CALGARY (CP) -- Shell Canada Ltd. [TSX:SHC] has raised its estimate of so-called in-situ Alberta oilsands resources to more than 25 billion barrels.
The big integrated oil and natural gas producer said late Wednesday its new estimate follows the acquisition and review of the assets of BlackRock Ventures, an oilsands operator Shell acquired earlier this year for about C$2.4 billion.
In a release, Shell Canada said it expects in-situ oilsands production to hit almost 50,000 barrels a day within two years and triple that figure in the long term.
The Calgary company said its latest estimate includes the resources in the BlackRock leases of the Peace River, Cold Lake and Athabasca oilsands regions, along with about seven billion barrels of oil-in-place in Shell Canada's Peace River leases.
About 80% of the oilsands in Alberta are buried too deep below the surface for open-pit mining Shell uses at its Athabasca project near Fort McMurray. This oil must be recovered by in situ-techniques, a Latin word that means ''in place.''
Using drilling technology, steam is injected into the deposit to heat the oil sand lower the viscosity of the bitumen. The hot bitumen migrates towards producing wells, bringing it to the surface, while the sand is left in place.
But although in-situ technology is growing in popularity, it is expensive and requires a nearby water source. In addition, such technology faces challlenges such as efficient recoveries, water management and co-generation of heat sources to minimize energy costs.
Shell Canada said it will evaluate the use of enhanced recovery techniques such as waterflood, miscible flood and steam injection to maximize recovery from the entire in-situ oilsandss portfolio.
The company said such techniques will provide a longer term in-situ production potential of 150,000 barrels a day.
''Oilsands is at the heart of Shell Canada's growth strategy, and our new in-situ portfolio significantly increases our potential,'' Clive Mather, president and CEO, said in a release after stock markets closed Wednesday.
''Our in situ oil-in-place now stands at more than 25 billion barrels of heavy oil and bitumen. And we believe there is more to come once we have completed our evaluation of the Athabasca area in situ leases acquired in 2005 . . . These resources will enable the company to grow production over the long term, exploiting our technical and operating expertise.''
Shell Canada also said it plans to incorporate in-situ production growth into future upgrading plans which will potentially include expansions at its Scotford refinery near Edmonton and at other locations, mainly Eastern Canadian operations in Montreal and Sarnia, Ont.
The company said it's in the early stages of a plan to evaluate the economics of building upgrader facilities and increased refining capacity, at either its Sarnia, Ont., or Montreal sites.
Shell Canada is already a major oilsands producer, with a 60% stake in the Athabasca Oil Sands Project, and an upgrading facility just outside Edmonton. The company, however, has mapped out an ambitious expansion plan, with the goal of adding 300,000 barrels over the next decade.
Shell is aiming to be more than a producer of raw bitumen, and to capture the profits that come from turning the tar-like substance into refinery-ready crude oil, and then processed products such as gasoline.
The bitumen could be transported to Sarnia on existing pipelines operated by Enbridge Inc., but any shipment to Montreal would involve reversing the flow of a separate pipeline, spokeswoman Jan Rowley said.
If Shell does opt to build an upgrader in Montreal, the bitumen it shipped would displace crude imported from overseas, marking a major shift in the dynamics of the Canadian refining sector.
For the moment, no decision has been made, with Shell Canada staff examining the business case for each site. ''They're still scoping out what might be,'' Rowley said.
Quebec's newly announced carbon tax will be part of that examination, although the details of the policy have yet to be announced.
Rowley said the location of the Sarnia and Montreal refineries, close to the largest markets in the country, is a key part of the debate within Shell. So is the rising cost of construction within Alberta, where soaring labour costs are exacerbating the global cost pressures for major industrial projects.
The single biggest uncertainty is the pace of Shell's expansion of the Athabasca project. After a meeting of Shell Canada's board wraps up on Friday, president and chief executive officer Clive Mather will outline the company's oil sands strategy, and is expected to comment on the costs of expansion.
Shell's junior partner, Western Oil Sands Inc., created a stir earlier this month when it said expansion costs have jumped 50 per cent over the last year.
Shell Canada is the first oil sands player to contemplate shifting bitumen so far eastward. Petro-Canada is also examining an expansion of its Montreal refinery, but the company said it does not intend to ship bitumen from Alberta to the facility, if those plans proceed.
Imperial Oil Ltd. already ships bitumen from its Cold Lake facility to eastern Canada, but only as far as its Sarnia refinery.
In Wednesday trading on the Toronto Stock Exchange, Shell Canada shares fell 15 cents to close at C$39. With Globe and Mail.
© The Canadian Press 2006
