Nov. 17 (Bloomberg) -- Petro-Canada, the country's third- largest oil company, said it again delayed a plan to build an oil-sands upgrader estimated to cost as much as C$12.5 billion ($10.1 billion) on rising costs and falling oil prices.

A final investment decision is expected in 2009, the Calgary-based company said today in a statement on Market Wire. Petro-Canada and partners Teck Cominco Ltd. and UTS Energy Corp. have pegged the total cost of the Fort Hills project at C$25.3 billion and the cost of the upgrader at C$10 billion to C$12.5 billion, UTS said in a statement on Nov. 5.

Energy companies including Royal Dutch Shell Plc and EnCana Corp. are reducing plans to extract bitumen, the tar-like raw material used for crude, as oil prices plummet. Oil futures traded in New York have tumbled about 61 percent since July to a low of $54.67 a barrel on Nov. 13. Canadian oil sands are the world's biggest energy reserves outside Saudi Arabia.

``The writing had been on the wall for the upgrader,'' said Jim Hall, who oversees about C$1 billion at Mawer Investment Management in Calgary, including 116,000 Petro-Canada shares. ``It would have been a marginal project at $120 or $130 oil, so at $60 it's a non-starter.''

Ronald Brenneman, Petro-Canada's chief executive officer, said on an earnings conference call on Oct. 23 that the company may buy an upgrader, used to process oil sands, rather than build one. He said the company may proceed with a bitumen mine at the Fort Hills project in northeastern Alberta, though signaled a decision on the upgrader may be delayed.

In June, the Canadian Association of Petroleum Producers said companies would spend C$126 billion over the next five years on pipelines, mines and upgrading plants as record oil prices made the Canadian reserves in Alberta lucrative. The figure has now been chopped to about C$80 billion, Greg Stringham, an association vice president, said in a Nov. 7 interview.

Teck has plunged 85 percent since July 11 on concern the Vancouver-based miner won't be able to repay $9.8 billion of debt used to finance last month's acquisition of Fording Canadian Coal Trust.

``Petro-Canada's partners don't have a lot of financial room to maneuver,'' said Hall.

Petro-Canada holds a 60 percent stake in the project, and Calgary-based UTS Energy and Teck each have 20 percent. The project had expected production of 280,000 barrels of crude a day by 2015.

Imperial Oil Ltd., 70 percent-owned Exxon Mobil Corp., is Canada's largest oil company by 2007 sales, followed by EnCana.

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net; Dan Lonkevich in New York at dlonkevich@bloomberg.net.

Last Updated: November 17, 2008 07:08 EST