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Tickers in this Article: BP, CNQ, NXY, XOM, CVX, COP, SU, TOT
While U.S. energy officials debate the pros and cons of offshore deepwater drilling in the wake of BP's oil disaster in the Gulf of Mexico, oil producers in Canada's oil sands are planning major increases in production while taking concrete steps to clean up the industry's tarnished environmental image.

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Oil Sands Production Set To Soar

According to a recent independent study, by 2012 total oil sands production in Alberta should hit 2.1 million barrels per day - a full 40 percent higher than the total output achieved last year. And by 2020, it could be as much as 3 million barrels per day; double current levels.

Moreover, these could be conservative forecasts if the current disaster in the Gulf causes the oil majors to shy away from deepwater drilling and redirect even more of their exploration dollars into less-risky plays like the oil sands. The deposit remains the largest single source of oil outside the Middle East with enough reserves to meet total U.S. demand for the next 25 years.

Major Names In The Oil Sands

It's interesting to note that, despite everything that's going on right now, BP (NYSE: BP) continues to keep its hat in the ring with respect to a potential $2.5 billion joint venture in the sands with partner Husky Oil of Canada.

If BP does take the plunge, it will join a whole host of operators there with well-advanced projects. These include Canadian Natural Resources (NYSE: CNQ), Nexen (NYSE: NXY), ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), Total S.A. (NYSE: TOT), ConocoPhillips (NYSE: COP) and Suncor (NYSE: SU).

Suncor Makes First Move To Begin Oil Sands Cleanup

Recently, the last name on that list, Suncor, finally made a move to do something about one of the more obvious negative environmental impacts associated with oil sands. The company committed to spending $1 billion over the next one to two years to clean up the massive tailings ponds that have been the target of many environmentalists. While the size of this cleanup bill may have come as somewhat of a shock to some oil sands investors, it pales in comparison to the estimated $36 billion to $66 billion price tag that BP's shareholders may have to swallow as a result of the Gulf disaster.

The Bottom Line

Finding new oil sources is becoming an increasingly costly and sometimes dangerous pursuit. As cleanup costs start getting factored into the cost of production from the oil sands, producers' margins are likely to shrink. But having some certainty over these costs is likely to trump the risks and potentially huge liabilities now associated with offshore deepwater drilling. That suggests that capital flows into the oil sands are likely to accelerate in coming years. (For more stock analysis, see Will BP Survive This Crisis?)

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