The U.S. Synthetic Fuels Corp. yesterday waved the threat of termination of a $1.1 billion government loan guarantee at the Tosco-Exxon Colony Oil Shale project because of a potential $2 billion in cost overruns and concern about the government's collateral.

"We do view the situation there positively," said Synfuels Corp. Chairman Edward Noble. "But there is a very serious problem in cost overruns, which are not as clearly defined as we would like them to be."

"We must get to the bottom of the problem, and we're facing it straight on," Noble said.

The cost of the project to produce fuel from oil shale in Colorado was estimated by Tosco (the holder of the loan guarantee and a 40 percent partner in the project) as recently as last October as $3.1 billion. Tosco recently updated its costs forecast to $3.7 billion. Exxon, the holder of the other 60 percent interest in the project, has estimated that the project will cost approximately $5 billion.

Exxon has sole responsibility in the project for engineering, designing, building and operating the facility, so its cost estimates have been taken quite seriously.

Tosco was scheduled to draw additional funds under its guaranteed loan on April 1. The Synfuels Corp.'s actions last night suggest that the question of whether the company will be allowed to do so is still open.

Tosco spokesman Jack McDonald said that the resolution adopted by the Synfuels Corp.'s board of directors is "pretty consistent with the conversations we have had with staff. We regard it as positive." He added that a "modest delay" in drawing additional funds probably would not hamper the project.

The board's resolution called for further analysis of the condition and prospects of the project, of Tosco and of the Tosco subsidiary directly involved in the project. It also called for more monitoring of and discussions about the project's economic viability, the security for the government loan guarantees and Tosco's equity contributions to the project. It provided that, if agreement is not reached within 30 days about the adequacy of the security for the loan guarantees, the chairman shall make a recommendation about whether to terminate the loan commitment. According to the resolution, the chairman also could do so if any of the discussions called for in the resolution are not progressing in a satisfactory fashion.

The corporation also announced that five synfuel projects have moved to the next plateau in the contest for government assistance. The projects are a coal gasification project sponsored by Memphis Light, Gas and Water; a coal liquefaction project in Gillette, Wyo., sponsored by Kaneb Services Inc., Koppers Co. Inc., Nortwestern Mutual Life Insurance Co., Metropolitan Life Insurance Co., and Sohio; a coal liquefaction project in Breckinridge County, Ky., sponsored by Ashland Synthetic Fuels Inc. and Bechtel Petroleum Inc.; a coal liquefaction project in Creswell, N.C., sponsored by Peat Methanol Associates, Joint Venture of Energy Transition Corp., Koppers Co. Inc. and J. B. Sunderland; and a heavy oil conversion project in West Pittsburgh, Calif., a joint venture of Tenneco Oil Co., Canterra Energy Ltd., Alberta Oil Sands Technology and Research Authority and Dynalectron Corp.