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Shell to Exit Natural-Gas Project in Canada

JULY 15, 2011

By EDWARD WELSCH

CALGARY, Canada—Royal Dutch Shell PLC said Friday it plans to sell its stake in a long-stalled, C$16.2-billion (US$17 billion) natural-gas production and pipeline project in Canada’s far north, as well as its other assets in the region.

The fate of the Mackenzie Gas Project, which envisions bringing natural gas from fields bordering the Arctic Ocean to markets in North America, has long been in doubt. But Shell’s departure from the project marks the surprise capitulation of one of the project’s oldest and biggest partners. Consortium members have weathered years of regulatory review and roller-coasting gas prices, betting that the region’s gas trove would one day be economical.

Federal regulators in Canada approved the project last year, but the project’s other big partners, including ConocoPhillips Co. and Exxon Mobil Corp.-controlled Imperial Oil Ltd., hadn’t yet committed to build the project.

A Shell spokesman wouldn’t provide details on Shell’s decision to sell its assets in Mackenzie, including its 11.4% stake in the project, other than to say that it was part of Shell’s normal review of its holdings.

“Shell still believes the project is important for Canada,” the spokesman said.

Preliminary work on the Mackenzie gas pipeline was suspended in 2007 as a regulatory process dragged on. It was finally approved by regulators late last year, after a six-year review process.

But during that review, the economic rationale for bringing natural gas from the far north eroded. New drilling technologies unlocked fresh gas supplies across the U.S. and other parts of Canada, and natural gas prices in North America fell dramatically.

Imperial Oil, which holds a 34.4% stake and is leading the project, declined to comment on Shell’s decision. Imperial has said it and the other partners won’t be able to make a decision to commit funds to building the pipeline until the end of 2013. If it is built, the pipeline would ship up to 1.2 billion cubic feet of gas a day.

In addition to its stake in the pipeline project, which would include a gathering system and processing facility, Shell’s Niglintgak natural-gas field in the area will also be put up for sale, the company said.

Write to Edward Welsch at [email protected]

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