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Toronto Star: Shell Canada CEO committed to pipeline

Jeffrey Jones
reuters news agency

CALGARY, Alberta–Royal Dutch Shell Plc’s Canadian unit is still committed to the idea of a $16.2 billion Arctic gas pipeline, but must be assured of better returns before going ahead, its outgoing chief executive said Thursday.

Clive Mather, who retires next week as Shell absorbs its formerly publicly traded Canadian unit, said the Mackenzie Valley Pipeline’s backers face a hard decision on making the huge investment due to surging costs and “fragile” economics.

Mather made the comments a day after the Rex Tillerson, CEO of Mackenzie partner Exxon Mobil Corp. , said the project may have to wait until the cost environment improves.

“Do we remain committed? We very much remain committed to the principle,” Mather said in an interview. “We’ve got to work out a solution with all of the other partners in this to a point where we can actually get to an investment decision, and that’s going to be tough.”

Project leader Imperial Oil Ltd.is in talks with Ottawa in hopes of wresting financial support to improve the economics of the line, which would ship up to 1.9 billion cubic feet of gas to southern markets, much of it from three big fields on the Beaufort Sea coast. Shell owns one of them.

The proponents want the government to allow accelerated depreciation, to pay for infrastructure like roads and to guarantee that third-parties will sign up to ship gas on the 1,200 km line to Alberta.

Imperial’s cost estimate more than doubled in March, reflecting soaring prices for labour and materials like steel.

Tillerson’s comments were among the strongest that the development is on shaky financial ground.

“I still remain quietly confident,” said Mather, who took the helm at Shell Canada, one of the country’s biggest oil companies, three years ago.

“This was always going to be difficult. It’s been going already for many years, but the fundamentals are strong – I mean the fundamentals associated with bringing that stranded gas to market, the fundamentals associated with opening up a potential new (supply) basin in the North.”

Indian and Northern Affairs Minister Jim Prentice declined Thursday to say if Ottawa would offer more incentives.

“This is a private sector enterprise and it will have to achieve private sector rates of return and it will have to make sense on free market principles. So I await to see whether that is the case or not with this project,” Prentice said.

“If it isn’t, then the proponents in the free enterprise system will have to consider alternatives.”

Mather, 59, is the last CEO of Shell Canada before it is integrated into the Anglo-Dutch oil major’s worldwide operations. Royal Dutch Shell bought out minority shareholding for $8.7 billion (Canadian) in April.

The personable British executive, a Shell veteran, is not involved in the integration of the business, best known for its massive oil sands holdings and national gas station chain.

But he said the unit, which employs about 5,000 people, will be structured like the parent’s businesses, split more along business lines than regional ones, with refining and marketing a good candidate for that.

However, Royal Dutch Shell has been clear about Calgary remaining a major centre in its operation, he said.

Mather said “as a good oil and gas man” he will miss running a fully integrated company, which mines oil sands crude, processes it, refines it and sells it at the gas pump.

“The other thing I like is having a public company and the share price. I am a very competitive animal and I like the challenge of seeing my stock out there, seeing how we do and seeing how others do,” he said.

(Additional reporting by David Ljunggren in Ottawa)

May 31, 2007 06:16 PM

http://www.thestar.com/Business/article/220090

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