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THE GLOBE & MAIL (CANADA): Shell eyes $17-billion expansion: Shell Canada Ltd. and its partners are in talks about spending $17-billion over the next decade to triple production at their oil sands project" ( 25 March 05


Investment by firm and partners would triple production to 600,000 barrels a day




Friday, March 25, 2005 Page B1




Shell Canada Ltd. and its partners are in talks about spending $17-billion over the next decade to triple production at their oil sands project as soaring energy prices bolster the economics of producing crude from the bitumen deposits of northern Alberta.


Western Oil Sands Inc. said yesterday that it, Shell and ChevronTexaco Corp. are debating how to proceed in expanding the Athabasca Oil Sands Project (ASOP), whose first phase has been operating for just over two years.


"The partners are discussing this," Guy Turcotte, Western's president and chief executive officer, said in an interview. Those discussions currently centre on capital spending of $4-billion to $4.5-billion in each of four phases over the next 10 to 12 years. He stressed that no final decision has been made, while laying out a blueprint for the next decade and a half.


Each of those phases would add daily production of between 90,000 barrels and 100,000 barrels, about half the size of the current operation, once efforts to increase its efficiency are completed over the next three years.


All told, the project could see its production rise as high as 600,000 barrels a day by 2017, Mr. Turcotte said.


He said the recent rise in the price expectations for crude over the next decade and beyond is a crucial consideration, with the expansion looking at projections above $30 (U.S.) a barrel.


"These projects cost a lot of money and, not only that, they take four years to engineer and build before you get any money, so you have to have some comfort that you are into a higher price than 25 or 30 bucks a barrel," he said.


Construction of the first phase could begin as early as next year, with oil being produced by 2009, he said. Each step in the expansion would add to the mining capacity of the project.


It would also increase the upgrading capacity of Shell's Scotford refinery outside of Edmonton.


Mr. Turcotte said the split between those two components would be in line with the industry standard of 60 per cent expended on upgrading facilities, meaning the total new investment at Shell's refinery could top $10-billion (Canadian). For its part, Shell would only confirm its previously announced expansion to add 90,000 barrels a day from its Jackpine mine by 2010 at a cost of more of $4-billion. That effort would be the first of the four phases in the plan described by Mr. Turcotte.


Shell's head oil sands executive said his company has said its bitumen reserves will support production above 500,000 barrels a day, but that it has not yet decided how and when to meet that target. "We are still working the options internally at Shell Canada on exactly how we're going to get to 500,000 barrels a day," said Neil Camarta, senior vice-president of oil sands.


The possible investment by the AOSP partners is one of a flurry of recent expansion announcements in the oil sands. Canadian Natural Resources Ltd. gave the formal approval to its Horizon project in February; Petro-Canada invested in the Fort Hills project earlier this month; and two weeks ago, Suncor Energy Inc. said it had filed a regulatory application for its "$10-billion plus" Voyageur project.


Talk of an expansion of AOSP comes as Shell's parent, Royal Dutch/Shell Group, seeks to replenish reserves after a series of writedowns.


Although the $17-billion price tag would seem to be larger than Canadian Natural's $10.3-billion Horizon project, Mr. Turcotte said it is more appropriate to compare each phase of the AOSP expansion, making them each about half the size of Horizon.


He said the companies envisage a rolling construction effort that will keep their peak work force to about half the size of the original project. They are also looking to streamline the expansion by using a single set of engineering plans for all the phases, and securing regulatory approval at the start of the expansion.


Western owns 20 per cent of AOSP, as does Chevron; Shell owns the remaining 60 per cent.


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