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CALGARY SUN: Shell proceeding with Athabasca expansion

Energy company will go ahead despite rising costs

Despite rapidly escalating costs at the oilsands, Shell Canada announced today it’s going ahead with the first phase of expansion at its Athabasca project.

“The heated market has upped the stakes on oilsands investments,” said Shell Canada president and CEO Clive Mather. “However, our analysis is that increasing world demand for energy will encourage the development of unconventional resources now and into the future.”

Mather said the Calgary-based company is taking a long-term approach to energy prices and will invest through the cycle to reach its bitumen production goal of 550,000 barrels per day at Athabasca.

The expansion, which is subject to final regulatory approvals, will add 100,000 barrels a day, bringing Athabasca’s bitumen production and upgrading capacity to over 255,000 barrels per day by 2010.

Earlier this year, Shell announced the cost estimates of its Phase 1 expansion at Athabasca had shot up from $7.3 billion to between $10 billion and $12.8 billion.

The cost of the project was originally pegged at $4 billion.

Capital intensity for the venture ranges between $100,000 and $128,000 per flowing barrel, but Mather said the expansion is a sound investment under a number of commodity-price scenarios.

“Shell Canada has some of the best land and minable ore quality in the Athabasca area,” he said.

“With billions of barrels of bitumen in place, we see clear potential for sustained profitable growth.”

The existing Athabasca oilsands project – a joint venture among 60% stakeholder Shell and 20% owners Chevron Canada and Western Oil Sands L.P. – consists of the Muskeg River Mine, north of Fort McMurray, and the Scotford Upgrader near Fort Saskatchewan.

The expansion will include construction at Jackpine Mine, added facilities at Muskeg River Mine and further work at the Scotford Upgrader, as well as the addition of common infrastructure.

At peak construction in 2008, it’s anticipated the project will require 6,000 tradespeople and 700 new permanent jobs are expected in Fort Saskatchewan and the Municipality of Wood Buffalo.

Public hearings regarding the expansion have been completed and a regulatory decision is expected by the end of the year.

Meanwhile, Shell also announced a gas discovery it made last year appears to be much smaller than initially thought.

An appraisal well at Tay River in Western Alberta confirmed the presence of gas but it’s commercially insufficient for the company to plan additional wells in the area.

Shell Canada – the target of a $7.7 billion bid from parent Royal Dutch Shell Plc, which wants to acquire the 22% of the company it doesn’t already own – said Tay River contains an estimated 220 billion cubic feet of original raw gas in place, down from previous estimates between 650 billion to 850 billion cubic feet.

The discovery well continues to produce at rates of approximately 90 million cubic feet per day and has produced over 35 billion cubic feet of raw gas since May 2005.

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