ConocoPhillips, EnCana Start U.S. Refinery Expansion

By Jim Polson

Sept. 24 (Bloomberg) -- ConocoPhillips, the second-largest U.S. oil refiner, and Calgary-based EnCana Corp. began construction this week on a $3.6 billion Illinois refinery expansion to boost Canadian heavy-oil processing.

The Wood River refinery will more than double its capacity to refine heavy oil from Canada's oil sands into fuels such as gasoline and diesel to 240,000 barrels a day in 2011, EnCana said today in a statement. Crude-oil processing capacity at the plant will increase 16 percent to 356,000 barrels a day.

The venture between the companies plans to more than double total heavy-oil production from Canadian tar sands to 180,000 barrels a day by 2012, EnCana said.

Foundation-piling installation at Wood River, near St. Louis, began this week after the project received U.S. regulatory approval, EnCana said. The expansion includes a 65,000 barrel-a-day coker to process the tar-like oil.

Output of so-called clean products with less pollution will rise 32 percent to 330,000 barrels a day and production of asphalt, a cheaper product, will be eliminated.

Canadian oil sands contain as much as 173 billion barrels of economically recoverable oil, a reserve second only to that of Saudi Arabia, according to the Canadian Association of Petroleum Producers. The group has forecast that production will rise to almost 4 million barrels a day in 2020 from 1 million barrels now.

EnCana, Canada's largest natural-gas producer, announced plans in May to split into separate gas and integrated-oil companies. The oil company will hold stakes in a Borger, Texas, refinery as well as Wood River.

Expansion Venture

EnCana and ConocoPhillips agreed to form the joint venture in October 2006, with the purpose of expanding the Wood River and Borger refineries, as well as tar-sands output in Canada.

ConocoPhillips, based in Houston, rose 1 percent to $75.32 as of 9:30 a.m. in composite trading on the New York Stock Exchange. EnCana gained 40 cents to C$73.76.

Valero Energy Corp., based in San Antonio, is the largest U.S. oil refiner.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net.