Exxon Corp. announced yesterday that it is pulling out of the $5 billion Colony Project in western Colorado, one of only two remaining commercial oil shale projects under construction in the nation.

Dropping the project means, in effect, that Exxon has paid more than $900 million for oil shale resources in Colorado it now has no plans for developing. Exxon did not say how much of a loss it planned to record on the investment.

Company officials cited rising cost estimates, more optimistic assessments about availability of crude oil from conventional sources, and lower crude oil prices as reasons for dropping Colony.

Exxon holds a 60 percent interest in Colony, which it acquired from Atlantic-Richfield Corp. two years ago this month for $300 million plus an additional $100 million to be paid if the project were completed as then scheduled.

The other 40 percent is owned by Tosco Corp., the nation's second largest independent oil refiner, but, under the joint agreement, Exxon is obligated to buy Tosco's share if the smaller company wants to sell.

Tosco President Morton M. Winston said his company will exercise that option. Exxon will pay Tosco $380 million for its interest. After repaying about $80 million borrowed under a $1.1 billion loan guarantee from the federal government's Synthetic Fuels Corp., and recovering its own $120 million investment, Tosco will realize about a $100 million gain from the sale after taxes.

Last year Tosco earned $22.6 million on sales of $3.4 billion. Exxon earned $5.6 billion on sales of $115.1 billion last year.

Earlier this year, the synfuels corporation had threatened to allow no more disbursements under Tosco's guarantee because of reports of huge cost overruns on the project.

Initially, Colony was to have cost less than $2 billion in "as spent" dollars, that is, taking inflation into account. But Tosco had raised its own estimate to $3.7 billion and Exxon believed the cost would be close to $5 billion.

Only last week, the synfuels corporation gave Tosco until the end of this year to provide revised cost estimates and it allowed Tosco to continue to add to the $39.9 million it drew against its guaranteed loan total last year.

Randall Meyer, president of Exxon U.S.A., said the two companies have spent about $400 million on engineering design and construction work for Colony.

"While construction work has been progessing satisfactorily," Meyer said, "the estimated probable cost of the project has continued to increase . . . Exxon believes the final cost would be more than twice as much as we thought it would be when we entered the project."

Colony was supposed to produce about 47,000 barrels of "upgraded" crude oil daily beginning in 1986. Oil shale, a type of oil-bearing rock, was to be mined, crushed and cooked in retorts, using a Tosco process. The heavy oil produced was then to be partially refined before shipment.

About 1,600 workers are employed at Colony, located on the Middle Branch of Parachute Creek about 15 miles west of Rifle, Colo. Others are at work on a new, model town not far away at Battlement Mesa intended to house the surging population of the area associated with the oil shale development. The town, partially completed, is supposed to have nearly 7,000 dwellings.

Cancellation of Colony leaves only a single oil shale project under construction in the United States, a smaller 10,000-barrel-a-day one being developed on Parachute Creek about two miles from the Exxon and Tosco operation by Union Oil Co. of California. Union received a $400 million government guarantee last year to purchase oil from the plant.

Occidental Petroleum and Tenneco Corp. last year stopped work on their joint project to the north near Piceance Creek that involved underground retorting of the oil shale. Another joint venture, the Rio Blanco Oil Shale Co. owned by Gulf Oil Corp. and Standard Oil Co. (Indiana), has not moved toward commercial scale operation. A third operation, that of Standard Oil Co. of California, is still in an experimental stage involving construction of a small plant near Salt Lake City to which shale would be shipped.

In late 1979 Exxon had startled the oil industry and many energy experts by calling for development of an 8 million barrel-a-day synthetic fuels industry in this country centered in the area around the Colony project.

In keeping with that sense of the world's need for synthetic fuels, Exxon announced in the following months a $7 billion oil shale project in Australia, a $7 billion heavy oil project in Canada, and a $4 billion lignite gasification project in Texas--in addition to buying into Colony. Since last summer the projects have been canceled one by one.