Market News

 December 06, 2007
BP upsets Greenpeace with return to tar sands

 BP is planing a return to the booming but environmentally controversial Canadian tar sands business with the creation of two joint ventures with Husky Energy worth an estimated $10 billion (£4.9 billion).

Eight years after disposing of its assets in the region, BP said that it had bought a 50 per cent share in Husky's Sunrise tar sands project near Fort McMurray, Alberta, and at the same time had sold Husky a 50 per cent share in its Toledo refinery in Ohio.

The announcement represents a clear break with the past for Tony Hayward, BP's new chief executive, whose predecessor Lord Browne of Madingley was an outspoken critic of costly oil sands developments. He sold off BP's interests in Alberta in 1999, opting instead to focus on higher-risk but higher-return investments in countries such as Russia.

BP's announcement immediately stirred opposition from environmental groups, who pointed out that as well as being expensive, the extraction of oil from tar sands is highly energy intensive and damaging to the environment. Mike Hudema, of Greenpeace Canada, described it as "one of the world's worst environmental disasters" and called BP's decision to reenter the market "very disappointing".

As part of the agreement announced yesterday, BP and Husky -- the Canadian oil company controlled by Li Kashing, the Hong Kong billionaire -- will jointly invest around $5.5 billion, or $2.75 billion each, into the two assets. This will include a project to upgrade BP's Toledo refinery to allow it to process more of the thick, heavy crude oil produced from the Sunrise field.

It also includes plans to jointly develop the Sunrise field, which uses steam to extract a low-quality crude from bitumen trapped in the soil more than 100 metres underground.

The Sunrise field is to be developed in three stages, the first of which will allow for the production of 60,000 barrels per day by around 2012. By 2020, BP claims that the field could produce 200,000 barrels of oil per day.