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Private equity-backed Osum Oil Sands Corp. is accelerating plans to double production at an Alberta bitumen project in a rare display of confidence as U.S. oil prices surge above $60 (U.S.) a barrel.

Osum, whose shareholders include Warburg Pincus LLC, Blackrock, Azimuth Capital Management as well as two unnamed Canadian pension funds, said on Monday that it had started construction of a 6,000-barrel-a-day expansion at its steam-driven Orion project near Cold Lake, Alta.

The development follows a 3,000-barrel expansion announced last October and will push company-wide production to 18,000 barrels a day by 2020, up from 9,000 barrels currently, the company said in a statement. A capital cost was not disclosed.

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While a far cry from much bigger industry expansions, it shows there is still a pulse in a segment of the oil sands business that had largely been written off for dead by investors after several small developers declared bankruptcy.

It also points to a sustained appetite for select investments in energy among private equity players, several of whom had soured on Canadian opportunities owing to delays building major export pipelines and other issues.

"We were well financed coming into the downturn and that has been helpful in terms of enabling the company to maintain, sustain and keep going," Osum president and chief ececutive Steve Spence said in an interview.

"One of the challenges of being a small oil sands business is there are a lot of fixed costs, so as we go from 9,000 to 18,000 barrels a day, we really do get to spread those over a lot more barrels, which really does help an awful lot."

U.S. West Texas intermediate oil prices have rebounded sharply to around two-year highs above $60 a barrel, although gains have been capped by expectations that higher prices will spur production increases as drillers revive growth.

Globally, prices have been supported by the extension of a deal between top exporters Saudi Arabia and Russia to withhold supplies from the market, as well as major outages in the North Sea and in Libya.

For oil sands producers, however, the rally has been been largely overshadowed by concerns over transport bottlenecks as new production tests the limits of available pipeline capacity. That has heaped pressure on prices for the region's extra-heavy crude.

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Western Canada Select, the blend of bitumen and heavy oil that serves as the main price marker in the oil sands, on Monday fetched about $36.14, a discount of $25.40 against West Texas intermediate oil, according to broker Net Energy Inc.

The weakness coincides with the start up of major expansions led by Suncor Energy Inc., whose $17-billion (Canadian) Fort Hills mine is gearing up, and Canadian Natural Resources Ltd., which operates the Horizon bitumen complex.

Mr. Spence at Osum declined to provide a capital cost for the expansion at its Orion project. However, he said the company's production is a "slightly better quality oil than you get out of the Athabasca region," and so fetches a better price.

The Calgary-based company said it would fund the work with cash flow and $234-million in available capital on hand. It has also hedged a sizeable portion of its output to help reduce the financial impact of a wider price gap between the heavier crude at WTI, known as the differential.

"We don't think where we are today is where we are in the long term on differentials, but it's something that we're having to deal with," he said.

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