Petro-Canada (TSX:PCA)has revived its plans to upgrade its Edmonton refinery to process feedstock from Alberta's oil sands.

The $1.2 billion proposal disclosed Thursday replaces a more expensive plan cancelled earlier this year.

"The total dollar figures are significantly less than the amount we projected last spring, when we put the brakes on the original upgrading concept because of concerns over costs," said Ron Brenneman, CEO.




Under the new proposal, Petro-Canada will team up with Suncor Energy Inc. (TSX:SU)in a 10-year deal that will see the companies sharing production and refining work on the planned 57,000 barrel a day project.

The deal envisions:

  • Petro-Canada shipping at least 27,000 bbl/day of bitumen from is MacKay River oil sands plant to Suncor's Fort McMurray facility;

  • Suncor processing the Petro-Canada bitumen on a fee-for-service basis;

  • Suncor providing Petro-Canada with another 26,000 bbl/day of sour crude;

  • Petro-Canada upgrading and refining the combined 57,000 bbl/day in Edmonton.

Assuming regulatory approvals, the deal will take effect in 2008.

The $1.2 billion investment will pay for coker expansion, additional hydrogen production and sulphur-handling facilities in Edmonton.

Petro-Canada's early plans for the refinery called for a $4 billion to $5 billion investment that could process 170,000 bbl/day of bitumen.

It's taking a $140 million charge ($85 million after tax) in the fourth quarter to cover the write-down of engineering and conversion costs from the original refinery plan.

Shares of Petro-Canada gained 70 cents, closing at $60.03 on the TSX.