RPT-UPDATE 2-Conoco, Total to expand Surmont oil sands project

Tue Jan 19, 2010 12:51pm EST

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* Expansion project to begin this year

* Output to rise to 110,000 bpd from 27,000 bpd

* Capital costs not disclosed (Recasts to add details, comments; changes dateline from New York. In U.S. dollars unless noted)

By Scott Haggett

CALGARY, Alberta, Jan 19 (Reuters) - ConocoPhillips (COP.N) and Total SA (TOTF.PA) launched a massive expansion of their Canadian oil sands joint venture on Tuesday, with plans to boost production from the Surmont project to 110,000 barrels per day, four times the current rate.

Construction at Surmont, which currently produces about 27,000 barrels a day, will begin this year and is slated to be complete by 2015. The partners did not disclose the cost of the project.

Surmont is the latest is a series of new projects and expansions announced for the oil sands, the largest crude reserve outside the Middle East, after billions of dollars worth of project were deferred, delayed or canceled outright because of the financial crisis, falling oil prices and rising construction costs.

"Oil supply from the oil sands is going to be required to meet long-term global demand and play a role in energy security and economic security for North America," said Matt Fox, president of ConocoPhillips' Canadian unit.

Along with Surmont, Suncor Energy Inc (SU.TO) and Imperial Oil Ltd (IMO.TO) have also announced new projects in the oil sands region of northern Alberta, talking advantage of lower costs as the area's once red-hot economy remains cool.

"There are indications from operators that prices have fallen 10 to 40 percent from the peak we saw in 2008," said Chris Feltin, an analyst with Macquarie Securities Canada. "There's a belief within the industry that those companies that can move now and lock in some of the reduced costs and get access to labor while it's being underutilized should be able to generate superior economics."

Unlike oil sands mining projects that have become the focus of environmental groups concerned about toxic tailing ponds and the destruction of large areas of boreal forest, Surmont uses a technology called steam-assisted gravity drainage.

SAGD technology pumps steam into the ground to liquefy the reserves of tar-like bitumen so they can flow to the surface. The method preserves more of the region's landscape, but burning natural gas to produce steam generates significant amounts of greenhouse gases.

The partners say they'll spend $300 million on research and development over the next five years to come up with new technologies to reduce Surmont's environmental footprint.

Fox said the project will employ about 2,500 workers during construction and add 300 permanent jobs once work is complete.

Surmont is just one of a number of investments in the oil sands by both partners. ConocoPhillips has an oil sands and refining venture with Cenovus Energy (CVE.TO) and controls several other leases in the region while Total is developing the Joslyn project, which could eventually produce 200,000 barrels a day, along with other oil sands holdings.

Shares in Texas-based ConocoPhillips rose 23 cents to $53.25 at midday on the New York Stock Exchange, while French oil major Total was up 1.17 percent in Paris at 45.06 euros. (Additional reporting by Matt Daily in New York; editing by Rob Wilson)

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