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Outgoing Husky Energy CEO John Lau is moving to his native Hong Kong, where he will head up the company's growing Asian business.

Jeff McIntosh

The energy industry slapped down its second multibillion-dollar bet this week on the oil sands, a strong endorsement for a key sector of the Canadian economy in which development almost stopped during the recession.

Husky Energy Inc. and partner BP PLC said they will spend $2.5-billion on the Sunrise oil sands project, the first phase of which would produce 60,000 barrels of bitumen a day. The companies cited sharply lower costs to build in the oil sands as a principal reason for the move. The price is almost 40-per-cent less than an earlier estimate of $4-billion, Husky said, crediting better design for the project.

Sunrise, announced late Wednesday, follows a 83,000-barrel-a-day expansion of the existing Surmont facility by ConocoPhillips Co. and Total SA revealed on Tuesday, estimated at $1.5-billion.

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The two projects join a small group of others under way, showing a resurgence in oil sands projects. Still, some companies are taking a measured approach in contrast with the boom of a few years ago when construction was rampant as more than 20,000 workers were employed at various sites in Alberta's Fort McMurray region. Prices to build inflated during the boom, from steel to construction workers, and costs rose so high that few projects could be profitable with oil prices below $100 (U.S.) a barrel over the long term.

Now, with development costs down as much as 40 per cent, lower oil prices allow projects to produce sustainable profits.

"There's a general sense among the operators that the timing is looking favourable to get these projects back into construction phase," said Chris Feltin, an analyst with Macquarie Securities in Calgary. "It's a combination of being able to get access to labour and lock in lower material prices," he said.

First production from Sunrise is set for 2014, and total production could reach 200,000 barrels by 2020. The facility will use technology that injects hot steam into wells to warm the viscous bitumen below ground and coax it to the surface.

Husky has a similar project called Tucker Lake, but results there have been a major disappointment. The $500-million project opened in October, 2006, and was supposed to be at 30,000 barrels of bitumen a day by late 2008. The wells encountered drilling problems and missed the heart of the reservoir. Subsequent work to resurrect Tucker Lake hasn't worked either. Production at the end of September was 4,300 barrels a day, about 15 per cent of the goal.

Sunrise is "very significant" for the future of Husky, one of the Calgary company's largest growth projects, according to Husky spokesman Graham White.

Husky formed a 50-50 partnership with BP of London in 2008. BP took a 50-per-cent stake in output from Sunrise and Husky and BP joined forces on refining the production in the United States at a facility in Ohio, where $2.5-billon is to be spent to improve the refinery to handle difficult-to-refine oil sands crude.

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The deal is similar to one that Cenovus Energy Inc. has with ConocoPhillips.

Husky did not outline any new environmental technology to use less water or contain greenhouse gas emissions, issues that have garnered the oil sands a negative reputation around the world for its "dirty oil."

ConocoPhillips and Total aren't using breakthrough technology either but did say they would use less water, energy and land for the expansion of Surmont compared with the first phase.

Husky, traded on the Toronto Stock Exchange, is controlled by Hong Kong billionaire Li Ka-shing.

With files from reporters Brenda Bouw and Iain Marlow

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