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Petroleum News: Shell Canada pursues oil sands bonanza

Vol. 12, No. 5  Week of February 04, 2007
Gary Park

Shell Canada is apparently not going to be distracted from taking care of business by uncertainty over its future.

Despite being in the thick of a tug-of-war between Royal Dutch Shell and unhappy minority shareholders over control of Shell Canada, the Canadian subsidiary is pushing ahead with the most ambitious oil sands expansion yet.

A public disclosure document set a new long-term goal for Shell Canada of producing 770,000 barrels per day of bitumen from its Athabasca mining projects — up from its current production of 155,000 bpd and its previous long-term goal of about 550,000 bpd.

As well, Shell Canada’s grand plan includes an expansion of its upgrading capacity near Edmonton to process 700,000 bpd of bitumen.

Amid Royal Dutch Shell’s decision to hike its cash offer to C$45 a share from C$40 a share for the 22 percent of Shell Canada it does not already own and threats by dissident shareholders to take their fight to court, Shell Canada Chief Executive Officer Clive Mather stole some of the spotlight by rolling out his expansion dreams.

He said the announcement was consistent with the company’s existing business plans and had already been factored into consideration of Shell Canada’s value.

Mather said the expansion will proceed regardless of shaky oil prices, construction cost pressures or demands for tougher environmental standards for the oil sands.

“There are many challenges that we have to overcome, but this is a great business opportunity and the rewards will be there in the long-term,” he told the Calgary Herald.

Expansion includes two new projects

In a statement, he said the expansion includes two new mining projects — one to enlarge the existing Jackpine mine at the Athabasca operation and one involving a new 200,000 bpd mine at nearby Pierre River — plus regulatory approvals already in hand for additions to Athabasca.

Mather said it is important to obtain early stakeholder input and regulatory support for the “building block” expansion, even though the work could be many years away.

Shell Canada is already preparing regulatory submissions and public consultations will take place in 2007 and 2008, but the final timing hangs on market conditions, key economic indicators, the ability to meet the company’s sustainable development criteria and the outcome of the regulatory process.

Currently there is an estimated 5 billion barrels of bitumen in place to support the expansions, raising Shell Canada’s approved and proposed minable developments to about 10 billion barrels.

It is not clear whether Shell Canada’s partners in Athabasca and its current 100,000 bpd addition — Chevron Canada and Western Oil Sands, each with a 20 percent stake — intend to join the ride to 770,000 bpd.

The junior partners have approved participation in the project, but don’t have to make a final commitment until feasibility studies are completed and cost estimates are available.

There is also a question mark hovering over Western. If Royal Dutch Shell does take control of its Canadian unit, there is a growing belief that it will quickly make an offer for Western.

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