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Shell Canada learns a tough lesson Oil sands operator sees C$4B expansion, uses existing infrastructure, prefabrication and ‘lump sum bidding’ to keep costs in check Gary Park Petroleum News Calgary Correspondent
With memories of a C$1.9 billion cost overrun fast being submerged under an equally startling entry into the oil sands business, Shell Canada is now ready to take another C$4 billion plunge into northern Alberta’s bitumen resource.
The lead partner and operator of the Athabasca project, which came on stream 21 months ago, Shell Canada said Sept. 21 it now has its sights on bitumen output of 270,000-290,000 barrels per day by 2010.
That is the next step towards the company’s eventual goal of 500,000 bpd.
Shell Canada has a 60 percent stake in Athabasca, with Chevron Canada and Western Oil Sands each holding 20 percent.
The Calgary-based company, 78 percent owned by Royal Dutch/Shell, said Alberta’s third large-scale oil sands venture was successfully ramped up to an average 141,900 bpd in the second quarter and 182,000 bpd in August, well above its design capacity of 155,000 bpd.
It’s a performance that has softened the blows inflicted by construction cost overruns that pushed Athabasca’s costs to C$5.7 billion from an original C$3.8 billion and given Shell Canada the confidence to embark on its expansion.
However, oil sands Vice President Neil Carmata cautioned that there is still concern about “increasing reliability and reducing costs.”
To that end the expansion phase is scaled back from earlier plans in an effort to contain costs. Prefabrication replaces on-site construction But Carmata noted that roads, pipelines and offices are already in place, prefabrication will take the place of much on-site construction, and “lump sum bidding” now requires contractors to share some of the risk of unexpected costs — all part of what he described as “hard won lessons.”
While companies in the oil sands are working on developing pools of labor, the Petroleum Human Resources Council of Canada said the need for thousands of workers on a temporary basis still represents a high-risk cost area.
The Athabasca expansion involves work on two facilities: The Muskeg River mine north of Fort McMurray which is the source of raw bitumen and the Scotford Upgrader near Edmonton, where the material is processed into refinery ready oil.
Work at both sites should add another 90,000 bpd to capacity, boosting average output to 270,000-290,000 bpd.
Shell Canada said the “actual timing for these projects will depend on the outcome of the regulatory process, market conditions, final project costs and approvals and sustainable development considerations.” Regulatory approval is expected in 2006.
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