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Devon to seek approval for third phase of Jackfish Lake

Devon to seek approval for oilsands project
Company plans third phase of Jackfish Lake

By Shaun Polczer, Calgary Herald
November 4, 2009

CALGARY - In another sign the log jam of stalled oilsands projects may be easing, Devon Energy Corp. on Wednesday said it plans to seek approval in 2010 for the third phase of its Jackfish Lake thermal project.

Following the success of Phases 1 and 2, the Oklahoma City-based Devon said preliminary work to evaluate some 300 million barrels of recoverable bitumen has prompted the company to move ahead with a third, 35,000-barrel-per-day (bpd) “look-alike” project in northeastern Alberta.

“We have now completed this evaluation process and will seek approval from the regulatory authorities and our board of directors for Jackfish 3,” president John Richels told analysts on a conference call to discuss third-quarter results.

If approved, site work would begin in 2012 followed by commissioning in 2014.

Partly as a result of Jackfish 1, which began production in 2007, Devon’s Canadian oil volumes rose some six per cent in the quarter, to 63,000 bpd from a little less than 60,000 bpd in the third quarter of 2008.

Richels said the first phase of the Jackfish steam-assisted project will reach its full design rate of 35,000 barrels per day before the end of the year. The second phase, which began construction in 2008, is about half complete and remains on schedule for first oil in late 2011.

Based on previous phases, each incremental project stage costs about $1 billion. The slower pace of activity stemming from the downturn means the projects can be brought in on time and on budget, said Devon chairman Larry Nichols.

Fuelling the renewed momentum is higher oil prices, which on Wednesday rose back above $80 US a barrel. Benchmark crude rose 80 cents in New York to close the day at $80.40 after the U.S. government’s Energy Information Administration reported a surprise drop in crude inventories, amid signs the recession is easing in the world’s largest consumer,

On Tuesday, the Canadian Energy Research Institute released a report that predicted oilsands spending could double to about $8 billion next year as a consequence of higher oil prices.

Already, the signs of resurgent interest among local and international players is emerging. On Monday, UTS Energy sold a pair of undeveloped oilsands lease to Imperial Oil Ltd. for $250 million. Late last month, South Korea’s state oil company took over Harvest Energy Trust in a $4-billion deal that included undeveloped oilsands leases. In August, PetroChina ponied up $2 billion to take 60 per cent of a pair of oilsands projects developed by Athabasca Oil Sands Corp.

Opti Canada president Chris Slubicki on Wednesday said the renewed buzz convinced his company that the timing is right to explore “strategic alternatives” that could include a sale of the company.

Opti is a 35 per cent junior partner in the Long Lake oilsands project operated by Nexen Inc., which is ramping up to full capacity of about 70,000 bpd.

“It is the operational progress we have made that has given us the confidence to initiate this process,” Slubicki said on a conference call.

News of the review process sent Opti’s shares sharply higher on the Toronto Stock Exchange, where they gained 21 cents or more than 11 per cent to close the day at $2.11.

Andrew Potter, an oil and gas analyst with UBS Securities based in Calgary, said in a research report Opti is attempting to “strike while the iron is hot” in looking for a deal.

Although it is the company’s second strategic review in less that a year — the first resulted in the sale of 15 per cent of its Long Lake interest to Nexen for $725 million — Potter expects a “better outcome” this time around. Likely buyers could include other state oil companies interested in acquiring a non-operated interest at Long Lake.

“The board’s rationale in seeking out these alternatives include an improving economic environment, recent operational improvements at Long Lake and a strengthening M&A (merger and acquisition) market for oilsands assets.”

Philip Skolnick with Genuity Capital in Calgary said the timing for oilsands deals has definitely improved.

“Absolutely, it’s 180 degrees from this time last year,” he said in an interview. “Now you have UTS and PetroChina — it does show there’s renewed interest in the oilsands.”
© Copyright (c) The Calgary Herald

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