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Reuters: Shell Canada to boost oil sands output

Thu Jul 27, 2006 12:28 AM ET


By Jeffrey Jones

CALGARY, Alberta (Reuters) – Shell Canada Ltd. aims to more than double output of tar-like bitumen from its steam-driven oil sands operations in Alberta in the next two years, helped along by its C$2.4 billion ($2.1 billion) takeover of BlackRock Ventures, it said on Wednesday.

With the acquisition completed, Shell Canada expects to pump 50,000 barrels of the extra-heavy crude a day from the assets, up from less than 20,000 today, it said.

Long-term output could hit 150,000 barrels a day, the company said.

It pegged its “in situ” oil sands resource at 25 billion barrels in place, including 7 billion barrels from its own Peace River, Alberta, holdings.

Bitumen from in situ oil sands is produced in wells with the aid of steam pumped into the ground, instead of being mined in open pits.

There is no estimate yet of how much money it will take to boost production from the combined properties in the Peace River, Cold Lake and Athabasca regions of Alberta, Shell Canada spokeswoman Jan Rowley said.

The industry’s current and planned investments in Alberta’s oil sands have hit a staggering C$125 billion amid surging crude prices, fueling a major squeeze on labor and materials that has caused multibillion-dollar overruns. Shell is no stranger to that.

The company, majority owned by Royal Dutch Shell Plc , is also a miner and processor of oil sands, operating the 155,000 barrel a day Athabasca Oil Sands Project, Canada’s newest such facility.

Shell Canada and its partners are planning an major expansion of the operation, although they have already said cost estimates for the plans have surged 50 percent in the past year a year to as much as C$11 billion.

Chief Executive Clive Mather is expected to provide details of the plans in a conference call on Friday.

Mather said in a statement he believes reserves of in situ oil sands will increase once Shell Canada finishes evaluating the potential of other leases it acquired with its partners last year near the Athabasca project.

The next piece of the puzzle is determining how and where to integrate growing oil sands output with processing facilities that can upgrade the gooey crude into refinery-ready oil, Rowley said.

In its second-quarter results on Tuesday, the company said it is examining the potential of retooling and expanding its refineries in Sarnia, Ontario, and Montreal to accommodate more bitumen production, but provided few details.

“With in situ production, mining production, we think upgrading is also important in order to capture the value,” she said.

It tied its Edmonton, Alberta-area refinery into the Athabasca mining project by building an adjacent upgrader.

Shell Canada shares closed 15 Canadian cents lower at C$39 on the Toronto Stock Exchange on Wednesday.

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