* Consortium says still in running for oil sands assets
* Expects that new Canadian rules will not rule out deal
* No time frame for ConocoPhillips decision
By Prashant Mehra and Nidhi Verma
MUMBAI/NEW DELHI, Dec 11 (Reuters) - India's state oil companies intend to press ahead with plans to buy stakes in Canada's oil sands and believe they will not run afoul of tougher Canadian rules on foreign ownership of the sector.
A consortium of Oil and Natural Gas Corp, Oil India Ltd and refiner Indian Oil Corp is among three bidders short listed to buy stakes in Canadian oil sands owned by ConocoPhillips. The assets could be worth up to $5 billion.
"We are very much in race for Conoco's assets," an official at one of the Indian consortium partners told Reuters, declining to be identified. The consortium submitted its bid in July.
"Our deal will not be affected as our understanding of the new rule is that JV (joint-venture) stake sale or non-controlling stake sale are welcomed by Canada. However complete takeover will be approved as an exception," he added.
On Friday, Canada approved a $15.1 billion bid by China's CNOOC for Nexen and a $5.3 billion takeover of Progress Energy by Malaysia's Petronas, but shut the door on similar deals in the future.
Prime Minister Stephen Harper said Canada would not deliver control of the country's oil sands -- the world's third-largest reserves of crude -- to another government.
The tougher new approach restricts state-owned enterprises to minority stakes in Canadian enterprises except in "exceptional circumstances". However, when announcing the changes last week, Harper said that state oil companies would still be allowed to take minority stakes in tar sands properties.
"Our understanding is the restriction would apply only in the case of transactions at the corporate level and not at the asset level," said a resources banker with a leading U.S. bank in India, declining to be identified.
The ONGC-led consortium has not asked for any clarification yet on the new rule, the official said.
T.K. Ananth Kumar, director of finance at Oil India Ltd, one of the consortium partners, said the group would be discussing the development with bankers.
"Getting into unconventional energy is important for us. We want to get into this if the returns are good, that is why we have agreed to partner," he told Reuters.
In January, ConocoPhillips put stakes in six Alberta properties on the auction block. They produce 12,000 barrels of oil per day from a resource estimated to be as large as 30 billion barrels of bitumen.
The one producing project in the package is Surmont, run in a joint venture with France's Total SA. Located south of the oil sands hub of Fort McMurray, Alberta, the steam-driven development pumps about 25,000 barrels per day. The partners are working to boost that to 136,000 bpd, starting in 2015.
ConocoPhillips has not yet said when it will wrap up the sale process. Ken Lueers, the president of Conoco's Canadian unit, declined to specify how many bids had been received for the properties.
"We had targeted to raise $8 (billion) to $10 billion dollars in asset sales by the end of 2013," Lueers told Reuters following a speech to a Toronto investment conference. "So we went through the marketing, we received the bids, a number of bids actually, and we're continuing to evaluate them."
SEARCH FOR ASSETS
Rising energy demand in India and stagnant domestic output have made the country the world's fourth-biggest crude importer.
Western sanctions squeezing Iran, once India's second-biggest supplier, have added urgency to New Delhi's quest to secure additional energy sources.
India's state oil companies, tasked with scouting for oil and gas assets abroad to meet rising demand in the nearly $2 trillion economy, have moved with uncharacteristic speed in recent months to secure interests overseas.
Last month, ONGC Videsh, the overseas arm of state-run ONGC, agreed to pay about $5 billion for ConocoPhillips' 8.4 percent share of the Kashagan field in Kazakhstan, the world's largest oilfield discovery in four decades -- which could boost its output by about 16 percent within a year.
Earlier this year, it also agreed to pay $1 billion for a small stake in the Azeri, Chirag and Guneshli (ACG) group of oil fields in Azerbaijan and a stake in an associated pipeline.
State-run GAIL India is also considering buying liquefied natural gas (LNG) assets in Canada, Peru, and Trinidad put up for sale by Spain's Repsol.
The recent spate of expenditure could, however, hinder ONGC's immediate efforts to make large-size deals such as the one for Conoco's Canada assets, analysts said.
"Because ONGC has just announced the Kashagan deal, it (the Canada deal) may be too much for them to take on quickly. There may not be such big deals for next 6-8 months," said Dayanand Mittal, an oil and gas sector analyst at Mumbai's Ambit Capital.
"The IRR (internal rate of return) will be lower versus conventional oil-and-gas assets since capital expenditure is significantly higher," he added.