Under the agreement, the culmination of more than a year of talks between the parties, the Western Canadian province will supply 75 percent of the feedstock and Canadian Natural the remainder for the 50,000 barrel a day plant.
The deal essentially means Alberta taxpayers will pay three-quarters of the cost through tolls to process the crude, and take in three-quarters of the returns from its supply over a 30-year term.
Plans call for construction of a three-phase project near Edmonton, Alberta, that would eventually process 150,000 barrels a day of crude derived from the province's oil sands.
The first phase would produce more than 5.5 million liters (1.45 million gallons) per day of ultra low-sulfur diesel and other products, such as diluent, to be sold into the local market and exported, the government said.
The project is part of an initiative by Premier Ed Stelmach's government to boost the processing of crude from Alberta's oil sands -- the largest crude source outside the Middle East -- within the province to create economic activity and jobs.
Alberta takes some of its royalty payments in physical bitumen rather than cash, and Stelmach has said he wants to use that as a tool to achieve those aims.
Executives at the companies have said it would be difficult to get the project built without participation from the government, given high costs and volatile heavy oil prices. That has fueled some criticism that the agreement equates to heavy subsidies.
Construction of the first phase is expected to create 8,000 jobs starting in the fourth quarter of this year.
The funding will be structured with 80 percent debt and 20 percent equity, officials said.
In addition to the plant, the Alberta government will provide C$495 million to Enhance Energy's Alberta Carbon Trunk Line, which will ship carbon from the new plant to be injected into oil fields.
That is part of a C$2 billion fund the government set up to boost carbon capture capabilities in the province.
