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Royal Dutch Shell writes off $1B in oilsands assets

Royal Dutch Shell is assigning higher priority to its Carmon Creek in situ project near Peace River and its ongoing expansion at the Athabasca Oil Sands Project near Fort McMurray, said chief financial officer Simon Henry. Photograph by: BEN STANSALL, AFP/Getty Images

CALGARY – Royal Dutch Shell is writing off about $1 billion in oilsands assets, including some bought with BlackRock Ventures of Calgary in 2006, after evaluating and shifting focus to other northern Alberta projects.

Shell acquired BlackRock, based in Calgary, for $2.4 billion.

But it is assigning higher priority to its proposed Carmon Creek in situ project near Peace River and ongoing expansion of its Athabasca Oil Sands Project mine near Fort McMurray and upgrader near Edmonton, said chief financial officer Simon Henry in a webcast.

“The impairments today reflect changes to carrying values of some $1 billion in our rather scattered in situ and cold heavy oil positions in Canada, in legacy BlackRock positions, mostly from non-producing assets, and outside of Carmon Creek and AOSP,” said Henry.

The Hague-based Shell, Europe’s largest oil company, had “quite a detailed review of this sub-surface” asset “and overall they look less good than we’ve previously expected,” Henry said on a conference call.

“The BlackRock in situ assets are much lower down on the priority list.”

Bob Fitzmartyn, a research analyst who covered BlackRock for FirstEnergy Capital at the time of the deal, said the writedown is more related to Shell’s intentions than the value of the resource, adding it’s not clear how much of the writedown is for former BlackRock lands.

“If Shell is not going to put capital to develop those projects, they are written off,” he said. “For me it’s more of a commentary on Shell’s internal policies.”

He said about a third of Shell’s carbonate oilsands prospective property came from BlackRock but no one in the industry has a commercial project in that difficult play.

BlackRock’s Seal cold heavy oil project is apparently performing well, he said, adding BlackRock’s steam-assisted gravity drainage pilot project apparently did not measure up to the pilot’s promise.

Shell has backed away from its goal of tripling oilsands output to 750,000 barrels per day made just a few years ago.

Following a speech to the Calgary Chamber of Commerce Thursday morning, Shell Canada president and country chair Lorraine Mitchelmore noted that oilsands are a big part of company plans to spend $40 billion in the Americas over the next four years.

“A major part of that is coming into Canada with our natural gas business in northeast British Columbia and our Deep Basin, but also in oilsands with our debottlenecking project.”

She said decisions on future expansions will be made based on commodity price, costs and regulatory environment.

Shell has approval for 470,000 barrels per day of oilsands mining production but only 290,000 bpd of upgrading and recently withdrew applications for 400,000 bpd more upgrading capacity.

When its latest expansion is completed early next year, it will have 255,000 bpd of oilsands mining and upgrading capacity.

Shell has a three-phase plan to boost output from existing facilities by 85,000 barrels per day over the next seven to 10 years, with the first phase adding 35,000 bpd at a cost of about $2 billion.

Royal Dutch Shell posted earnings that beat analyst estimates Thursday.

Excluding one-time items and inventory changes, Shell earned $4.9 billion US in the third quarter, ahead of the $4.3 billion mean estimate of 18 analysts surveyed by Bloomberg.

Net income rose to $3.46 billion from $3.25 billion a year earlier, Shell said in a statement.

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