Chevron Corp. said Thursday that it would spend billions of dollars to lead the development of a giant oil-sand project in Canada’s Alberta province.
Chevron, which also owns 20% of a nearby oil-sand development controlled by Royal Dutch Shell, plans to build and operate a project capable of producing more than 100,000 barrels of oil a day within 10 years, said James Bates, a vice president at the company’s Canadian unit.
San Ramon, Calif.-based Chevron said it had acquired five leases for land in northern Alberta that contains an estimated 7.5 billion barrels of oil. The leases, covering more than 180,000 acres, were acquired at provincial land sales in January and August and cost about $61 million, the company said.
Oil prices, which are 19% higher than a year ago, and lower operating costs are stoking interest in Alberta’s oil sands, which are estimated to contain the most crude outside of the Middle East. The Canadian developments are attracting companies such as Chevron and Shell as global oil demand rises.
“This is a going to be a significant opportunity, and Chevron will be a significant participant in the area,” Bates said in a phone interview. “It’s a strategic resource base.”
Chevron, the second-largest U.S. oil company, is betting that oil prices will stay high and it can profit from oil-sand projects, which have higher operating expenses than conventional oil fields, said David Dreman, whose Dreman Value Management manages $15 billion, including 6.79 million Chevron shares. It’s a wager that probably will pay off because of increasing global demand for crude oil, Dreman said.
“The tar sands have been around for a long time, and the economics are finally getting good enough,” he said.
Alberta’s Athabasca region is attractive because of its potential for the development of large projects that produce for decades and because of its proximity to the U.S., the largest oil-consuming market, Dreman said.
Bates said it was too early to estimate the project’s cost, although “it’s going to be in the billions, not millions.”
Chevron shares fell 23 cents to $57.01.