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THE MIAMI HERALD: Shell grows oil venture: Alberta has two thirds as much oil as Saudi Arabia, and in an era of high prices, Shell Canada and its partners are ready to expand their operations in the region. ( Posted 27 March 05



Bloomberg News


Shell Canada Ltd. and its partners in an Alberta oil-sands venture may spend as much as C$17 billion ($14 billion) in the next decade to double production.


The spending, which would be in addition to a C$4 billion expansion announced in September, may boost daily output to 500,000 to 600,000 barrels of oil, according to a public filing yesterday by Western Oil Sands, a venture partner.


Shell Canada, 78 percent owned by Europe's Royal Dutch/Shell Group, and other producers are investing billions of dollars to increase output of tar-like bitumen amid record prices. Alberta's oil-sands region has 174.5 billion barrels of oil, according to the province's Energy and Utilities Board. That's equal to two-thirds of Saudi Arabia's proved reserves.


''They're looking for production growth, and where can you get consistent production growth other than the oil sands, which have no political risk and little exploration risk?'' said Allan Stepa, an analyst at Salman Partners in Calgary. ``Royal Dutch and its partners see this as a growth area, and, if anything, things are being accelerated.''


Calgary-based Western Oil Sands owns 20 percent of the Athabasca Oil Sands Project. Shell Canada, also based in Calgary, holds 60 percent and is project operator. ChevronTexaco Corp., the No. 2 U.S. oil company, owns the other 20 percent.


Shares of Shell Canada, the fourth-largest Canadian oil company, rose C$1.01, or 1.2 percent, to C$87 in Toronto Stock Exchange trading. Western Oil Sands slid C$1.15 to C$55.55, and ChevronTexaco fell 21 cents to $58.21 in New York.


The companies expect the Athabasca expansion announced in September to increase daily output by as much as 100,000 barrels of oil from the current 155,000. The partners are studying the feasibility of boosting daily production in increments of 90,000 to 100,000 barrels ''on an accelerated basis'' to save money on engineering and labor, Western Oil Sands said.


Continuous expansion should cut costs as the companies gain experience and avoid having to assemble thousands of workers repeatedly, said Stepa, who rates Western Oil Sands shares at buy and doesn't own any. He doesn't rate Shell Canada shares.


The Athabasca venture includes a mine near Fort McMurray, where trucks scoop a sticky mixture of oil and sand into trucks for transport and processing into bitumen, an extra-heavy oil. The bitumen is sent by pipeline 435 kilometers (270 miles) to an Edmonton, Alberta, refinery, where it's turned into synthetic crude and used to make gasoline, diesel and other fuels.


Shell Canada hasn't made decisions on timing and costs for expansions at Athabasca beyond 2010, Neil Camarta, the company's senior vice president for oil sands, said in a telephone interview.


''Until we firm up our options and are really clear on exactly what we're going to do, we're not going to disclose what we're going to do beyond 2010,'' Camarta said.


Accelerating the pace of expansion is one scenario that would help Western Oil Sands boost the value of its shares and increase returns to investors, Chief Financial Officer David Dyck said in telephone interview.


''It has the potential to reduce your capital intensity and it has the potential bring forward your production horizon and hence bring your cash flow on sooner,'' Dyck said.


A C$17 billion investment would be the largest in Alberta's oil sands, exceeding an estimated C$10.8 billion in spending by Canadian Natural Resources Ltd. Canadian Natural plans to build a mine and upgrade a refinery to produce 232,000 barrels of synthetic oil a day by 2012.


Daily output from Alberta oil sands may reach 1.83 million barrels in 2010 and 2.61 million barrels in 2015, according to a report last month by Calgary brokerage FirstEnergy Capital Corp.


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