ConocoPhillips gives green light to Alberta oil sands project

Gary Park

Petroleum News Calgary correspondent

A trio headed by ConocoPhillips, with Total and Devon Energy, has edged even closer to proceeding with a US$1.1 billion oil sands operation in northern Alberta.

Six months after obtaining regulatory approval from Alberta’s Energy and Utilities Board, the ConocoPhillips board of directors has given the green light to the venture, which is expected to start production at 25,000 barrels per day in 2006 and grow to 100,000 bpd by 2012.

The Surmont project will employ steam-assisted gravity drainage to extract the raw bitumen by injecting steam deep into the oil sands and melting the viscous bitumen, allowing it to flow to the surface.

It’s a technology that has been developed in Alberta and is being used by EnCana and Petro-Canada for their own projects.

ConocoPhillips will be Surmont’s operator with a 43.5 percent stake, with Total and Devon, both of them newcomers to the oil sands, holding 43.5 percent and 13 percent respectively.

ConocoPhillips believes it is less exposed to the kind of cost overruns that have sideswiped oil sands expansions by Syncrude Canada, Suncor Energy and Shell Canada, forcing companies such as Petro-Canada to shelve its C$5.9 billion program while it searched for ways to keep costs under control.

The use of steam-assisted gravity drainage, rather than open-pit mining, and access to existing upgrading facilities in Montana and Illinois, give the proponents hope that they have an economically viable plan.

Surmont has been on the drawing board since 1997, when Gulf Canada Resources aimed to start pumping oil in 2002 before it was taken over by Conoco before it merged with Phillips Petroleum.

Since then the project has been bogged down in legal and regulatory squabbling with natural gas producers in the region that ended with some gas wells being shut in because they were depleting reservoir pressures and putting at risk the ability of oil sands operators to extract the bitumen.