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Reuters: UPDATE 1-Shell halts oil sands mining to fix upgrader

Mon Nov 26, 2007 9:34 PM GMT
(Adds comment and detail)

CALGARY, Alberta, Nov 26 (Reuters) – Royal Dutch Shell said on Monday it has suspended bitumen production at its oil sands mine near Fort McMurray, Alberta, as it works to repair a fire-damaged upgrader that converts the tar-like bitumen into synthetic crude oil.

Shell will advance the timetable of maintenance work at the Muskeg River mine while repairs at the 155,000 barrel per day Scotford upgrader are completed following a Nov. 19 fire.

Storage facilities at the mine are full, and with the upgrader damaged, there is no place to send the bitumen for processing.

“Production has been curtailed,” said Randy Provencal, a spokesman for the company. “As a result, there was maintenance work that was originally scheduled for January 2008 that has been advanced.”

Shell’s extensive Canadian oil sands operations have been disrupted since last week’s fire at the upgrader site. The fire was ignited after a release of light hydrocarbons and deadly hydrogen sulfide gas at the complex, which is northeast of Edmonton, Alberta.

The outage has further squeezed tight oil supplies and has contributed to higher prices for the commodity.

The upgrader supplies synthetic oil to Shell’s 98,000 bpd Scotford refinery, which has operated at reduced rates since the fire. Provencal said Shell will buy synthetic crude to replace the lost feedstock but declined to specify how much would be acquired.

“I don’t know the exact amount of synthetic crude volumes that we are going to be securing,” Provencal said. “But we have exercised those contracts.”

The company said it is still working to restart one of a pair of key residue hydroconversion units to boost volumes from the upgrader. The other unit was damaged by the fire. No date for a restart is yet available.

Shell is the sole owner of the Scotford refinery and has a 60 percent stake in the oil sands mine and the Scotford upgrader. Its partners in the oil sands venture are Chevron Corp and Marathon Oil Corp , which each hold a 20 percent share.

(Reporting by Scott Haggett; Editing by Peter Galloway)

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