Royal Dutch Shell Group .com (Canada): Shell Canada provides updates for oil sands operations and expansion plans: “We are also building on the lessons learned from our first project to capture cost and operating efficiencies," said Neil Camarta, Senior Vice President Oil Sands, Shell Canada Limited.”: Posted Tuesday 9 August 2005


    CALGARY, Aug. 8 /CNW/ - Shell Canada Limited provides the following

update on current operations and expansion plans for the Athabasca Oil Sands

Project (AOSP), located in northern Alberta.




    In April 2005, Shell indicated that planned maintenance in the third

quarter of this year would result in single train operation at the upgrader

for a period of one to two months. Ongoing inspections and equipment

monitoring now indicate that major shut down activity can be deferred until

the second quarter of 2006. A production cutback is still required in

September to accommodate reduced availability of third-party hydrogen to the

upgrader and to allow minor planned maintenance to be carried out on the

Scotford hydrogen plants and the Muskeg River Mine cogeneration plant.

Production will be limited to about 140,000 barrels per day, or 90 per cent of

nameplate capacity, for up to three weeks.


    Expansion Plans


    Shell has over six billion barrels of recoverable bitumen in its

Athabasca leases, which could ultimately support over 500,000 barrels per day

of production. To achieve this goal, Shell announced in April 2005 a

continuous construction growth strategy that would expand the AOSP in three

"building blocks", each of approximately 100,000 barrels per day. The first

building block will include an expansion of the mine and a matching expansion

of the upgrader. Regulatory applications were filed in April 2005 and front-

end engineering is on track for a final investment decision in 2006. Major

contractors have been selected for both the mine and upgrader expansions. The

AMEC-Colt engineering joint venture will complete the final phase of front-end

engineering of the mine expansion and, when a final investment decision is

made, will be positioned to undertake the engineering, procurement and

construction management of the first and subsequent mine expansions.

Similarly, Bechtel Canada Co. has been selected as the major contractor for

the upgrader expansions.


    The scope of the first expansion has been defined in more detail, and now

includes the construction of certain common infrastructure such as pipelines

and utility systems, which will be sized to support the longer-term production

level of 500,000 barrels per day. The first expansion design also includes

learnings from construction and operating experience gained from the original

AOSP. For example, reliability enhancements in the bitumen extraction plant,

while requiring additional capital, will result in fewer shutdowns for planned

and unplanned maintenance. Also included in the first expansion are

profitability-driven capital investments such as a deasphalting plant at the

upgrader. As a result of this additional investment, the upgrader expansion

will produce less heavy oil, thereby reducing exposure to light to heavy oil

differentials and improving the value of the synthetic crude oil blends. It is

critical that the design of the first expansion is carefully optimized because

it provides the template for future building blocks.

    The front-end engineering process includes updates to capital costs.

While cost estimates will not be finalized for another year, it is clear that

there is a significant upward trend in construction costs due to the heated

global market for engineered equipment and bulk materials. Shell's current

view is that the first expansion, including the common infrastructure required

to support subsequent expansions, could be up to $200 per annual barrel of

production. Subsequent expansions will utilize this "pre built"

infrastructure, lowering their expected capital requirements.


    "With the strategic decision to pre-build infrastructure for our future

expansions, we've taken another important step on our path to 500,000 barrels

per day. We are also building on the lessons learned from our first project to

capture cost and operating efficiencies," said Neil Camarta, Senior Vice

President Oil Sands, Shell Canada Limited. "Our challenge is to continue to be

the most profitable oil sands producer and, when our final investment decision

is made, to deliver expansion projects on time and on budget. Shell has the

experience and the resources to meet that challenge."

    The Athabasca Oil Sands Project consists of the Muskeg River Mine located

north of Fort McMurray, Alberta and the Scotford Upgrader located near

Edmonton and is a joint venture among Shell Canada Limited (60 per cent),

Chevron Canada Limited (20 per cent) and Western Oil Sands L.P. (20 per cent).

Chevron Canada Limited and Western Oil Sands L.P. have the option to

participate with Shell Canada Limited in developing additional oil sands

resources in the Athabasca area.


    This document contains "forward-looking statements" based upon current

expectations, estimates and projections of future production, project startup

and future capital spending. Forward-looking statements include, but are not

limited to, references to future capital and other expenditures, drilling

plans, construction activities, the submission of regulatory applications,

refining margins, oil and gas production levels, references to resources and

reserves estimates.


    Readers are cautioned not to place undue reliance on forward-looking

statements. Forward-looking statements involve numerous risks and

uncertainties, which could cause actual results to differ materially from

those anticipated by the Corporation. These risks and uncertainties include,

but are not limited to, the risks of the oil and gas industry (including

operating conditions and costs), demand for oil, gas and related products,

disruptions in supply, project schedules, the uncertainties involving geology

of oil and gas deposits, the uncertainty of reserves estimates, fluctuations

in oil and gas prices and foreign currency exchange rates, general economic

conditions, commercial negotiations, changes in law or government policy, and

other factors, many of which are beyond the control of the Corporation.


For further information: Media Inquiries: Janet Annesley, Manager,

Oil Sands Public Affairs, (403) 691-2023; Investor Inquiries: Cathy Williams,

Chief Financial Officer, (403) 691-4600


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