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Royal Dutch Shell Plc .com: Shell Canada partner sees big oil sands cost hike

Wed Jul 5, 2006 7:04pm ET

TORONTO, July 5 (Reuters) – Shell Canada Ltd.’s (SHC.TO: Quote, Profile, Research) C$7.3 billion ($6.6 billion) Athabasca oil sands expansion in northern Alberta is facing massive expense overruns, with one of partners in the project saying on Wednesday that capital costs of a “fully integrated expansion” could be about 50 percent higher than those anticipated last year.

Western Oil Sands (WTO.TO: Quote, Profile, Research), which owns a 20 percent stake in the project and made the overrun estimate, also said it now expects production to begin sometimes 2010. The fourth quarter of 2009 or the first quarter of 2010 had earlier been targeted.

The last cost estimate, of C$7.3 billion, was provided by the project owners in August 2005. A 50 percent increase from that number could see costs soar to C$11.05 billion. Another update from the owners is expected at the end of July.

Shell Canada owns 60 percent of the project and Chevron Canada Ltd. owns the remaining 20 percent.

Shell Canada did not provide a target for overruns as Western did with its 50 percent preliminary estimate for a cost increase, though a Shell spokeswoman said “we see numbers in that range.”

She added that Shell’s project reviews aren’t complete yet.

“We see signs of a heated market for labor, materials and equipment everywhere and we must assure ourselves that we can execute successfully,” Brian Straub, Shell Canada’s senior vice-president, oil sands, said in a statement. “Right now our focus is on mitigating the costs and risks.”

Shell Canada, majority-owned by Royal Dutch Shell Plc (RDSa.L: Quote, Profile, Research), said that the first stage of the expansion should add about 100,000 barrels a day of capacity, as well as lay down associated infrastructure for further growth.

($1=$1.11 Canadian)

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