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Petroleum News: ll reviews Mackenzie stake

Vol. 12, No. 29  Week of July 22, 2007

Shell Canada’s 11.4 percent stake in the Mackenzie Gas Project is up for review now that Royal Dutch Shell has taken over the Canadian unit.

Adrian Loader, the “caretaker” president of Shell Canada to oversee integration of the Canadian operations into Royal Dutch Shell’s global business units, said July 17 there will be a sweeping review of all major projects on the table in Canada except for the first-phase expansion of the Athabasca oil sands complex.

He said it is time to take a strategic look at all Canadian opportunities.

“Should we move faster with some? Should we look at others in a different way?” Loader said.

“That process will take longer because these are strategic decisions.”

The two major projects outside of the oil sands are the Mackenzie project and plans for a 150,000-250,000 barrels-per-day refinery in Ontario to process heavy oil from Alberta.

Before he left as Shell Canada Chief Executive Officer Clive Mather said he remained “quietly confident” that the Mackenzie project could proceed, despite a doubling of the budget to C$16.2 billion and “fragile” economics.

He said the venture was “always going to be difficult … but the fundamentals are strong” as they relate to bringing stranded gas to market and opening up a new supply basin.

Mather said solutions to the challenges must be worked out with the other partners “to the point where we can actually get to an investment decision and that’s going to be tough.”

The major obstacles are delays in concluding the regulatory process and negotiating a financial agreement with the Canadian government.

Athabasca operation not being reassessed

In the certain category, Loader said Shell Canada’s ambitious plans for its 60 percent operated Athabasca operation — Chevron Canada and Western Oil Sands each own 20 percent — are not being reassessed.

He said the initial expansion of 100,000 bpd to 255,000 bpd, costing C$12.8 billion, is “on track. … It’s going ahead.”

But he would not say whether oil sands production will be more closely tied in with Shell’s refining base in the United States.

Loader said there will be no “sudden U-turns” as Shell Canada’s various units are worked into a broader North American strategy.

He said the reorganization will move the Alberta oil sands mining function to Royal Dutch Shell’s global downstream division, while in-situ oil sands operations will be run from a new Calgary-based North American division responsible for unconventional oil.

But company officials are certain whether SURE Northern Energy, formed last year to develop new Alberta oil sands formations, will remain separate or become part of the unconventional division.

Oil shales, including experimental work in Colorado, will be included in the division.

Calgary will also be the home to Royal Dutch Shell’s onshore North American exploration and onshore North American natural gas production.

Loader would not comment on the future of Shell Canada’s workforce of about 5,000.

“The best way of thinking about this (reorganization) isn’t about synergies, but about growth and building on what we have in Canada,” he said.

He will remain in Canada until late this year, when a Canadian executive will assume the title of “country chair,” a Royal Dutch Shell designation for regional division heads.

Loader said Shell Canada will continue to exist as a corporate entity, but will no longer be the operating company.

—Gary Park

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