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Bloomberg: Shell Says Athabasca Project May Cost C$12.8 Billion (Update3)

July 28 (Bloomberg) — Shell Canada Ltd., the country’s fourth-largest oil company, said costs to expand an oil-sands venture will rise 75 percent to as much as C$12.8 billion ($11.3 billion) on higher equipment and labor costs.

A boom in oil-sands projects in Alberta has raised all facets of expanding the Athabasca Oil Sands Project, in which the company owns 60 percent, Shell Canada said today in a statement. The revised estimate includes additional spending to boost efficiency and lower operating costs, Chief Executive Officer Clive Mather said today during a conference call.

“As much as we don’t like the increase that we see, we do believe that this expansion remains viable under a wide range of pricing scenarios,” he said.

Costs for the 100,000-barrel-a-day expansion have almost doubled from the company’s estimate last August of C$7.3 billion, which was almost twice the original estimate of C$4 billion. Costs are surging as Shell Canada and other producers compete for equipment and labor needed to tap Alberta’s tar-like crude deposits, touted as the world’s largest oil reserves outside the Middle East.

The expansion is part Shell’s long-term plans to produce as much as 550,000 barrels a day at the Athabasca project, the company said. The joint venture currently is designed to produce 155,000 barrels a day.

Mine, Plant

The Athabasca venture consists of a mine in northern Alberta and a processing plant that upgrades bitumen, an extra-heavy crude extracted from the tar-like deposits, into synthetic crude. The synthetic crude can be refined into gasoline, diesel and other fuels.

Calgary’s Western Oil Sands Inc., a 20 percent owner of the project, said on July 5 the expansion could cost C$11 billion. San Ramon, California-based Chevron Corp. owns the remainder of the development.

Shares of Shell Canada rose C$1.16, or 3 percent, to C$39.79 at 3:09 p.m. in Toronto Stock Exchange trading. Western Oil Sands’s stock dropped 35 cents, or 1.3 percent, to C$25.69. Shares of Chevron, the second-biggest U.S. oil company after Exxon Mobil Corp., fell $1.83, or 2.7 percent, to $65.90 in New York Stock Exchange composite trading.

The expansion is expected to produce bitumen in 2009 and upgraded oil in 2010, Shell Canada said.

“We think that schedule helps us to spread resources evenly and to minimize risk, both in terms of schedule and cost,” said Mather, 58.

The company has asked its partners to approve of the expansion within 90 days. The partnership agreement includes provisions if a company decides not to proceed in the project, and Western Oil Sands and Chevron are expected to support the expansion, he said.

BlackRock Ventures

Mather expanded the company’s efforts to increase oil-sands production and increase reserves with the completion this month of the C$2.43 billion acquisition of Calgary’s BlackRock Ventures Inc.

BlackRock’s projects and the expansion of the Athabasca development will help boost Shell Canada’s daily oil-sands output to 500,000 barrels, said Mather, without providing a schedule.

Oil-sands projects remain profitable as long as prices stay above $30 to $35 a barrel, Canada’s national energy regulator reported last month.

Boosting Output

Shell and Exxon are among companies expected to spend C$94 billion in the next decade to boost output from Alberta’s oil- soaked sands. Producers are trying to capitalize on rising petroleum demand in India, China and the U.S.

The oil sands, located about 750 kilometers (466 miles) north of Calgary, contain an estimated 175 billion barrels of recoverable oil, second only to Saudi Arabia’s 259 billion barrels, according to the Canadian Association of Petroleum Producers.

Canada’s National Energy Board last month said daily output from the Alberta oil sands may climb to 3 million barrels by 2015 from 1.1 million barrels last year.

Shell Canada is owned 78 percent by Europe’s Royal Dutch Shell Plc.

Imperial Oil Ltd. is Canada’s largest oil company by 2005 sales, followed by EnCana Corp. and Petro-Canada.

(To listen to Mather’s presentation, go to the company’s Web site at .)

To contact the reporter on this story:
Ian McKinnon in Calgary at  [email protected]. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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