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THE WALL STREET JOURNAL: Chevron Intends to Develop Oil-Sands Project in Canada

By RUSSELL GOLD
March 3, 2006; Page A12
Chevron Corp. says it plans to develop a giant oil-sands project in northern Canada, the latest in a string of investments that is quickly turning the region around Fort McMurray, Alberta, into one of the world's fastest-growing oil-producing regions.
Chevron acquired leases for 75,000 acres from the provincial government in two separate sales. The company said there could be 7.5 billion barrels of oil in tar-like deposits there. Chevron plans to get the oil to flow into wells by using a steam-flooding technique that typically recovers between 20% and 40% of the oil, says James Bates, vice president of operations for Chevron's Canadian unit.
“It has the potential to become an impact-sized opportunity,” he says, noting that ultimately producing 100,000 barrels a day is conceivable.
While Chevron acquired the leases for about 70 million Canadian dollars, or roughly US$60 million, Mr. Bates says he expects that developing the project, called Ells River, could take a decade, at a price that runs into the billions.
Chevron will spend the next couple of years appraising the oil potential. Oil-sands operations require extensive capital investments to upgrade the viscous oil extracted from the ground into something that can be run through refineries and turned into gasoline. Operating costs, especially for energy-intensive steam-flooding, can also be quite high.
Major oil companies are clamoring to get involved in oil-sands production. While it is more costly to get crude from the oil sands than from an offshore platform, high crude prices have made oil-sands development attractive. Companies are also drawn to Canada's stable political and fiscal climate and the potential size of the resource.
“In terms of actual investments, over the next 10 years, we're looking at something on the order of $60 billion plus,” says Bill Wall, a technical specialist for the National Energy Board, the Canadian energy regulator. This investment, however, could be constrained by shortages of skilled labor, potential environmental regulations or falling oil prices. “As long as oil prices stay above $35 [a barrel] or so,” says Mr. Wall, “these projects are looking pretty good.”
Royal Dutch Shell PLC and Western Oil Sands Inc. each has the right to acquire a 20% interest in the project. Shell, Chevron and Western Oil Sands are partners on Muskeg River Mine, another oil-sands project near Fort McMurray.
Write to Russell Gold at [email protected]

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