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THE SEATTLE TIMES: Chevron buys Alberta oil leases

By Paul Elias
The Associated Press; Associated Press reporter Brad Foss in Washington, D.C., contributed to this article
SAN FRANCISCO — Chevron, the second largest U.S. oil company, said Thursday it acquired five oil leases covering 180,000 acres for an undisclosed price in northern Alberta, Canada.
The oil company said an estimated 7.5 billion barrels of oil are under the land and that two unnamed companies each have the option to purchase 20 percent of the leases. Chevron already has a 20 percent stake in the Athabasca Oil Sands Project, which is controlled by Royal Dutch Shell and based 24 miles southwest from the fields covered by the new leases.
Canada has become an energy powerhouse by separating petroleum from sand and turning it into oil. So-called oil sands are found in an area almost half the size of Colorado spread across central Alberta and produce about 1 million barrels of oil a day.
That figure is expected to reach 2.7 million by 2015, and Canada estimates its oil sands will yield as much as 175 billion barrels of oil, making it second only to Saudi Arabia in crude oil reserves and enough to satisfy U.S. demand for at least a generation.
With oil prices soaring, “people are spending money like gangbusters up there,” said Michael Lynch, president of Strategic Energy & Economic Research.
But the costs of doing business in Canada — and across the world — also are rising because the labor and drilling-equipment markets are extremely tight. Oil-sands production costs are especially inflated these days because of the high price of natural gas, the fuel that is used to produce steam, which then is injected into the ground to separate the heavy oil from the sands.
Analysts estimate that in an oil sands project it costs roughly $25 to lift each barrel from the ground. At today's costs, that means Chevron could spend some $150 billion to deplete the reserves it bought.
“It's a big financial commitment,” said Lynch, who noted that Chevron probably paid considerably more for the acreage than it would have a year or two ago.
John Felmy, chief economist of the American Petroleum Institute, a Washington-based trade group, said Chevron's announcement is proof that the industry is using its record profits to boost output. However, he said the focus on Canada also highlights the difficulty Chevron and other oil producers are having accessing land in other parts of the world where production would be cheaper.
In the United States, environmental concerns make it difficult to get permits, whereas in Russia and Venezuela, governments are becoming more protective of their natural resources and demanding a bigger share of profits from private oil companies.
“Canada is a friendly, stable government, so it's at the top of the list,” Felmy said. Exxon Mobil, ConocoPhillips, EnCana and Shell are just a few of the companies investing billions of dollars in Canada.

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