Crude Oil Tar Sand Companies

[NYBob]

TransCanada, ConocoPhillips Plan $7 Billion Expansion (Update3)

By Ian McKinnon
July 16 (Bloomberg) --

TransCanada Corp.,
owner of Canada's largest pipeline system, and ConocoPhillips plan a $7 billion pipeline expansion to provide additional capacity to ship crude from western Canada to U.S. Gulf Coast refiners.

The 500,000-barrel-a-day expansion of the Keystone pipeline is expected to start by 2012, Calgary-based TransCanada said today in a statement. Customers have signed contracts for 300,000 barrels a day.

Houston-based ConocoPhillips, the third-biggest U.S. oil company, and TransCanada are spending $5.2 billion on Keystone to transport 590,000 barrels a day by 2009 to U.S. Midwest refineries. The $7 billion addition would allow Alberta oil- sands output to be processed by Gulf Coast oil refiners who represent almost half of the U.S.'s refining capacity.

``We are sort of the link in the middle of major capital plans' by producers and refiners to spend billions to produce oil from Alberta's tar-like deposits and process the oil into fuels including gasoline, Russ Girling, president of TransCanada's pipeline unit, said in an interview.

Companies extracting and refining oil from Alberta's tar sands wanted an option to ensure their plans are supported by increased transportation capacity, Girling said. Producers and refiners will have an option to acquire up to 15 percent in both phases of Keystone, according to the statement.

``They're willing to sign up to ensure that they can get their crude from one end to the other because they're making big investments at both ends of the pipe,' Girling said.

Valero Energy Corp., the largest U.S. refiner, said in a separate statement it agreed to be a potential shipper.

Increased Oil Exposure

The project illustrates TransCanada's plans to boost earnings by increasing its exposure to oil, said Gavin Graham, who helps manage about $5.5 billion as chief investment officer of the Guardian Group of Funds Ltd. Guardian owned about 1.12 million shares of TransCanada as of March 31, according to data compiled by Bloomberg.

``Looking out for the next four years, you have a pretty good idea of where the growth in earnings is going to come from,' he said in a telephone interview from Toronto. ``It's not massive as we're maybe talking 5 to 8 percent growth, which in the present environment looks pretty attractive.'

The expansion's impact on earnings depends on costs, ownership and timing, though TransCanada forecasts earning about 7.5 percent to 9 percent from its investment, according to Girling.

Alberta to Port Arthur

The expansion includes a 36-inch (91.4-centimeter) line that extends about 3,200 kilometers (1,989 miles) to Port Arthur, Texas, from Hardisty, Alberta. An 80-kilometer line may be built to deliver Canadian oil to refineries in the Houston area, the companies said.

The new line will allow direct access between Alberta and Gulf refiners, cutting transit time by about 15 to 20 days, Girling said. The proposed shipping rate is confidential and won't be disclosed, he said.

High oil and gas prices are boosting costs for energy projects around the globe. TransCanada plans to lock in costs for about 40 percent of the expansion by year-end, Girling said. TransCanada will be responsible for 25 percent of any budget over-runs and shippers will handle the rest, he said.

TransCanada Chief Executive Officer Hal Kvisle announced the possible expansion of Keystone in April at the company's annual meeting in Calgary without disclosing costs or timing.

About C$20 billion ($19.97 billion) is estimated to be invested this year to extract and process heavy crude from Alberta's oil-soaked sands, the Canadian Association of Petroleum Producers said last month in a report.

Oil-Sands Production

Oil-sands output is pegged to more than triple to 3.54 million barrels of oil a day by the end of the next decade, from 1.2 million in 2007, the Canadian forecast said.

TransCanada added 11 cents to C$37.95 in Toronto Stock Exchange trading. ConocoPhillips dropped $1.63, or 1.9 percent, to $83.19 in New York Stock Exchange composite trading as crude oil prices fell for a second day.

Irving, Texas-based Exxon Mobil Corp. is the largest U.S. oil company, followed by Chevron Corp. of San Ramon, California.

To contact the reporter on this story: Ian McKinnon in Calgary at [e-mail].
Last Updated: July 16, 2008 16:22 EDT

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