Teck Cominco invests in oil sands project

Vancouver — Cash-rich Teck Cominco (TEK-T) has agreed to pay $475 million to secure a 15% stake in a partnership developing the Fort Hills oil-sands project near Fort McMcMurray, Alberta.

The company will earn its initial 10% stake by funding $250 million of expenditures borne by partners Petro-Canada and UTS Energy, and a further 5% interest by funding an additional $255 million of UTS expenditures. Once the deal closes in October, Petro-Canada and UTS Energy will retain 30% and 50% interests, respectively.Teck Cominco will satisfy the $475-million subscription price by contributing 34% of project expenditures until spending reaches $2.5 billion, and its 15% share thereafter.

Fort Hills hosts 2.8 billion barrels of bitumen. Approvals are in place for an operation capable of producing up to 190,000 barrels per day of bitumen, with initial start-up by 2010.

Teck Cominco views the project as “a foundation for potential further opportunities in the oil-sands business,” and as a natural hedge on energy used at its various operations.

Petro-Canada will continue to operate Fort Hills, with Teck Cominco contributing its open-pit mining expertise to the project, which will involve mining, extraction, and upgrading to a final petroleum product.

Teck Cominco President Don Lindsay says the company doesn’t plan to enter the oil exploration or energy business. Fort Hills is seen as a mining project, equivalent to the largest base-metal mines operating today, with a potential life of 40 years or more.

In a separate deal, UTS granted Teck Cominco rights to acquire “at fair market value” a 50% working interest in an oil-sands property adjacent to Fort Hills. The property has potential to be developed as a satellite mine to Fort Hills, subject to agreement of the partnership.

Alberta’s vast oil-sands projects have also attracted increased attention from American politicians concerned about the security of energy supplies from less stable areas, notably in the Middle East. Vice-President Dick Cheney was scheduled to visit several projects, but canceled the tour after Hurricane Katrina ravaged the coastal cities of Louisiana and other southern states.