BP Seen Investing More Than $2B in Oil Sands Project

TORONTO (Dow Jones), Feb. 25, 2010

BP PLC is expected to invest more than $2 billion in Value Creation Inc.'s oil-sands project in Alberta, beating out rival bidder India's Reliance Industries Ltd. (500325.BY), according to an industry source.

Though the final terms could change, at this stage in the negotiations BP is expected to pay $500 million for a 75% working interest in Value Creation's oil-sands project plus a commitment to invest an additional $1.6 billion to help develop the project, according to the source.

Previous reports have suggested BP was expected to pay about $1.2 billion for a majority stake in Value Creation while Reliance had submitted a bid of about $2 billion.

A deal could be announced sometime next month.

Columba Yeung, Value Creation's chief executive, declined to comment.

The large reserve potential of oil-sands projects is attractive to big energy companies scouring for new resources. At the same time, their financial muscle is necessary to help develop these expensive projects, which can often go well over budget. Nevertheless, these projects are controversial because of the enviromental problems they cause.

Value Creation, a closely held company based in Calgary, holds the Terra de Grace oil-sands block, which is part of a 290-square-mile area. Value Creation expects to begin oil production at the site in 2011, according to the company's Web site. It is expected to be developed in phases of 40,000 to 80,000 barrels a day. Value Creation believes production over the entire block could exceed 300,000 barrels a day, according to the Web site.

Value Creation has also developed technolgy that it claims reduces the capital and operating costs for producing bitumen, transporting it and upgrading the bitumen into crude.

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