (G&A) and taxes were estimated. In addition, costs were included beyond the 10 years of operations to account for the subsequent sequestration facility 10-year post-closure period from 2026 to 2035.

The availability of government funding and their complex requirements were important factors in the economics. Examples of the complexity in government contracts include stacking and matching tests, profitability tests, annual funding limits and the need to reach milestones necessary for the disbursement of funds.

The Project was anticipated to be in service by December 31, 2015. This would have allowed the Project a full ten years of operating funding, given the termination of the operating component of provincial CCS funding in 2025.

A positive Net Present Value of $7.3 million indicated that the Project was expected to achieve an unlevered aftertax return slightly above 10%. Given that the government funding had no expectation of a return of or on its capital, this 10% return is effectively that of the industry partners.