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Financial Post (Canada): Watch climbing oilsands expenses: Shell’s up by $2.8-billion

Financial Post (Canada): Watch climbing oilsands expenses: Shell’s up by $2.8-billion

“When Shell Canada Ltd. and Western Oil Sands Ltd. told the market earlier this week that they underestimated the expansion costs at their Muskeg River mine and Scotford upgrader by $2.8-billion, the market yawned. But Greg Pardy, an analyst at Scotia Capital, thinks investors better take a closer look.”

Thursday Aug 11, 2005

When Shell Canada Ltd. and Western Oil Sands Ltd. told the market earlier this week that they underestimated the expansion costs at their Muskeg River mine and Scotford upgrader by $2.8-billion, the market yawned.

But Greg Pardy, an analyst at Scotia Capital, thinks investors better take a closer look.

“While the market has remained focused on oilsands projects and growth potential — the big picture — considerably less attention has been placed on escalating capital costs,” he said in a research note yesterday. “We find this disturbing and symptomatic of a frothy energy market.”

He lowered his net asset value for Western to $19.40 from $21.54 but maintained his “sector perform” recommendation and $28.50 target price on the company. Mr. Pardy rates Shell at “sector perform” with a target price of $37.

Shell closed at a record high of $39.98 yesterday, up 81 cents in the past two days. Western Oil rose 29 cents yesterday to $30.79, after dropping $2 the previous day. Carrie Tait

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