July 4, 2007 / 7:59 PM / 10 years ago

Oil sands no quick fix as Big Oil leaves Venezuela

CALGARY, Alberta (Reuters) - For Exxon Mobil Corp. (XOM.N) and ConocoPhillips (COP.N) it may appear simple: shift efforts, people and resources to Canada's oil sands now that the oil majors have retreated from Venezuela.

In reality, it's no simple matter.

The oil sands have their own set of risks: surging costs due to a squeezed labor force, technical complexity and a shrinking pool of attractive available properties.

Exxon Mobil and ConocoPhillips -- who fled Venezuela last week after refusing to agree to President Hugo Chavez's more nationalistic terms -- are already among the biggest oil sands players. They know well that new projects take years to build as the rush to exploit the unconventional resource fattens costs and schedules.

"I think everybody in the investment community understands it's not easy," FirstEnergy Capital Corp. analyst Martin Molyneaux said. "It might be easy mathematically, but execution-wise it's unbelievably challenging."

Like Venezuela, Alberta's oil sands offer easy access to vast amounts of crude. It's a resource second only to the conventional reserves of Saudi Arabia and one that's recently gained a big share of the world energy spotlight.

Both Venezuela's and Canada's gooey types of oil are technically tricky to produce and require expensive upgrading plants to make them suitable for refineries.

But, unlike Venezuela, the oil sands are marked by political and fiscal stability.

The combination has become extraordinarily attractive. Oil firms have pledged to spend more than $100 billion on projects to exploit 174 billion barrels trapped in the Alberta sand.

The investments have stretched the region's workforce thin and spawned numerous multibillion-dollar budget overruns.

OIL SANDS VETERANS

Exxon Mobil owns 69.6 percent of Imperial Oil (IMO.TO), one of the biggest developers. It has 100 percent of the 150,000 barrel a day Cold Lake, Alberta, bitumen project and 25 percent of the 350,000 barrel a day Syncrude Canada operation.

Exxon Mobil is also a partner with Imperial in the C$8 billion ($7.5 billion) Kearl oil sands project, a 300,000 barrel a day venture, scheduled to start up as early as 2010.

ConocoPhillips last year signed a deal with EnCana Corp. (ECA.TO) that gave it a major stake in EnCana's oil sands reserves in exchange for interests in two U.S. refineries.

It also operates the Surmont project, which is slated to pump 100,000 barrels a day by 2012.

The Alberta government has repeatedly refused to step in and control the pace of development to rein in the boom. Energy Minister Mel Knight said last weekend that market conditions force companies to temper their own pace.

"We will see the major players -- the long term, major global players -- looking at this situation over a 50-year time frame. They're spreading out their construction schedules, and it's working. We can see signs of it already," he said at a meeting of U.S. and Canadian energy officials in New Orleans.

The Canadian Association of Petroleum Producers expects the country to produce 4.6 million to 5.3 million barrels a day by 2020, up from 2.6 million last year, and much of that will be derived from oil sands.

Venezuela produces roughly 3 million barrels a day, according to the OPEC member's officials.

INFLUX OF TALENT

One benefit for Canada from Venezuela's shifting energy scene will be an influx of transferable technical talent and badly needed skilled workers, analysts and executives said.

"So if there's anything positive that comes from these shenanigans with Chavez, it's people they can turn loose on other projects," Molyneaux said.

Some field workers from Venezuela, where state-controlled oil company PDVSA holds sway, are toiling in Canadian energy hot spots, like Fort McMurray, Alberta.

Petro-Canada PCA.TO Chief Executive Ron Brenneman said he doesn't think Venezuela's nationalization push will bolster Alberta's stretched construction workforce by a large degree.

Petro-Canada, which also exited Venezuela last week, leads the group planning the C$14.1 billion Fort Hills oil sands project.

"We are finding that some pretty good technical people are coming available out of PDVSA as a consequence of what's going on down there, but I don't think it will affect the labor pool to a large extent," Brenneman said.

(Additional reporting by Russell McCulley in New Orleans)

$1=$1.06 Canadian

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