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Shell Canada stakes future in East Coast, oil sands, Arctic
Company is lead player in C$3.5 billion oil sands venture and one of four partners in Mackenzie Delta Producer Group
Gary Park PNA Canadian Correspondent
Since the early 1990s, when it was afflicted by sagging financial fortunes and seemingly stuck in a time warp, Shell Canada Ltd. has quietly remade itself over the last eight years, shedding 40 percent of its tired conventional plays and becoming a “big ticket” operator.
As Canada's third-largest integrated oil producer — trailing Imperial Oil Ltd. and Petro-Canada but ahead of Suncor Energy Inc. and Husky Energy Ltd. — it has a stake in all of the major plays, from the East Coast offshore to Alberta's oil sands and the Arctic, as well as being a leading refiner, retailer and petrochemical producer.
The end result is a company with about 3,400 employees in Canada, revenues in 2000 of more than C$8 billion and assets worth about C$7 billion.
It has three refineries, a network of 2,100 gasoline stations — it was the first in Canada to offer gas and groceries at the same location — and a petrochemical complex at Scotford near Edmonton.
Earlier this year, Shell Canada opened a new chemical plant at Scotford to produce 400,000 tons a year of monoethylene glycol, with half sold in North America and the rest exported to polyester fiber markets in Asia.
For the third quarter, the company had profits of C$172 million from revenues of C$1.85 billion. Daily production averaged 618 million cubic feet of gas, 29,200 barrels of ethane, propane and butane and 23,300 barrels of condensate.
Makeover agenda pushed by former CEO The company makeover stemmed from an agenda pursued through most of the past decade by then chief executive officer Chuck Wilson, who had a vision to push Shell in new directions.
“You can't just stay the same. The company will decline,” he said. “Where are the opportunities? You have to find the ones that make a difference.”
But for many years the company that is 78 percent owned by Anglo-Dutch energy giant Royal Dutch/Shell Group seemed bereft of opportunities, following its 1986 discovery of central Alberta's Caroline natural gas field, a find of 2 trillion cubic feet.
Under Wilson, the payroll was slashed from 5,000 and marginal properties in the Western Canada Sedimentary Basin were unloaded, clearing the decks for a series of mega-projects in the Canadian frontiers.
First on stream was Shell Canada's 31 percent stake in Nova Scotia's Sable Offshore Energy Project, which has been on stream for two years and is pumping about 450 million cubic feet per day mostly for export to New England.
Sable just a stepping stone A firm believer that Sable, Canada's first offshore gas field, is just a stepping stone, Shell Canada is gearing up for a C$65 million exploration well this year.
East Coast exploration manager Doug Gregory said the 100 percent owned prospect, the revival of a 1969 gas find, is hoping to find “untapped horizons” of gas trapped along the side of an undersea salt dome.
Holding 884,000 acres of Nova Scotia leases, Shell Canada is a major participant in an area where Calgary-based Ziff Energy Group has forecast production could climb to 6 billion cubic feet per day from reserves of 50 trillion cubic feet.
Next on the company's list of new ventures is its Athabasca oil sands mega-project, due to start producing at 155,000 barrels per day by late 2002, despite being sideswiped by costly overruns.
Squeezed by a shortage of skilled laborers and high levels of construction activity in the oil sands, Shell Canada has warned that cost escalation on the C$3.5 billion joint venture could go “substantially higher” than the 15 percent it predicted in April.
But Shell, as 60 percent owner — Chevron Canada Ltd. and Western Oil Sands Inc. each hold 20 percent — has been undeterred by those setbacks, opting instead to talk about expansion before its initial project is finished.
The partnership said full documentation will be filed with Alberta regulators next year for a three-phase increase in Athabasca output to 525,000 barrels per day by 2010 at an expected cost in excess of C$3 billion.
“We decided to put our cards on the table for our long-term plans (in the oil sands),” said Neil Carmata, senior vice-president of oil sands. “It takes so long from when these plans get into play to when you start delivering oil that we thought we'd better get it started sooner rather than later.”
A second leg in Shell Canada's oil sands investment involves the reactivation of a thermal technology to pump steam into deep bitumen deposits in the Peace River area of northwestern Alberta.
The steam will loosen the bitumen which is otherwise too thick to flow to the surface through conventional means. Reserves at the site are estimated at 7 to 10 billion barrels and third-quarter production reached 5,200 barrels per day.
Stake in Mackenzie Delta The company's third stake in Canada's long-term energy future is its share of the Mackenzie Delta Producer Group, along with Imperial Oil Ltd., ExxonMobil Canada Ltd. and Conoco Canada Ltd.
Of the marketable reserves of 9.2 trillion cubic feet in the Delta and shallow Beaufort Sea, Shell Canada holds 970 billion cubic feet from its 1973 Niglintgak discovery, with initial sales gas rated at 126 million cubic feet per day.
However, the company has chosen to keep a low-profile on its Arctic intentions until the Imperial-led consortium releases its feasibility study, likely this year.
It has been gathering three-dimensional seismic data from the area, but has announced no drilling plans, preferring to describe the Arctic as a “longer-term” venture.
However, as with Imperial and Conoco, Arctic production could be a vital source of gas feedstock to sustain Shell Canada's oil sands projects.
Under Tim Faithfull, its current president and chief executive officer, Shell Canada has sought a high profile in its pursuit of sustainable development, while cautioning that hydrocarbons will remain the major source of energy for some time to come.
It has modified its original 1997 design for the Athabasca oil sands project to reduce carbon dioxide emissions by 25 percent, or 1.3 million tons a year, and plans a further 50 percent reduction by 2010.
“These emission levels will be 6 percent less than those associated with the imported oil (the project will displace),” said Faithfull, mindful of intense environmental opposition to oil sands development.
The company has also contracted to purchase wind power to gain experience as a customer for renewable energy and “see whether there are opportunities there that make business sense for us,” he said.
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