The joint venture gives EnCana, Canada's biggest oil and gas producer, a buyer for 400,000 barrels a day of planned production from its vast Canadian oil sands holdings. ConocoPhillips, the No. 2 U.S. refiner, secures access to low-cost supply for refineries in Illinois and Texas. "By going into this partnership agreement with ConocoPhillips, we lever off their expertise in the downstream part of the business while we focus on what we are best at," Randy Eresman, EnCana's chief executive, told reporters. The companies will contribute $7.5 billion each to the partnerships over the next 10 years. ConocoPhillips will take a 50 percent stake in two EnCana oil sands projects under the agreement and EnCana would get half of the refineries. They have already earmarked about $10.7 billion of spending to raise production at Encana's Christina Lake and Foster Creek oil sands projects -- where 6.5 billion barrels of bitumen, a tar-like form of crude, lie trapped in sand -- and expand capacity at the ConocoPhillips refineries. ConocoPhillips said the deal would give 10 percent of its U.S. downstream business access to a stable, long-term supply of oil. "The beauty of this transaction is the value of integrated approach," ConocoPhillips Chief Executive Jim Mulva said on a conference call with analysts. "At a wide range of prices and differentials, the integrated partnerships should still realize good margins that otherwise would have been shifting between upstream and downstream players," he said. The strategy behind the planned link-up was logical, one analyst said, but the profitability was based on oil prices remaining firm. "I don't believe if the oil price goes below $45 a barrel this will be as economically attractive as it looks today," said Fadel Gheit, analyst with Oppenheimer & Co. Canada's oil sands represent one of the world's most promising streams of new crude oil, but the high cost of turning the thick sludge into usable fuel makes it economical only if oil prices stay above about $40 per barrel. The oil sands of Northern Alberta contain an estimated 174 billion barrels of crude oil, a resource second in size only to the oil fields of Saudi Arabia. The region now produces more than 1.1 million barrels a day and, with more than $100 billion in projects planned or underway, output is expected to grow to 3 million barrels a day by 2015. The biggest U.S. oil companies, including ConocoPhillips, are investing heavily in the region. ExxonMobil Corp., through its Imperial Oil Ltd. unit, operates the Cold Lake, Alberta, thermal oil sands and is planning the Kearl Lake project north of Fort McMurray. UPSTREAM, DOWNSTREAM The ConocoPhillips-EnCana ventures will be composed of two 50/50 operating partnerships, one for the upstream Canadian oil project and the other for the downstream refineries. On the Canadian side, production from EnCana's Foster Creek and Christina Lake projects, both on eastern flank of the Athabasca oil sands in Northeast Alberta, will be boosted to 400,000 barrels per day (bpd) by 2015 from the current 50,000 bpd at an expected cost of $5.4 billion. In the United States, the partners would increase the ability to refine bitumen at ConocoPhillips' Wood River refinery in Roxana, Illinois and Borger plant in Borger, Texas to 550,000 bpd by 2015 from 60,000 bpd currently. The transaction, which is subject to final definitive agreements and regulatory approval, is expected to close January 2, 2007. Both companies' boards of directors have approved the transaction. ConocoPhillips said the deal would not change its long-term production growth forecast of 3 percent per year on a barrels of oil equivalent basis. It said that because of the partnership it may back off or defer some of its other planned exploration and production investments. The company also expects to sell some of its exploration and production assets under a previously announced disposition program, ConocoPhillips said. ConocoPhillips shares rose 1.8 percent to $57.81 midafternoon on the New York Stock Exchange trading on Thursday. Encana shares rose 2.7 percent to C$51.30 on The Toronto Stock Exchange. ($1=$1.13 Canadian) PIN/REUTERS