* Narrows Lake to eventually produce 130,000 bpd
* Plans first large-scale use of solvent process
* First production expected in 2017
CALGARY, Alberta, May 30 (Reuters) - Cenovus Energy Inc said on Wednesday it won regulatory approval for its third major steam-driven oil sands project, a joint-venture development in which it will test new production technology aimed at getting more tar-like oil out of the ground.
Cenovus said it plans to start groundwork on the first 45,000 barrel-a-day phase of the Narrows Lake project in northeastern Alberta in the autumn. First production is expected by 2017 and eventual output could climb to 130,000 bpd.
Its partner is ConocoPhillips, which also has 50 percent interests in Cenovus's other two Alberta oil sands projects, Foster Creek and Christina Lake. Those two developments produce a combined 178,000 bpd.
Unlike the oil sands mining done by companies such as Syncrude Canada Ltd and Suncor Energy Inc, Cenovus employs steam-assisted gravity drainage with its projects. That involves injecting steam into the earth to loosen up the tar-like bitumen so it can be pumped to the surface in wells.
At Narrows Lake, it plans to be the first to use a solvent aided process, or SAP, on a commercial scale. With SAP, butane is added to the steam in efforts to boost the amount of oil recovered by as much as 15 percent while cutting the amount of steam needed, the company said.
Cenovus spokeswoman Rhona DelFrari said the company did not have an overall capital cost for the venture, but it expects the new process to increase the outlay by 10 percent to 15 percent above Foster Creek or Christina Lake.
At those two developments, costs of adding production are C$22,500-C$25,000 ($21,900-$24,300) per barrel a day of production, DelFrari said.
Cenovus and ConocoPhillips expect to sanction the development by the end of this year. Once that occurs, Cenovus expects to move some of the 888 million barrels of "economic contingent resources" to its books as proved reserves for year-end 2012, it said.
Cenovus shares closed down C$1.01, or 3 percent, at C$32.10 on the Toronto Stock Exchange, on a day in which the TSX oil group skidded 4 percent. It announced the regulatory approval for Narrows Lake after the market closed.