Globe & Mail (Canada): Shell prepared to spend billions on oil sands in Peace River: “Shell Canada Ltd. is looking at a "multibillion" dollar project to develop a comparatively obscure deposit of oil sands in the Peace River area of northwestern Alberta that could produce 100,000 barrels of bitumen a day for 30 years.”: Wednesday, September 14, 2005

Lesser-known deposits slated for growth

By DAVE EBNER

Page B3

TORONTO -- Shell Canada Ltd. is looking at a "multibillion" dollar project to develop a comparatively obscure deposit of oil sands in the Peace River area of northwestern Alberta that could produce 100,000 barrels of bitumen a day for 30 years.

"We could spend a significant amount," Ian Kilgour, senior vice-president of exploration and production, told reporters after speaking at the Peters & Co. Ltd. oil and gas conference in Toronto yesterday.

While Alberta's oil sands are well known, the broad term mostly refers to the Athabasca region north of Fort McMurray, where producers such as Suncor Energy Inc. as well as Shell conduct huge mining operations.

The province has two other significant but smaller oil sands deposits, neither of which can be strip-mined like the Athabasca deposits. One is in the Cold Lake region, south of Fort McMurray, where Canadian Natural Resources Ltd. and others work. Peace River, in northwestern Alberta, ranks third. It is small compared with the other two and has only nominal production.

Shell obtained its Peace River leases in the early 1950s and tried to figure out how to produce the viscous, tar-like bitumen in the early 1960s, without real success. Production finally began in the late 1970s and the company's output today is about 10,000 barrels daily. The bitumen is extracted through special drilling techniques, which include the injection of steam to help loosen up the bitumen -- very low-grade crude oil -- to get it to flow more easily.

The company, of which about 80 per cent is owned by giant Royal Dutch Shell PLC, is now weighing the merits of a three-phase expansion, with the first part to get under way in 2007. That would push production to 30,000 barrels a day by around 2009.

There is no precise schedule for the other two phases, which would increase production to 100,000 barrels.

Mr. Kilgour said costs for the whole effort are not known but probably will be less than $5-billion.

Yesterday he would pin only the vague "multibillion" dollar estimate on what Shell calls the Carmon Creek project.

"We're really unsure of what each phase will come in at, at the moment, as every day that goes by there's a lot of inflationary pressure," Mr. Kilgour said. "So we won't have the answers for that for probably another six to nine months."

Engineering work on Carmon Creek is already taking place and Shell plans a regulatory application in 2006 and initial construction could follow in 2007. About half the cost of the project would be devoted to the specialized wells.

On a cumulative basis, Shell has produced more than 50 million barrels of bitumen from Peace River thus far. It estimates that there are about seven billion barrels of bitumen in place, enough to sustain production for three decades.

The unknown oil sands

Shell Canada Ltd. is considering a multibillion dollar expansion of its small bitumen operation near Peace River in northwestern Alberta, the smallest of three oil sands deposits in the province.

Current operations: Discovered in the 1950s with production beginning

in the late 1970s, Shell's Peace River operation currently produces about 10,000 barrels a day of bitumen, a gooey tar-like substance.

Planned expansion: With a potential seven billion barrels to be recovered, Shell is looking at a three-phase expansion and a goal of producing 100,000 barrels daily for three decades.

How it's different than Fort McMurray:

The best-known oil sands businesses are mine operations north of Fort McMurray in northeastern Alberta, where bitumen is shovelled out by massive trucks. Peace River bitumen is accessed through special drilling techniques, similar to some operations near Fort McMurray. 

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