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We are steering the Shell ship in rough waters


Now is not the time to be timid


Sun, November 2, 2008

A Dutchman in London tells an ex-backhoe operator turned financial stud duck from Vermilion the news he didn’t want to hear last week.

Another one had bit the bust.

And when you’ve ramped up your budget to $37 billion to accommodate the $180-billion in oilsands projects your hyperventilating enterprise department insists is out there, the solemn words of Jeroen van der Veer didn’t exactly make Alberta Treasury Board president Lloyd Snelgrove’s day.

“We are watching the world economic situation carefully,” the Royal Dutch Shell chief executive blurted over the speakers on his third-quarter conference call.

“We are steering the Shell ship in rough waters,” he added, even though $147 US per barrel oil in July translated into a $10.9 billion profit.

“But so far, OK.”

Unless you are Lloyd Snelgrove. What the Dutch oilman had to say next was the last thing he wanted to hear: Shell’s ongoing Albion Sands expansion north of Fort McMurray is still a go.

It’s already under construction, so it’s too late to stop now, although the reclusive new owners of the BA Upgrader did just that, walking away from the partially completed project.

So did Statoil. And the Petro-Canada Fort Hills upgrader. Opti/Nexen have put a stall on their Long Lake expansion, too. Same goes for Suncor’s Voyageur monster. EnCana and Total are up next.

“Clearly there’s a significant industry inflation with tight labour markets in Alberta,” the Dutch oil boss lamented. “Several competitors projects have been delayed.”

Then the bad news. Shell’s “second expansion” – another upgrader at Shell’s sprawling Scotford works – is now officially on the shelf.

“We will wait for costs to cool down before any new expansion decisions,” van der Veer sniffed.

Now is the time for some catskinner logic and backhoe economics, which more often than not beats what the brainiacs in the Calgary oil towers and red-suspender geniuses in the financial houses were predicting until the stock, commodity and capital markets went into meltdown mode.

Certainly that’s what Whitecourt MLA George VanderBurg was asking when he put the hot light on Lloyd.

“Given that Shell is making these decisions on sound economic indicators and best interests to it’s shareholders,” VanderBurg pestered, “can we expect the government to take the same prudent steps?”

So is Snelgrove about to finally put his foot on the brake and admit that a $37-billion budget monster might be a little hard to keep feeding? Nope, it’s going to be pedal to the metal for the Marwayne Trail’s Big Unit.

“We have an obligation to continue to build,” Snelgrove said. “There’s a slight difference.”

Vanderburg countered: “Wouldn’t this not be a perfect time to just park a project?”

This got Snelgrove revved up even more.

“This may be an opportune time for us to build and probably get a better price.”

The world’s biggest company, which posted a surreal $14.8-billion profit in the third quarter, is also thinking like Snelgrove. At least on the surface.

“Some of the other oilsands projects may be slowing down,” Exxon Mobil vice-president David Rosenthal told shareholders on his webcast last week.

“That could actually prove some benefit to us to lower costs.”

So as it stands now, Exxon Mobil’s huge Kearl mine and upgrader “looks like a robust project.”

It also give Big Oil’s biggest an excellent opportunity to whipsaw Ed Stelmach’s struggling Energy Minister Mel Knight in his failed attempts to get Exxon Mobil and the other Syncrude partners to sign on to the new royalty framework.


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