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Edmonton Journal (Canada): Athabasca Oil Sands gears up for major expansion

By Gordon Jaremko,
CanWest News Service

EDMONTON — Alberta’s youngest oilsands mega-mine set out Friday to grow briskly by 65 per cent even though expansion costs have skyrocketed.

About 6,000 to 7,000 construction workers will build a 100,000-barrels-a-day addition to the Athabasca Oil Sands Project over the next four years on a schedule laid out by senior partner Shell Canada. The giant job will be divided equally between the three-year-old operation’s Fort McMurray open-pit mine and Scotford bitumen upgrader east of Edmonton, Shell president Clive Mather and oilsands vice-president Brian Straub told a conference call for financial analysts and media.

Costs have tripled into a range of $10 billion to $12.8 billion, from a preliminary estimate of $4 billion since expansion planning began soon after Athabasca started producing its current 155,000 barrels a day in 2003. The new estimate includes a confidential “contingency” allowance for rising materials and labour costs that about 1,000 engineers who crafted the expansion plan cannot predict, Mather said.

Alberta’s heated market for supplies and personnel, while exceptionally short of workers and public services in the northern oilsands belt, is no worse than conditions in every petroleum-producing country, Mather said.

“A very similar position exists right around the world wherever you’re looking at developing resources today,” the Shell president said. “This is a high-quality resource in an area of very low risk. Compared to any of the alternatives Alberta is still a great place to invest,” he said.

The company will use its international connections as an affiliate of Royal Dutch Shell to scour the globe for talent and supplies. Foreign workers will be imported for the oilsands expansion, although it is too soon to say how many, he said.

Athabasca minority partners Chevron Canada and Western Oil Sands, which each own 20 per cent, were in on the planning and will participate in the expansion despite the cost jump, Mather predicted.

As 60 per cent senior owner, Shell announced making a formal proposal to start the project that requires decisions by Chevron and Western in 90 days. The plan calls for a final decision by the end of this year then a prompt start on construction.

Chevron saw no surprises in the plan and will make its decision on schedule, company communications officer Sharon Murphy said in an interview.

Western announced support for the expansion and said it already committed $315 million or more than 10 per cent of its share in construction costs. The project total will turn out to be in the middle of Shell’s forecast range at $11.2 billion, Western predicted.

The Athabasca expansion “remains viable under a wide range of (energy) pricing scenarios,” Shell said.

Mather refused to reveal a minimum oil price requirement. But he said Shell expects costs to drop if oil falls because industry competition for workers and equipment would turn down too.

“We intend to invest through the cycles,” Mather said.

The program potentially includes new bitumen upgraders at Peace River, Scotford or Shell plants in central Canada, Mather said. Refinery additions are also possible. An “integrated” strategy, including cost projections, is still being developed, he added.

With 10 billion barrels of bitumen in the Athabasca oilsands leases, plus an estimated 25 billion barrels in the Peace River and Cold Lake deposits, Mather said Shell has abundant growth options.

“We have considerable running room for multiple expansions,” he said. Shell’s declared targets to date include eventually expanding the Athabasca mega-mine to 550,000 barrels per day, plus 150,000 barrels a day of in-situ production.

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