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Bloomberg: Shell Canada’s Net Falls 9.7% on Oil-Sands Shutdown (Update4)

July 25 (Bloomberg) — Shell Canada Ltd., the country’s fourth-largest oil company, said second-quarter profit fell 9.7 percent as production cuts from the two-month shutdown of an Alberta oil-sands venture outweighed a gain from a tax change.

Net income fell to C$475 million ($417 million), or 57 cents a share, from C$526 million, or 63 cents, a year earlier, the Calgary-based company said in a statement today. Sales fell 11 percent to C$3.75 billion.

Chief Executive Officer Clive Mather plans to spend billions over the next decade to increase production from Alberta’s tar- like oil sands and add reserves. Second-quarter profit missed analyst estimates because of higher-than-expected costs from the shutdown of the Athabasca Oil-Sands Project, said Tom Ebbern, an analyst at Tristone Capital Inc. in Calgary.

“The oil-sands cost side is what really drove the earnings below expectations,” Ebbern said in a telephone interview. “Turnaround costs essentially ate the quarter.”

Excluding one time-items such as the C$222 million gain from changes in Canadian taxes, Shell Canada earned about 30 cents a share, Ebbern said, missing his estimate of 50 cents. Ebbern rates Shell Canada shares at “outperform” and owns none.

Shares of Shell Canada rose 31 cents to C$39.15 on the Toronto Stock Exchange. The shares, which have three buy recommendations from analysts and 11 holds, have fallen 6.9 percent this year.

Production Falls

Shell Canada’s production of bitumen, an extra-heavy crude oil extracted from oil sands, fell 52 percent to 46,800 barrels a day because of the shutdown of the Athabasca project in May and June. Shell Canada has a 60 percent stake in the venture.

The company said the shutdown more than tripled operating costs for the venture to C$67.29 a barrel. Quarterly profit from the company’s oil-sands unit dropped to C$111 million from C$259 million a year earlier.

The unit would have lost in money in the quarter without the tax gain, Ebbern said.

The drop in second-quarter profit was a “non-event” for most investors since it was known that the shutdown would lower production, said Greg Eckel, who holds about 267,500 Shell Canada shares among the $876 million in assets he helps manage at Morgan Meighen & Associates in Toronto. “It shouldn’t have caught anybody by surprise,” he said.

Costs to Drop

Operating costs at the Athabasca project will fall back to about $20 per barrel after the resumption of operations this month, Shell Canada said.

The Athabasca project comprises a mine in northern Alberta and an Edmonton, Alberta, plant that processes bitumen into synthetic crude, which can be refined into gasoline, diesel and other fuels. Western Oil Sands Inc. of Calgary and San Ramon, California-based Chevron Corp each owns 20 percent of the project, which can produce 155,000 barrels of oil a day.

Mather, 58, extended his efforts to increase oil-sands production and increase reserves with the completion this month of the company’s C$2.4 billion acquisition of Calgary’s BlackRock Ventures Inc.

Shell Canada said the synthetic crude sold for C$67.72 a barrel in the second quarter, up 24 percent from a year earlier, as oil futures in New York jumped 33 percent on rising demand and concern over supply disruptions in the Middle East.

Second-quarter gas sales rose 3.7 percent to 499 million cubic feet a day. Gas fetched C$6.53 a thousand cubic feet, a decline of 5.2 percent. Prices fell after a mild winter left larger-than-normal inventories of the fuel in storage in the U.S.

Refining Profit

The company’s refining and marketing division earned C$205 million, up 60 percent from a year earlier on wider margins for fuel production.

Shell Canada, 78 percent controlled by Europe’s Royal Dutch Shell Plc, also owns gas wells in western Canada and a national chain of fuel stations.

Imperial Oil Ltd., 70 percent owned by Exxon Mobil Corp., is Canada’s biggest oil company by 2005 sales, followed by EnCana Corp. and Petro-Canada.

To contact the reporter on this story:
Ian McKinnon in Calgary at  [email protected].

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