CALGARY (CP) -- Shell Canada Ltd. now expects the next phase of expansion at its Athabasca oilsands project in northern Alberta to cost about C$7.3 billion, nearly twice as much as estimates released last fall.
Calgary-based Shell [TSX:SHC] said Tuesday its first major expansion at the Athabasca project, still targeting a 100,000-barrel-daily production boost, would now include ''over-building'' of common infrastructure to make further expansions cheaper and easier.
''The scope and scale of the expansion has been modified to include pre-building of infrastructure and utilities to support our longer-term goal of 500,000 barrels per day,'' Shell spokeswoman Janet Annesley said Tuesday.
Athabasca is expected to produce an average of 150,000 barrels of oil-laden bitumen daily this year.
But the company has a long list of de-bottlenecking projects and expansions planned for the megaproject that would double this output by the end of the decade alone.
Last September, when Shell unveiled its far-reaching expansion plans, the rough cost estimates for the first phase were ''in the range'' of C$4 billion.
Shell is the operator of the Athabasca project with a 60% stake. The other two partners, with 20% each, are Chevron Canada and Calgary-based Western Oil Sands [TSX:WTO].
On Tuesday, stock in Western dipped more than 6%, or C$2, to close at C$30.50 on the Toronto Stock Exchange amid trading of more than 1.3 million shares. Shell Canada shares rose 45 cents to close at C$39.62.
Shell is one of Canada's major natural gas and chemicals producers and oilsands operators. The company is 78% owned by Europe's Royal Dutch Shell PLC, one of the world's biggest oil companies.
Along with the larger scope for the project, the higher costs for steel and super-heated demand for labour in northern Alberta will significantly boost the expansion price tag.
''While cost estimates will not be finalized for another year, it is clear that there is a significant upward trend in construction costs due to the heated global market for engineered equipment and bulk materials,'' the company said in a statement.
Shell said costs for the first expansion ''could be up to C$200 per annual barrel of production.'' With 100,000 more barrels per year expected from the expansion, the estimated price tag is C$7.3 billion.
In comparison, the original Athabasca project was half as expensive, at around C$100 per barrel of yearly production.
''That was a different project at a different time,'' Annesley said in an interview.
Even still, the original project endured massive cost overruns.
Originally priced at C$3.8 billion, Athabasca's final bill was 50% higher at C$5.7 billion - blamed primarily on engineering costs and a labour shortage in the booming region of Fort McMurray, Alta.
Western confirmed the price increase for the Athabasca expansion, noting that the new design includes ''key learnings from construction and operating experience'' gained from operating the project over the past two years.
Yearly production guidance for Athabasca was also raised this week to 150,000 to 155,000 barrels of bitumen daily for 2005, up from 140,000 to 145,000 barrels as a major maintenance shutdown was deferred until the second quarter of next year.
Even before crude began flowing out of Athabasca, Shell openly said that it intended to dramatically ramp up production over time - much like other open-pit oilsands projects in the area like Suncor Energy [TSX:SU] and the Syncrude Canada joint venture.
In anticipation of this major expansion at Athabasca, Vancouver-based Terasen Inc. [TSX:TER] announced earlier this week that it will start initial work to double capacity on its Corridor pipeline, which connects the oilsands project to Shell's refinery on the outskirts of Edmonton.
Terasen did not give cost estimates for the Corridor expansion, saying only that it would be ''a significant capital investment,'' likely significantly higher than the C$700 million spent building the original line between 1999 and 2002.
(c) The Canadian Press 2005
