April 17, 2009 / 8:53 PM / in 9 years

UPDATE 2-Enerplus shelves C$400 mln oil sands project

* C$400 million Kirby project

* Latest in string of plans deferred or canceled

* Units up 1.8 percent at C$23.53 (Adds details)

CALGARY, Alberta, April 17 (Reuters) - Enerplus Resources Fund ERF_u.TO said on Friday it is shelving its C$400 million ($330 million) Kirby oil sands project in Alberta, joining a long list of companies that have deferred such developments due to low oil prices and shaky credit markets.

Enerplus sold its stake in a much larger oil sands project last year so it could focus on Kirby. It filed regulatory applications last September for a 10,000 barrel a day first phase.

“While we believe there is long-term value in the Kirby project, the current cost structures, commodity price environment and our cost of capital do not offer a sufficient economic return for additional investment toward project sanctioning at this time,” it said in a statement.

The company owns 100 percent of the project, where plans called for steam to be pumped into the ground to loosen up the tar-like bitumen so it can be pumped to the surface in wells. The method is called steam-assisted gravity drainage.

Kirby’s current resource estimate is more than 400 million barrels. Enerplus had envisioned producing 40,000 barrels a day by 2017, with the first phase producing by 2012.

Since weak oil prices took hold last September, companies have deferred or canceled more than C$90 billion worth of oil sands projects. The oil sands are far more expensive to develop than traditional oil and gas fields.

Enerplus said it will complete some of the activities it is working on at the site, located south of the oil sands hub of Fort McMurray, Alberta, to position it to be “re-evaluated and potentially reinitiated at a later date.”

The company had chopped spending on Kirby to C$25 million this year and now sees a further C$5 million cut.

Workers are expected to be redeployed to other parts of the business once the current activities are done, Enerplus said.

Last year, the company sold its 15 percent interest in the Total SA-operated (TOTF.PA) Joslyn oil sands project to Occidental Petroleum Corp (OXY.N) for C$500 million so it could concentrate money and efforts on Kirby.

Enerplus trust units rose 1.8 percent to C$23.53 on the Toronto Stock Exchange. They have fallen by nearly half from a year ago.

$1=$1.21 Canadian Reporting by Jeffrey Jones; editing by Rob Wilson

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