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Shell Says Canadian Oil-Sands Production Costs Rise

By Paul George and Eduard Gismatullin

Jan. 29 (Bloomberg) — Royal Dutch Shell Plc, Europe’s largest oil company, said the cost of producing Canadian oil sands rose to about $38 a barrel last year, including fuel expenses.

Shell’s oil-sands production in Canada last year was 80,000 barrels a day, Chief Financial Officer Peter Voser said today on an analyst call. Costs averaged $29 a barrel in 2007, when Shell produced 87,000 barrels a day, he said.

“We expect that to make a profit” in Canada, Chief Executive Officer Jeroen van der Veer said in a Bloomberg Television interview today from The Hague.

Shell withdrew an application in November for government approval of its Carmon Creek oil-sands development in Canada because of rising industry costs. In October, the company postponed the second-phase expansion of its Athabasca oil-sands project, also in Canada.

Energy costs account for about 20 percent to 25 percent of the oil sands production expenditure, Voser said.

Oil and gas production at Shell may experience a “slight decline” in the short term, Van der Veer said, adding that “very soon our big projects will kick in.”

To contact the reporter on this story: Eduard GismatullinSteve Voss and Paul George in London at [email protected]

Last Updated: January 29, 2009 10:58 EST

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