07-01-03 French energy giant TotalFinaElf is buying into a $ 1-bn Alberta oil sands mega project, saying that the possible burdens of the Kyoto Protocol are not a deterrent to investing. TotalFinaElf said it has exercised its option to buy a 43.5-% stake in the Surmont permit and could invest $ 435-mm if it participates in all four phases of the project.
Through last fall, many Canadian oil sands operators voiced concern that the Kyoto Protocol would drive up their costs and drive away international investment. But Alberta is an extremely attractive investment, even with Kyoto, TotalFinaElf said. "I don't think that's something that concerns us so much," spokesman Paul Floren said.
Indeed, TotalFinaElf's assessment of the investment prospects in Alberta's oil sands is remarkably upbeat. "It's like taking the cream off the milk," Mr Floren said.

The oil patch has been striking a more conciliatory note since Ottawa offered several concessions to the industry, including a ceiling on the price of carbon credits. But TotalFinaElf is the first company to announce its entry into the oil sands since the ratification debate over Kyoto began in Canada last September. Several companies have either cut spending on their projects, or warned that they may be forced to scale back or kill investments if Kyoto imposes too high a burden.
Wilf Gobert, managing director of research at Peters & Co. in Calgary, said there has been a definite shift in sentiment in the oil patch over the past two months, with the dire warnings of the early fall giving way to more muted criticism. But he said the change resulted from the concessions the industry secured from the federal government.

The Surmont project does not include an upgrader, one of the most energy-intensive parts of producing saleable crude from the molasses-like oil sands. ConocoPhillips Canada, which will operate the project and holds a 43.5-% stake, said the bitumen extracted from Surmont will be piped to its parent's US refineries, where Kyoto emissions restrictions do not apply. Many of the firms that have warned of Kyoto's impact have costly upgraders as part of their investments.
TotalFinaElf had the right, but not the obligation, to buy the 43.5-% stake from ConocoPhillips. The amount paid is not being disclosed, but it is in addition to TotalFinaElf's share of Surmont's development expenses. Devon Energy holds the remaining 13-% stake.

Regulatory approvals are still pending on Surmont, which would produce 100,000 bpd of oil by 2013. ConocoPhillips Canada said a regulatory verdict is expected later this year, and that a decision on whether to proceed with the project has yet to be made.
Spokesman Peter Hunt said Kyoto-related costs will be a factor in that decision. But he said the participation of TotalFinaElf is an indication of the project's merits. "We welcome the decision as a vote of confidence in Surmont's future prospects," Mr Hunt said.
Mr Gobert said the investment, if it comes to fruition, would represent a major expansion into Canada by TotalFinaElf, which has negligible Canadian assets at the moment. The French company said, however, that it will be able to employ its experience with heavy oil production in Venezuela, where it operates the Sincor project within the Orinoco belt.