Blackstone teams with Warburg on first oil sands deal

The C$275m Warburg-led financing will support Osum Oil Sands’ move into commercial oil production by 2013. The lucrative oil sands in Alberta contain 173 billion barrels of proven reserves.

Warburg Pincus has led a C$275 million ($263 million; €179 million) financing for Alberta, Canada-based Osum Oil Sands which included a substantial investment from The Blackstone Group’s fifth buyout fund.

The financing was provided at a price of C$10.50 per share.

Osum is the only junior player with a material position in its operating region, according to the company. Warburg Pincus managing director Jeffrey Harris called the investment “one of the few remaining independent oil sands plays of scale in the primary fairway in Canada”, in a statement.

The capital will support the company’s plan to move into commercial production by 2013. Pilot results are anticipated in early 2010.Osum’s land position offers production potential for more than 150,000 barrels per day.

Previously unprofitable to process for crude oil, the oil sands in Canada have become a lucrative sector for investment as oil prices skyrocket. The oil sands in Alberta contain 173 billion barrels of proven reserves that can be recovered using current technology, according to a 2006 report from the Alberta Department of Energy.

Warburg has made one previous oil sands investment, according to its website. Between 2004 and 2006, the firm led three rounds of equity investment in Calgary-based MEG Energy, an exploration and production company focused on developing oil-sands in northern Alberta.

Warburg, which closed its 10th private equity fund on $15 billion in April, looks at deals in all development stages and sectors within a single fund.

This appears to be Blackstone’s first investment in the oil sands sector, based on its website. The firm’s fifth buyout fund closed on $21.7 billion in August 2007. Blackstone Capital Partners VI is currently targeting $20 billion.

Blackstone did not respond to requests for comment by press time.