Cost overruns do not deter Shell from integrated oil sands project

Gary Park, Petroleum News Calgary correspondent

Shell Canada, undeterred by a 50 percent cost overrun on its first integrated oil sands operation that has led to almost C$200 million in counter lawsuits, is not ruling out a massive expansion of the Athabasca project that was officially opened June 19.

The northern Alberta venture, with Chevron Canada Resources and West Oil Sands holding 20 percent each, cost C$5.7 billion, up C$1.9 billion from its original estimate.

Despite a start-up fire that cost C$150 million to repair, the project is expected to ramp up to full capacity of 155,000 barrels per day by September — only the third full-scale oil sands operation in Alberta and the first in 25 years.

Tim Faithfull, president and chief executive officer of Shell Canada who retires July 31, said the partners are examining ways to “de-bottleneck” the plant and raise output to 225,000 barrels per day.

That could be followed by a separate new mining project with capacity of 300,000 barrels per day.

But Paul Skinner, United Kingdom-based group managing director for Royal Dutch/Shell, said front-end costs and operating costs will have to drop before the next stages get the go-ahead.

Meanwhile, Tracer Industries, a unit of Tyco International, is suing Shell Canada for C$83.5 million, alleging its construction contract was wrongly terminated after overtime and other costs started to escalate.

Shell is countersuing for C$113.2 million, accusing Tracer of overcharging for labor and other items.