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CBC NEWS (Canada): Oilpatch wondering how Royal Dutch Shell will realize potential of new lands

CALGARY (CP) – It's the $465-million question: What energy potential does Royal Dutch Shell (NYSE:RDS.A) see in a remote chunk of Northern Alberta's wilderness that no one else does? One day after the European-based oil and gas giant revealed that it had spent close to half a billion dollars for nearly 900 square kilometres in the middle of nowhere, the Canadian oilpatch was still trying to figure out why.
“It's a lot of money for an area that hasn't shown that kind of promise through other wells or projects or pilots or what have you,” said Tom Ebbern an energy analyst with Calgary-based Tristone Capital.
“It would be more understandable if they were playing around in a couple little sections and done some drilling and shot some seismic and maybe poked some holes here and there.”
But the land, located about 100 kilometres west of the oilsands hub of Fort McMurray, Alta., is about as unknown as there is.
The Alberta Energy and Utilities Board said there's been a few test wells drilled in the area in the past, but not for at least 15 years and the area is viewed as “largely undeveloped.”
The provincial energy regulator says the area is a carbonate deposit, which means that bitumen is basically trapped in limestone rather than in the sand which characterizes most currently viable oilsands projects.
According to a National Energy Board report, of the 315 billion barrels of ultimate potential held within the oilsands, about 38 billion barrels are within carbonate deposits. And they have been considered beyond economic reach.
Meanwhile, Royal Dutch Shell remains vague on the type of technology it will use to access its new oilsands deposits.
“The resource underlying these tracts is too deep to mine,” spokeswoman Destin Singleton said in an email from Shell EP America's office in Houston.
“We believe it may be possible for us to apply either enhanced or new emerging heavy oil technologies for this type of resource.”
“Some type of enhanced thermal recovery technology will be required to economically develop the resource.”
Murray Gray, a professor of chemical engineering at the University of Alberta, said Shell has been doing a lot of work in the U.S. lately trying to find a way to get oil from oil shale rocks.
“They've been developing technology and writing an awful lot of patents in the area of getting heavy hydrocarbon material out of some very tough places,” he said Wednesday from Edmonton.
Gray said the technologies – which include potentially running electricity through the deposit, as well as underground combustion techniques – are very different than the current steam-based approach used by most Canadian energy companies to melt the oilsands.
And he said the carbonate would technically be easier to solve than oil shale since it would require less heat.
Royal Dutch Shell plans to drill some appraisal wells later this year to “further understand the resource, the geology and the potential for development.”
It's also possible that Royal Dutch Shell has not yet identified the technology it will use, said Ebbern. With oil prices remaining stubbornly above the $60 US per barrel mark, the economic threshold for new oilsands technologies has become much higher.
“And if you're convinced that the resource is there, then half a billion dollars may in hindsight be a reasonable price to pay for the optionality of holding a very material bitumen resource,” said Ebbern.
Royal Dutch Shell's land grab in northern Alberta is completely separate from its other oilsands opportunities currently being pursued by subsidiary Shell Canada Ltd. (TSX:SHC).
Shell Canada is the operator of the Athabasca oilsands project, one of Canada's largest open-pit oilsands mines, which produces more than 150,000 barrels of oil a day. And while the company is traded publicly on the Toronto stock market, it is 78 per cent controlled by Royal Dutch Shell.
© The Canadian Press, 2006

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