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Shell cancels big Canadian oil sands project

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Posted on October 27, 2015 | By Collin Eaton

HOUSTON – Royal Dutch Shell says it will stop building a large Canadian oil sands project after low crude prices pushed it out of the company’s shortlist of profitable projects.

It’s the second large project Shell has canceled since August, when it ditched a $7 billion effort to drill for oil in the Arctic Ocean north of Alaska. Shell said Tuesday its Carmon Creek project in Alberta, which was expected to pump 80,000 barrels of crude a day, was sanctioned in late 2013 when oil prices were still hovering around $100 a barrel.

Viscous Canadian crude is costly to extract through via in situ methods that extract the gelatinous oil sand through steam-assisted gravity drainage, a process in which producers pump hot steam underground to stir up thick crude that usually doesn’t move deep in the earth. Most of these projects need oil to fetch $80 a barrel to be profitable.

Shell’s project also didn’t have adequate infrastructure to move the oil into the market, the company said.

“We are making changes to Shell’s portfolio mix by reviewing our longer-term upstream options world-wide, and managing affordability and exposure in the current world of lower oil prices,” Shell CEO Ben van Beurden said in a written statement. “This is forcing tough choices at Shell.”

Shell said it would take an impairment charge but didn’t disclose its size. It would also take about $2 billion in restructuring charges – which are related to severance costs – in the third quarter. It estimates there were 418 million barrels of proved reserves at the site last year, and those will have to be “de-booked” and classified as contingent resources.

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