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Canada Press: Shell Canada hopes to boost in-situ oilsands output seven-fold in two years

CALGARY (CP) – Shell Canada Ltd. (TSX:SHC) expects to grow its so-called in-situ oilsands production by more than seven-fold to 50,000 barrels per day over the next two years as a result of its BlackRock Ventures acquisition earlier this month.

Already a major oilsands producer with its operating stake in the Athabasca open-pit and upgrading project in northern Alberta, Shell plans to rapidly grow its in-situ business which harvests reserves that are too deep for conventional mining.

As a result of the $2.4 billion BlackRock deal which closed earlier this month, Shell’s in-situ reserves jumped from seven billion to more than 25 billion barrels.

In the longer term, Shell hopes to push in-situ production to 150,000 barrels per day, or just shy of Athabasca’s current output. The company said new capital will be required to reach these targets, but had no firm dollar estimates.

“Oilsands is at the heart of Shell Canada’s growth strategy, and our new in-situ portfolio significantly increases our potential,” the company’s president and CEO, Clive Mather, said in a release after stock markets closed Wednesday.

The bulk of Shell’s new reserves are in the less-developed Peace River oilsands deposit in northwestern Alberta. But the company will also start-up BlackRock’s newest project, called Orion, located in the eastern Alberta Cold Lake region and slated to be producing 10,000 barrels per day by the end of next year.

Shell’s announcement came two days before the company reveals its highly-anticipated update on its aggressive expansion strategy at Athabasca in the wake of spiralling construction costs.

The company warned in early July that its first major expansion at Athabasca faced “significant upward pressure on capital costs.” Minority partner Western Oil Sands (TSX:WTO) went even further, saying the pricetag could rise 50 per cent higher, to $11 billion for an extra 100,000 barrels per day.

But with the BlackRock properties, Shell is now able to diversify its oilsands production like Suncor Energy (TSX:SU) between open-pit mines and the smaller, less costly in-situ plants which is a latin word that means “in place.”
About 80 per cent of the oilsands in Alberta are buried too deep below the surface for open-pit mining and must be accessed through well pairs.

Most new projects are using steam technology, which involves boiling large quantities of water and then injecting it deep into the ground to melt the gluey bitumen.

Another nearby well draws the melted oilsands to the surface where it is then piped to upgraders and refineries to be converted into synthetic crude oil.

But although steam technology is currently very popular, key constraints include the large quantities of water it consumes as well as natural gas – which is currently the key fuel used to heat the water.

Shell said Tuesday that it will evaluate steam injection, but also examine other enhanced recovery techniques such as waterflood, and miscible flood to maximize recovery from the entire in-situ oilsands portfolio.

Shell Canada also said it plans to incorporate in-situ production growth into future upgrading plans which will potentially include expansions at its Scotford refinery near Edmonton and at other locations, mainly Eastern Canadian operations in Montreal and Sarnia, Ont.

“With in-situ, we don’t want to be in the bitumen business – we want to be in at least the synthetic crude and maybe the finished products business,” spokeswoman Jan Rowley said Wednesday.

“That’s why we feel that upgrading is important to consider when we look at our in-situ development.”

Shell Canada is one of Canada’s major integrated oil companies, with oilsands and natural gas exploration and production and a string of Shell-branded gasoline stations across the country. It is controlled by the European-based Royal Dutch Shell Group, one of the world’s biggest energy companies.

In Wednesday trading on the Toronto Stock Exchange, Shell Canada shares fell 15 cents to close at $39.

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