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Bitumen pipeline

DAVID BOILY

The oil company set to emerge from the split-up of EnCana Corp. plans a multibillion-dollar oil sands project that will employ new technology to coax the project's heavy crude to the surface, executives said Thursday.

Cenovus, which is what EnCana's spinoff firm will be called, plans to file applications in next year's second quarter for a project that could pump 80,000 to 120,000 barrels a day at a northern Alberta site called Narrows Lake, executives said during a conference call.

The move comes after EnCana slowed development of its two producing projects, Foster Creek and Christina Lake, as it cut its capital spending over the past year to deal with the economic meltdown and low oil and gas prices.

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Narrows Lake is just north of Christina Lake. Christina and Foster Creek now produce a total of more than 100,000 barrels a day for EnCana and its partner, ConocoPhillips Co.

Plans call for a steam-assisted gravity drainage project, where the company pumps steam into the earth to loosen up the tar-like bitumen so it can be pumped to the surface in wells.

But Cenovus is shooting for the first use of a solvent-aided process, or SAP, to boost production at a major project, said Harbir Chhina, EnCana's vice-president of upstream operations.

"That project will have commercial SAP implantation in it," he said. "So we're very close to commercializing SAP and that should be the first application commercially that you see."

John Brannan, the integrated oil division's president, said the company has not estimated a cost for the overall project, which is likely to be developed in phases of 40,000 barrels a day.

Expansions of current EnCana oil sands projects have cost under $20,000 (U.S.) per producing barrel of crude. But a stand-alone development such as Narrows Lake - which requires all new pipelines, processing equipment and roads - is expected to be pricier, Mr. Brannan said.

For example, at $30,000 per barrel, the total cost of a 100,000-barrel-a-day project would be $3-billion.

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The company said it now expects its oil sands operations to produce 400,000 barrels a day by 2018, which is about two years later than forecasts it made before the economic crisis forced the industry to chop spending and delay projects.

Last month, EnCana, Canada's second-largest energy company, revived plans to split into a pure-play natural gas producer and an integrated oil sands producer and refiner. The transaction is slated to close at the end of November.

As part of the joint venture with ConocoPhillips, the companies are 50-50 partners in the Wood River refinery in Illinois, which is being retooled at a cost of $3.6-billion to run more Canadian heavy crude, and the Borger refinery in Texas.

Meanwhile, Cenovus expects current narrow spreads between prices of light and heavy-grade crude oil to persist due to falling Venezuelan and Mexican oil supplies in the U.S. market and growing capacity among refiners to process heavy oil.

At a $67-a-barrel oil price, the company realizes a price for its bitumen of $52 to $54, said David Goldie, vice-president of refining and strategic planning. After operating costs, it nets more than $40 a barrel, he said.

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