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Financial Post: BP hints at second oilsands partnership

Claudia Cattaneo, Financial Post 

CALGARY — Former oilsands skeptic BP PLC now seems in a hurry to catch up, signaling on Wednesday that it would forge a second partnership similar to its US$11.7-billion deal with Husky Energy Inc. if the right match came along.

After combining its Toledo refinery in Ohio in December with Husky’s Sunrise project in northern Alberta to create a US$11.7-billion business, CEO Tony Hayward said BP could make a similar move involving its refinery in Whiting, Ind., where a US$3.8-billion retooling and expansion to handle Canadian heavy oil is on its way.

“We created a very nice, coherent, tight, relatively modest in scale, but I believe will turn out to be very high-quality, integrated oil business with Husky,” Mr. Hayward said in response to an analyst question during a strategy session in London about whether BP is ready to make another oilsands move.

“In Whiting, we have the potential of a 400,000 barrel a day upgrading capability refinery, where you’d say, well, maybe you could do the same thing. We are looking at the pacing of that project in the moment. It clearly represents a very interesting option for the future. How we execute on that option, we will wait and see.”

Obtaining permits for expanding the plant on Lake Michigan, originally built in 1899 by John D. Rockefeller, has taken longer than expected because of community opposition, including getting bad reviews this month from U.S. presidential hopeful Barak Obama.

The British company, under pressure to reverse two years of production declines, hopes to get construction under way this year and is aiming for completion in 2011/2012, said spokesman David Nicholas.

BP, the world’s third-largest oil company, was a late entrant in the Canadian business, joining in December competitors Exxon Mobil Corp., Royal Dutch Shell PLC, Chevron Corp., Total SA, ConocoPhillips and Statoil Hydro ASA that are already established.

The partnership with Husky reversed the U.K.-based company’s previous dislike for the unconventional deposits under the leadership of Mr. Hayward’s predecessor, John Browne. BP started plotting its entry into the oilsands three years ago.

Mr. Hayward said BP continues to have a strong preference for participating in oilsands projects suited for in-situ extraction and remains unenthusiastic about mining methods.

Iain Conn, CEO of BP’s refining and marketing unit, said that by reconfiguring its refineries in the northern U.S. to handle Canadian heavy oil, BP has an advantage relative to competitors that have to move Canadian heavy crude all the way to the U.S. Gulf Coast, he said.

In Whiting, “you have a world-scale plant facing Canada, there is lots of ways you can capture the rent,” Mr. Conn said.

“You can either capture it in the refinery and own all of it, or you can capture it in a variety of ways up the value chain, and we are clearly into the possibility of creating a very powerful, probably the most powerful, potentially integrated system in the north part of the U.S. linked to Canada. If the right opportunities come along, I am sure we will look at them.”

Under the 50/50 joint venture with Husky, Toledo is being expanded to handle 170,000 b/d of Canadian heavy. In addition, BP has started to evaluate oilsands leases it owns in Alberta’s Kirby area that could support a 60,000 to 70,000 b/d in-situ project.

Mr. Conn said BP has bought many of the long-lead items needed to upgrade Whiting. The company, which is facing criticism at home for participating in Canada’s ‘dirty oil’, has promised not to dump extra pollution into Lake Michigan despite the capacity increase at Whiting, earmarking a large portion of its investment for environmental controls.

Financial Post: Published: Wednesday, February 27, 2008

http://www.financialpost.com/story.html?id=338925

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