To pay for its stake, Petro-Canada will fund either 75% of UTS’ share of the next $1 billion of development capital, or $300 million.
Under the terms of the agreement, which has been approved by the boards of directors of both companies, Petro-Canada will assume a 60% interest and become the operator of the project. UTS will own the other 40%.
Petro-Canada had turned its back on oil sand projects due to high procurement costs. However, after experiencing falling outputs in 2004, the company has a renewed motivation to find new sources.
UTS is currently the owner of a block of oil sands leases north of Fort McMurray (including the Fort Hills site) and has a plan to develop 2.8 billion barrels of bitumen resource. Approval from the Alberta Energy and Utilities Board to develop a new oil sands project on the site is already in place.
Current plans call for an initial mining development producing 50,000 barrels per day and corresponding upgrader. Subsequent development phases would expand production up to 190,000 barrels per day of bitumen integrated with upgrading.
With Petro-Canada assuming operatorship, the partners will consider a range of options, including a 100,000 barrels per day initial mining operation, before finalizing the development plan. Mining is slated to start in 2009.
This partnership builds on Petro-Canada’s oil sands experience and adds the next leg of our growth strategy, said Ron Brenneman, Petro-Canada president and CEO. Oil sands mining integrated with upgrading offers decades of substantial production with solid returns. The Fort Hills project offers a high quality mining lease that has already achieved regulatory approval and that can be brought on-stream by the end of the decade.
