Petro-Canada ups ante with oil new sands deal, becomes partner in Fort Hills

Allen Baker

Petro-Canada has added a big chunk of oil sands deposits to its portfolio with a deal to become a 60 percent partner and operator of the Fort Hills oil sands project in Alberta.

The Calgary-based major will spend C$900 million in development costs for the project, earning its 60 percent interest with that investment. That equates to about US$730 million.

The current owner of the project, UTS Energy Corp., will retain a 40 percent interest and will spend C$100 million of the first C$1 billion spent on the project. After that, Petro-Canada will provide 60 percent of the financing and Calgary-based UTS 40 percent.

The Fort Hills project area involves 46,000 acres, adjacent to Syncrude’s North Aurora Mine and Shell’s Muskeg River Mine. The site is about 55 miles north of Fort McMurray.

According to UTS, which holds no other significant assets, Fort Hills has 4.7 billion barrels of bitumen in place, with 2.8 billion barrels recoverable.

The joint development plan for the project envisions a mine and extraction facility producing 50,000 barrels per day by 2009, with an upgrader added within two years, or a facility with a capacity of 100,000 bpd and an upgrader by 2010. Ultimately, the partners expect to expand production to 190,000 barrels of bitumen daily.

Petro-Canada already holds 12 percent of Syncrude, and owns the MacKay River in situ oil sands plant.

The Fort Hills project was moving ahead with approval of the Alberta Energy and Utilities Board two years ago. But UTS’ partner and majority owner at the time, an affiliate of Koch Industries of Wichita, Kan., decided it was too expensive. UTS later purchased the 78 percent of the project owned by the Koch affiliate, and began shopping for a development partner.

UTS executives were understandably ecstatic about hooking up with one of Canada’s powerhouse energy companies.

“We now have a strategic partner with extensive major project experience, downstream expertise, financial strength, and market reputation,” said William Roach, CEO of UTS in a statement announcing the partnership on March 1.