The Globe & Mail (Canada): Higher oil prices mean expanded activities for Shell: “The head of Shell Canada Ltd. says a "step up" in the long-term outlook for oil prices means that the Calgary energy giant can expand its activities in unconventional areas such as coal bed methane”: “The expectation of higher commodity prices, along with the ability to drive down unit costs, will propel billions of investment, as much as $4-billion (Canadian), in Shell's oil sands projects through to the end of this decade, Mr. Mather said.” (ShellNews.net) 20 Nov 04
By PATRICK BRETHOUR,
Saturday, November 20, 2004 - Page B3
CALGARY -- The head of Shell Canada Ltd. says a "step up" in the long-term outlook for oil prices means that the Calgary energy giant can expand its activities in unconventional areas such as coal bed methane.
Clive Mather, who became Shell's president and chief executive officer in August, said a "structural shift" in the oil market means that it is very unlikely that prices will collapse as they did in the late 1990s. "There will be a correction, but I don't think we're going to plummet again," he said yesterday, adding that he does not believe current crude prices, hovering near $50 (U.S.) a barrel, will be sustained.
"I think we can be more optimistic in terms of price going forward than we have been in the past. And we've taken that into our own planning assumptions. That still doesn't give you $50 crude, but it does give you a sensible way of looking at the future."
Mr. Mather's comments are in line with the larger strategic thrust at Shell's corporate parent, Royal Dutch/Shell Group. In late September, Royal Dutch/Shell boosted the cutoff price used to evaluate oil projects to $25 from $20 a barrel, although it describes the higher price as one of a number of ways it uses to evaluate the economics of projects.
With expanding optimism on prices comes an expanded set of opportunities for Shell as some projects that were on the wrong side of the cutoff for profitable returns now become attractive enough. For Shell, those opportunities centre on unconventional gas, including coal bed methane -- extracting natural gas from coal beds -- and so-called tight gas, where geological formations make production tricky. Both are more technically complex, and at least initially more expensive, than conventional production.
Mr. Mather said Shell's initial efforts will be "relatively modest," but he is certain that the Canadian company will most certainly be part of a global push into unconventional production, driven by the common belief that a new era of high energy prices has arrived.
The expectation of higher commodity prices, along with the ability to drive down unit costs, will propel billions of investment, as much as $4-billion (Canadian), in Shell's oil sands projects through to the end of this decade, Mr. Mather said.
But there are limits to the benefits of higher prices. Offshore Nova Scotia -- where the industry has encountered a series of "very disappointing" results, Mr. Mather said -- is a lower-priority area for Shell, although the company could tie in a couple of smaller fields with its Sable Island joint venture project. He said talks continue on feeding gas from EnCana Corp.'s Deep Panuke fields into Sable Island's pipeline infrastructure. Such a deal would allow EnCana to use Shell's infrastructure rather than build its own, and would enable Shell to prolong production from its own project by substituting Deep Panuke gas in the near term.
Shell has a more upbeat assessment of the possibilities for exploration success off Canada's West Coast, as the federal government mulls whether to lift the three-decade-old moratorium on exploration and development offshore British Columbia. "It's potentially very, very important," said Mr. Mather, adding that new seismic data would need to be obtained before any exploration began.
He said the firm realizes that many British Columbia residents worry about the impact of offshore oil and gas activity, and Shell would move slowly and deliberately, in part to address those concerns.