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Shell share price: Company not giving up on oil sands

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by Veselin ValchevWednesday, 11 Nov 2015

Royal Dutch Shell Plc (LON:RDSA) boss Ben van Beurden said last week that the withdrawal from the Carmon Creek thermal oil sands project in Alberta, Canada, does not mean that the Anglo-Dutch oil major has given up on oil sands in general.

Shell’s chief executive noted that the company rates investment opportunities on a project-by-project basis. In contrast to Carmon Creek needing oil prices at about $70 per barrel to break even, van Beurden remarked that Shell’s Fort McMurray oil sands project has operational costs of only $25 per barrel.

Beyond unprofitable production, Carmon Creek also had other issues, most notably – insufficient infrastructure and an insecure legislative future.

“There were just too many uncertainties causing a range of outcomes [for Carmon Creek] from the absolutely fantastic to the absolutely disastrous, and that is the sort of lack of resilience that we cannot live with, certainly not in today’s environment,” van Beurden said. “The most sensible thing was to shelve it and to focus our cash elsewhere.”

Indeed, the cited risks were confirmed on the very day as van Beurden’s comments, with US President Barack Obama rejecting the proposed Keystone XL, which would have eventually transported 0.8m barrels of crude per day from Alberta to US refineries.

“The pipeline would not make a meaningful long-term contribution to our economy,” he said.

Much of the opposition that contributed to Keystone XL’s downfall was focused on the pipeline’s role in enabling more oil sands development — and more carbon emissions as a result, analysts noted.

Indeed, the president noted that the pipeline had taken on an “overinflated role” in the climate change debate. Obama has pledged to make climate change action one of the lasting legacies of his presidency.

The decision to turn down the Keystone XL project comes just weeks ahead of the highly anticipated and potentially groundbreaking 2015 United Nations Climate Change Conference, which will be held in Paris from November 30 to December 11. The goal of the conference is to achieve a legally binding agreement between all member-nations to curb carbon emissions in a bid to slow down global warming.

A more hawkish resolution in Paris could leave many energy companies with so-called ‘stranded assets’ – fossil resources in the ground, which the firms have booked, but might never extract in order to adhere to carbon restrictions.

On its part, Shell has been quite a vocal proponent of climate action as of late, urging for broad agreement between nations and advancing its technological and strategy frameworks.

Van Beurden’s comments last week were made at the opening of Shell’s Quest carbon capture and storage project near Edmonton, Alberta.

Quest is designed to capture and store more than one million tonnes of carbon dioxide per year, equal to the emissions from about 250,000 cars, Shell said.

“Quest represents a significant milestone in the successful design, construction and use of carbon capture and storage (CCS) technology on a commercial scale. Quest is a blueprint for future CCS projects globally. Together with government and joint-venture partners, we are sharing the know-how to help make CCS technologies more accessible and cost-effective for the energy industry and other key industrial sectors of the economy,” van Beurden said.

Shell shares opened modestly on the upside today, with the share price gaining 0.24 percent to 1,690.00p as of 08:01 GMT. The oil major’s stock is down over 20 percent this year.

As of 07:55 GMT, Wednesday, 11 November, Royal Dutch Shell Plc ‘A’ share price is 1,686.00p.

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