EnCana & ConocoPhillips to Create Integrated N. American Heavy Oil Business

EnCana Corporation and ConocoPhillips have entered into an agreement to create an integrated, North American heavy oil business consisting of strong upstream and downstream assets.

The venture will be comprised of two 50/50 operating partnerships, one Canadian upstream partnership and one U.S. downstream partnership, with both companies contributing equally valued assets and equity for future capital expenditures.

The upstream partnership will consist of EnCana's Foster Creek and Christina Lake projects, both located in the prolific eastern flank of the Athabasca oilsands in northeast Alberta. The assets hold independently estimated recoverable bitumen of more than 6.5 billion barrels, and the partnership's goal is to increase production from the current 50,000 barrels per day (bbls/d) to 400,000 bbls/d of bitumen by 2015. The partnership plans to transport and sell the bitumen blend (an approximate 50/50 blend of bitumen and synthetic oil) at major Alberta trading hubs. EnCana and ConocoPhillips will each own 50 percent of the partnership. EnCana will be the operator and managing partner of the upstream partnership, which will be headquartered in Calgary.

The downstream partnership will consist of ConocoPhillips' Wood River and Borger refineries, located in Roxana, Illinois, and Borger, Texas,

respectively. The partnership plans to expand heavy oil processing capacity at these facilities from approximately 60,000 bbls/d to 550,000 bbls/d (30,000 to 275,000 bbls/d of bitumen handling capacity) by 2015. Total throughput at the two facilities is expected to increase from the current 450,000 to 600,000 bbls/d over the same time period. The partnership may further expand heavy oil processing capacity at these locations or in Alberta to match bitumen production. EnCana and ConocoPhillips will each own 50 percent of the partnership; however, ConocoPhillips will hold a disproportionate economic interest in Borger for two years: 85 percent in 2007 and 65 percent in 2008. The partnership plans to purchase and transport all feedstocks for the refineries and sell the refined products. ConocoPhillips will be the operator and managing partner of the downstream partnership, which will be headquartered in Houston.

"During the past year, we undertook a process to identify the best industry partners for maximizing the value recognition of our sizeable in- situ oilsands resources. These innovative partnerships achieve this objective by strategically aligning about two-thirds of our industry-leading oilsands projects with an industry-leading refiner. ConocoPhillips brings a wealth of heavy oil refining expertise and widely-adopted coking technology to our integrated heavy oil business," said Randy Eresman, EnCana's President & Chief Executive Officer. "These partnerships provide greater certainty of execution for our oilsands projects by reducing cost and price risk and increasing confidence in our ability to achieve economic returns. They also give EnCana immediate participation in the North American refining industry and provide options for future upgrader development."

"With this strategic alliance, ConocoPhillips strengthens its presence in North America by repositioning 10 percent of its U.S. downstream business to access a large upstream resource base. The upstream partnership also will provide a secure and stable source of oil supplies that can be refined into gasoline, diesel and other petroleum products needed by U.S. consumers, as well as a significant market for Canada's abundant oilsands resources," said Jim Mulva, ConocoPhillips' Chairman and Chief Executive Officer. "This venture builds on our current and planned heavy-oil expansion work at both Wood River and Borger, and provides a stable, long-term supply to our U.S. refineries. The venture also enables ConocoPhillips' participation in two best-in-class Canadian oilsands projects, and provides the opportunity to leverage our existing downstream capabilities. The transaction is expected to enhance ConocoPhillips' near- and long-term production growth, providing a steady, stable source of resource additions. We look forward to working closely with EnCana and learning from their experiences as a leader in heavy- oil development and SAGD technology."

Each partnership will have a management committee composed of three EnCana and three ConocoPhillips representatives, with each company holding equal voting rights. EnCana and ConocoPhillips personnel associated with the partnerships will remain employees of their current respective employers.

Both EnCana and ConocoPhillips are committed to being leaders in the area of health, safety and environmental stewardship. Specifically, the companies expect to jointly fund and pursue research and technology development efforts aimed at minimizing the environmental footprint of the partnerships' upstream and downstream operations.

The transaction, which is subject to the execution of final definitive agreements and regulatory approval, is expected to close January 2, 2007. Both companies' boards of directors have approved the transaction.

Recently, EnCana retained independent qualified reserve evaluators McDaniel & Associates Consultants Ltd. to update its resource estimates. McDaniel's current best estimate of recoverable bitumen for Foster Creek and Christina Lake is more than 6.5 billion barrels.

Beyond the Foster Creek and Christina Lake projects, EnCana has a third project at Borealis, located north of Fort McMurray, where the heavier gravity bitumen (7 degrees API) will likely be better suited to upgrading at an Alberta facility. Other potential EnCana in-situ oilsands projects, such as Steepbank, East McMurray and Cheecham, are located near Borealis. Together these properties represent about one-third of EnCana's oilsands development potential beyond Foster Creek and Christina Lake. With respect to these properties, McDaniel's current best estimate of recoverable bitumen is more than 2.5 billion barrels.

Credit Suisse acted as advisor to EnCana on this transaction, and JP Morgan acted as advisor to ConocoPhillips.

BACKGROUND: Bitumen growth and refinery expansion plans

Over the next decade, the upstream partnership plans to invest $5.4 billion to grow bitumen production capacity at Foster Creek and Christina Lake from 50,000 bbls/d to approximately 400,000 bbls/d. A Foster Creek expansion currently under construction is expected to take production to about 60,000 bbls/d by early 2007. The next two Foster Creek expansions, 30,000 bbls/d each, are expected to come on stream in late 2008 and 2009 respectively. At Christina Lake, the current expansion is expected to take production to about 18,000 bbls/d by the last half of 2008, which means these near term expansions are expected to take total production to about 138,000 bbls/d before 2010. Subsequent expansions at the two projects are expected to continue growth to the targeted level of 400,000 bbls/d.

By 2015, the downstream partnership plans to invest about $5.3 billion in the Wood River and Borger refineries to expand the bitumen processing capacity from approximately 30,000 to 275,000 bbls/d (60,000 to 550,000 bbls/d of heavy oil processing capacity). Total throughput at the two facilities is expected to increase from the current 450,000 to 600,000 bbls/d. The partners also plan, subject to market conditions, to develop additional upgrading capacity for the remaining projected 125,000 bbls/d of bitumen production, possibly prior to 2015. At the Borger refinery, the construction of a new coker to process 20,000 bbls/d of bitumen is underway and scheduled for start up in the second quarter of 2007. Two subsequent expansions, with the first scheduled to start in 2009, are expected to take bitumen processing capacity to 75,000 bbls/d by 2012. At Wood River, preliminary engineering is underway for the construction of 70,000 bbls/d bitumen processing capacity, which is forecast to be on stream by 2009. A subsequent expansion is planned to take bitumen processing capacity to an estimated 200,000 bbls/d at Wood River by 2013.


    -------------------------------------------------------------------------
             EnCana-ConocoPhillips integrated heavy oil business
    -------------------------------------------------------------------------
                            Upstream partnership
    -------------------------------------------------------------------------
                                  Foster         Christina            Total
                                   Creek              Lake
    -------------------------------------------------------------------------
    Current production
    (bbls/d)                      43,000             7,000            50,000
    -------------------------------------------------------------------------
    Expansion capital(xx)
    investment by 2015(*)
    ($MM)                         $3,100            $2,300            $5,400
    -------------------------------------------------------------------------
    2015(*) bitumen
    production (bbls/d)          210,000           190,000           400,000
    -------------------------------------------------------------------------
    Proved reserves(xxx)
    (MMbbls)                         640                12               652
    -------------------------------------------------------------------------
    Oilsands land
    (net acres)                ~ 200,000         ~ 180,000         ~ 380,000
    -------------------------------------------------------------------------
                                ~ 170 km          ~ 225 km
                            northeast of      northeast of
    Location                    Edmonton          Edmonton
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*)Forecast
    (xx)All capital forecasts in table shown in 2006 $ terms
    (xxx)as of December 31, 2005, net after royalties
    1. Wood River includes approximately 30,000 bbls/d of current bitumen
       processing capacity
    2. Borger also has 50,000 bbls/d of natural gas liquids fractionation
       capacity


    -------------------------------------------------------------------------
                           Downstream partnership
    -------------------------------------------------------------------------
                                    Wood            Borger            Total
                                   River
    -------------------------------------------------------------------------
    Current
    refining
    capacity (bbls/d)          306,000(1)        146,000(2)          452,000
    -------------------------------------------------------------------------
    Expansion capital(xx)
    investment by 2015(*)
    ($MM)                         $3,900            $1,400            $5,300
    -------------------------------------------------------------------------
    2015(*) bitumen
    processing capacity
    (bbls/d)                     200,000            75,000           275,000
    -------------------------------------------------------------------------
    2015(*) total refinery
    capacity (bbls/d)            400,000           200,000           600,000
    -------------------------------------------------------------------------
    Refinery land
    (net acres)                    2,200             2,600             4,800
    -------------------------------------------------------------------------
    Location                     Roxanna,           Borger,
                                Illinois             Texas
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*)Forecast
    (xx)All capital forecasts in table shown in 2006 $ terms
    (xxx)as of December 31, 2005, net after royalties
    1. Wood River includes approximately 30,000 bbls/d of current bitumen
       processing capacity
    2. Borger also has 50,000 bbls/d of natural gas liquids fractionation
       capacity

EnCana's in-situ oilsands development

EnCana's development of in-situ oilsands properties began in the mid 1990s with the acquisition of Foster Creek. The Christina Lake properties were acquired in 1997. EnCana has built an experienced team of in-situ oilsands staff, including reservoir, drilling and production engineers along with geoscience professionals who have advanced technological solutions to extract the abundant bitumen from sand formations through the application of steam injected into horizontal wells, known as steam-assisted gravity drainage (SAGD). Following the successful pilot of six horizontal well pairs in the late 1990s, EnCana built and commissioned the world's first commercial steam-assisted gravity drainage project in 2001. With 45 well pairs, Foster Creek production has grown steadily to reach about 43,000 barrels per day. The Christina Lake project is in an earlier stage of development with six well pairs, producing about 7,000 barrels per day, or an average of about 1,000 barrels per day per producing well. EnCana's SAGD projects have achieved among the lowest steam-oil ratios, an industry measure of production efficiency.

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