By OGJ editors
HOUSTON, Oct. 5 -- ConocoPhillips and EnCana Corp. agreed to create an integrated heavy oil joint venture that will involve two 50-50 operating partnerships: one Canadian upstream and one US downstream.
The two companies will contribute equally in assets and equity, they said Oct. 5. The transaction, subject to final agreements and regulatory approval, is expected to close Jan. 2, 2007.
Both companies' boards already approved the transaction. Each partnership will have a management committee with three ConocoPhillips and three EnCana representatives. Each parent company will hold equal voting rights.
"With this strategic alliance, ConocoPhillips strengthens its presence in North America by repositioning 10% of its US downstream business to access a large upstream resource base," said Jim Mulva, ConocoPhillips chairman and chief executive officer.
Randy Eresman, EnCana's president and chief executive officer, said his company had been looking for a partner to maximize the value of EnCana's in-situ oil sands.
"These innovative partnerships achieve this objective by strategically aligning about two thirds of our industry-leading oil sands projects with an industry-leading refiner," Eresman said. "ConocoPhillips brings a wealth of heavy oil refining expertise and widely adopted coking technology to our integrated heavy oil business."
The upstream partnership involves EnCana's Foster Creek and Christina Lake projects in the eastern flank of the Athabasca oil sands in northeast Alberta, having recoverable bitumen of more than 6.5 billion bbl. EnCana will operate and be the managing partner of the upstream partnership, to be based in Calgary.
The partnership plans to increase production to 400,000 b/d of bitumen by 2015 from current production of 50,000 b/d. A blend of 50-50 bitumen and synthetic oil will be sold at major Alberta trading hubs.
The downstream partnership involves ConocoPhillips's 306,000 b/cd Wood River refinery in Roxana, Ill., and its 146,000 b/cd refinery in Borger, Tex. ConocoPhillips will operate and be managing partner of the downstream partnership, to be based in Houston.
The partnership plans to expand heavy oil processing capacity at these facilities to 550,000 b/d by 2015 from 60,000 b/d. Total throughput at the two facilities is expected to increase to 600,000 b/d from the current 450,000 b/d during the same period.
In addition, the partnership might additionally expand heavy oil processing capacity at these locations or in Alberta to match bitumen production.
ConocoPhillips and EnCana each will own 50% of the partnership; however, ConocoPhillips will hold a disproportionate economic interest in the Borger refinery for 2 years: 85% in 2007 and 65% in 2008.