ConocoPhillips reveals its big oilsands ambit
AOS Company Snapshot
ConocoPhillips reveals its big oilsands ambitions
Claudia Cattaneo, Financial Post
Published: Tuesday, December 11, 2007
CALGARY -- ConocoPhillips said Tuesday it aims to produce one million barrels a day from Canada's oilsands - the most ambitious goal yet of any player in the unconventional deposits.
The Houston-based oil company, the third-largest in the United States, said it will ramp up bitumen production from 60,000 b/d this year to one million, net to ConocoPhillips, in the next two decades, from projects already underway with partners EnCana Corp., Total SA and others, and from three large leases it owns outright that it plans to develop on its own.
The move marks the biggest commitment yet to the deposits by a U.S. company.
"We believe that the oilsands ... have to come to market for energy-security reasons and to meet demand," Matt Fox, senior vice-president, oilsands, said in an interview, after the company announced first oil production from its Surmont thermal project, which it owns with Total.
"That's why we have taken such a significant strategic position in the oilsands. We think it's going to be one of the key areas of growth from unconventional production."
ConocoPhillips' target is the most aggressive yet in the business, surpassing that of competitors such as Royal Dutch Shell PLC, Suncor Energy Inc. and Canadian Natural Resources Ltd.
U.S. peers such as ExxonMobil Corp. and Chevron Corp. have been less enthusiastic about the deposits, focusing instead on projects in other areas of the world.
ConocoPhillips revealed its big oilsands ambitions a week after long-time oilsands skeptic BP PLC, a British oil major, bought a toehold into the business through a joint venture with Husky Energy Inc.
Mr. Fox said royalty increases announced by the Alberta government in October hurt the oilsands, but ConocoPhillips can temper the hit through technology.
"We think that the oilsands are ripe for technology advances," he said. "We are spending about $500-million over the next five years on technology focused specifically on heavy oil, to improve recovery processes, improving the thermal efficiency and to reducing the environmental footprint and looking at alternative fuels."
ConocoPhillips was also one of the largest investors in the world's other major heavy-oil deposits, located in Venezuela's Orinoco belt, but it abandoned those assets this year when Hugo Chavez, the Venezuelan President, unilaterally changed contracts. It is now seeking compensation.
In Canada, ConocoPhillips' predecessor, Gulf Canada Ltd., was one of the oilsands' early entrants through its participation in the Syncrude Canada Ltd. mining consortium and the Surmont thermal project.
Surmont's first phase has the potential to produce 25,000 b/d. Phase 2 will boost volumes to 100,000 b/d. Future phases are under study.
ConocoPhillips made a quantum leap into the Canadian business last year by forming a partnership with EnCana Corp. to jointly develop EnCana's Foster Creek and Christina Lake properties and upgrade ConocoPhillips' refineries in the United States.
In addition, ConocoPhillips owns 100% of three leases in the western side of the deposits: Thornbury, Clyden and Saleski. Mr. Fox said it adds up to the largest land position of any company in the deposits, or more than one million acres. The first of the new projects will be brought on stream in the next decade.
"In the short term, our growth will be focused on Foster Creek/Christina Lake and Surmont, but then we will move to these 100% held positions and grow those also," he said.
Mr. Fox would not reveal capital-spending estimates to achieve the one-million-barrel-a-day goal due to continuing cost escalations in the sector.
The company plans to first feed its Alberta bitumen into its refineries in the United States, but longer term, when its refining capacity in the south is exhausted, it would build an upgrader in Alberta, Mr. Fox said.
"There will be a very significant growth here over the next five and 10 years as we ramp up production in the joint venture and Surmont and start to invest in the other land positions," Mr. Fox said. ConocoPhillips said last week it will spend US$2.2-billion in Canada next year, up from US$2.1-billion in 2007.
Financial Post