CALGARY, Alberta—Exxon Mobil Corp.'s Canadian unit said Friday it has applied for regulatory approval of an oil-sands project that could start daily production of 50,000 barrels early in the next decade.

The proposed project, valued at 2 billion Canadian dollars ($1.5 billion), appears to buck a broader industry trend in which many oil-sands producers have canceled or postponed planned development of projects due to sliding crude prices and uncertainty about the impact of new environmental policies in Canada.

Imperial Oil Ltd., in which Exxon owns a controlling 69.6% stake, said the new Midzaghe project would use a new technology designed to reduce greenhouse gas emissions by 25% and potentially double production levels in comparison with existing extraction methods.

The company remains undecided on whether it will proceed with construction even if the government approves the project. "The filing for regulatory approval is a preliminary step and no investment decision has been made," said spokeswoman Lisa Schmidt.

That decision will be based on a number of factors, including the outlook for commodity prices and how its ability to provide a return on capital compares with the potential of competing projects in the company's portfolio, she said.

New oil-sands well projects typically require benchmark West Texas Intermediate crude prices to trade above $65 a barrel to break even. Current prices below $40 a barrel have made it challenging to justify investment to develop projects in Canada's oil sands.

Imperial had previously said it planned to seek permission for the Midzaghe in northeastern Alberta from the provincial government in early 2016. And the company said last fall that it planned to use the promising new extraction technique at another proposed oil sands site called Aspen.

A decision on construction of Aspen is expected as soon as next year, pending regulatory approval. if it moves ahead, it would be the first commercial use of the new technology, Imperial said.

Pilot tests conducted by the company using a modified form of its steam-assisted gravity drainage, or SAGD, technology showed a nearly 30% increase in production of heavy crude leached out of underground oil sands wells. The new technique involves adding a chemical solvent to improve the flow of oil to the surface and reduce the need for steam made with generators fired by natural gas.

Rich Kruger, Imperial's chief executive, told investors at a meeting in September that this innovation, called SA-SAGD, could double the volume of output from at least seven proposed oil sands projects, including Aspen and Midzaghe

Raising production while lowering greenhouse gas emissions may help Imperial cope with new regulations and taxes designed to limit the industry's carbon footprint. The government of Alberta has raised its carbon tax on large-scale emitters and vowed to impose a 100 million metric-ton cap on such emissions from oil sands production.

The industry currently emits 70 million metric tons of greenhouse gases a year and the Canadian environmental ministry has projected that emissions from oil-sands productions will hit 103 million metric tons annually as soon as 2020.

Write to Chester Dawson at chester.dawson@wsj.com

 

(END) Dow Jones Newswires

March 11, 2016 18:25 ET (23:25 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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