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Petroleum News: Shell breaking ground in sands

U.S.-based arm of Dutch mega-major emerges as mystery buyer at Alberta lease sale; creates new Canadian subsidiary SURE Northern Energy to probe untapped resource
Gary Park
For Petroleum News
A Texas-based arm of Royal Dutch Shell has disclosed it paid a record C$468 million for almost 220,000 acres of northern Alberta oil sands leases in February, ending six weeks of speculation about the identity of the mystery buyer.
Shell Exploration and Production in the Americas said March 21 it is creating SURE Northern Energy, a new Calgary-based subsidiary, to evaluate and potentially develop the heavy oil resources using possible ground-breaking technologies.
SURE is separate from Shell’s 78 percent owned Shell Canada, which is 60 percent operator of the Athabasca oil sands project in partnership with Chevron Canada and Western Oil Sands, each holding 20 percent.
Shell America’s Executive Vice President Marvin Odum said Royal Dutch Shell has a “suite of both enhanced and new heavy oil technologies that could potentially apply to this type of resource.”
“While these technologies are not commercially proven, we believe there is significant potential for us to pursue this opportunity,” he said.
“This move represents a distinct opportunity to assess new and emerging technology.”
Limestone-encased bitumen
The bitumen in the area acquired by Shell is actually encased in limestone, which would require a shift from the current methods of extracting the raw bitumen from sandstone or dirt, using open pit mining or steam-assisted methods.
Neither of those systems works with limestone, which is not easily mined and breaks down if water is used.
The resource is called carbonate and until now what little data has been gathered suggests the leases are not suited to thermal recovery techniques.
Shell is not talking in detail about its challenges although a company official told the Globe and Mail that “some type of enhanced thermal recovery will be required to economically develop the resource.”
The company has said it needs more time to conduct a detailed appraisal program.
For now it is encouraged by the size of the resources (which Shell has not disclosed), current market conditions and advances in enhanced oil recovery methods.
Venture 60 miles west of Fort McMurray
The SURE venture is about 60 miles west of the established Fort McMurray oil sands region, moving into an area of deeper deposits where Robert Bedin, a senior analyst at Ross Smith Energy Group, said companies have tried and failed to develop a workable technology.
The move by a new Shell subsidiary into the oil sands caught some off guard, given the track record of Shell Canada and its ambitious plans to expand the Athabasca project from 155,000 barrels per day to more than 500,000 bpd. However, Royal Dutch Shell said it is maintaining its full support for the Canadian subsidiary’s ongoing business.
In addition to Athabasca, Shell Canada is also playing a role in an attempt by a tiny aboriginal community in northeastern Alberta to develop a C$1 billion mining project covering more than 8,000 acres holding an estimated 500 million barrels of recoverable oil.
The Native-owned Fort McKay Group of Companies, a conglomerate of seven businesses, has been working as an oil field service firm for the past decade and last year generated C$50 million in revenue for its 550 residents through a variety of operations.
Fort McKay and Shell Canada have an agreement that could see Shell become the primary developer and producer if the first nation relinquishes control of its leases and simply collects royalties.
A stronger indication of what is under discussion is expected at a community meeting on April 4 when the Fort McKay leadership will unveil details of work done by the engineering firm SNC Lavalin to put a cost estimate on a mining project.
Core drilling is also under way to define the quality of the reserves.
Earlier reports have pointed to a possible 25,000 bpd operation coming on stream in the 2013-2015 period.
The land is close to the massive oil sands operations run by Shell, Syncrude Canada and Suncor Energy.
It was inherited by the Fort McKay community as part of a 15,000-acre land claim settlement that gives the community C$41 million in cash over three years, of which C$10,000 is distributed to each member and C$33 million has been locked into a trust fund for future investment.

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