EnCana and ConocoPhillips begin Wood River refinery expansion

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September 24, 2008

EnCana Corporation (TSX, NYSE: ECA), through its 50-50 integrated oil venture with ConocoPhillips, will begin construction this month of a Coker and Refinery Expansion (CORE) project at the Wood River refinery in Roxana, Illinois. The project will expand upgrading capacity as well as increase production of clean transportation fuels for the U.S. Midwest market.

“The CORE project will transform Wood River into a more modern, efficient refinery producing a high proportion of clean transportation fuels in the heart of one of North America’s largest consumer markets. This refinery expansion and coker addition capture the capital and operational efficiencies of building on a well-established refinery. It will be a key component of growing our integrated oil business at a highly competitive capital cost,” said Brian Ferguson, EnCana’s Chief Financial Officer.

The CORE project is estimated to cost a total of about US$1.8 billion net to EnCana ($3.6 billion gross) and is expected to be completed over the next three years. It will:

  • Add a 65,000 barrels-per-day (bbls/d) coker to enable processing of growing supplies of heavy crude oil
  • Increase total crude oil refining capacity by 50,000 bbls/d to 356,000 bbls/d
  • More than double heavy crude oil refining capacity to 240,000 bbls/d
  • Increase the clean product yield by 10 percent to 89 percent
  • Eliminate 40,000 bbls/d of low-value asphalt production

The Wood River refinery expansion recently received final regulatory approvals to start construction. Crews began installing foundation pilings this week. The CORE project is expected to be in full operation in 2011. In parallel with the Wood River refinery expansion, the integrated oil venture has approved upstream expansions at Foster Creek and Christina Lake in Alberta where EnCana expects gross bitumen production capacity will grow from the current level of 70,000 bbls/d to about 180,000 bbls/d in 2012. Further expansions are planned to increase production capacity to 400,000 bbls/d by 2016.

In May, EnCana announced plans to split into two independent, highly-focused energy companies – one an integrated oil company with the working name of IOCo and the other a pure-play North American natural gas company. The EnCana reorganization is subject to shareholder and regulatory approval, and is expected to be completed in early 2009.

“When the CORE project is complete, IOCo will have two strategically located refineries in the U.S. each with significant heavy oil processing capacity. Combined, the Wood River refinery and the Borger refinery in Texas will have a total heavy oil capacity of 275,000 bbls/d, placing IOCo among the leading heavy oil refiners in the U.S.,” said Ferguson, who is the designated President & Chief Executive Officer of IOCo.

Cost competitive upgrader addition
A standalone upgrader with a coker of this size – 65,000 bbls/d – is capable of processing about 130,000 bbls/d of bitumen. Based on this processing capability, the capital efficiency would be about $28,000 per daily flowing barrel of bitumen. Combined with EnCana’s announced upstream production expansions, total capital efficiency for this integrated project would be approximately $50,000 per daily flowing barrel of bitumen. EnCana’s integrated business produces bitumen from northern Alberta reservoirs, upgrades the oil and refines it into market-ready petroleum products, including gasoline, diesel and jet fuel.

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