PORTLAND (AP) – Katahdin Paper Co. is closing its Millinocket paper mill because of record oil prices, putting about 208 people out of work, officials said Thursday.

Fraser Paper, which operates Katahdin’s mills in Millinocket and East Millinocket, said high energy costs were a key factor in the failure to create a sustainable business model in Millinocket.

“The root cause for today’s announcement is record high oil prices which have doubled our fuel costs over the last twelve months,” Fraser CEO Peter Gordon said in a statement. Last year, the Millinocket mill consumed more than 400,000 barrels of oil in the paper-making process.

After the mill closes on July 28, it will be maintained so that operations can restart on an expedited basis if business conditions improve, the company said.

Katahdin’s Millinocket mill produced paper used in the magazine, catalog and retail insert industries. The East Millinocket mill, which employs 413 workers and makes paper used in telephone directories, was not affected by Thursday’s decision.

Gov. John Baldacci said the Millinocket mill, the older of the two mills, was at a disadvantage because it relies almost entirely on oil to generate heat and steam for the paper-making process.

He said a rapid response team from the Department of Labor is ready to support workers who lose their jobs, but he remained hopeful that the mill’s problems can be solved.

“Millinocket won’t be left on its own,” Baldacci said. “We stand ready to help the community and the families hit by this unacceptable situation. And we will work with the company to design an alternative business plan that relies on a more efficient energy source.”

The news is a blow to the Millinocket.

“I know that this news is very difficult for the people in the whole Katahdin region. This is a community that has been tremendously hard hit in recent years,” said U.S. Rep. Michael Michaud, who worked at the East Millinocket mill before going to Washington, D.C.

At their peak, the two paper mills employed more than 1,000 workers before Great Northern Paper Co.’s owner filed for bankruptcy in 2003. The mills were reopened after being purchased by Brascan Corp. of Toronto. The operation was renamed Katahdin Paper Co.

Toronto-based Fraser Paper, which was brought in to manage the mills, had an opportunity to buy the mills outright but abandoned the deal last year.

AP-ES-05-29-08 1838EDT