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Shell scales back Athabasca oilsands development because of rising costs
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* f! I5 y& [( R' j7 a6 HThe Canadian Press
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) S _. F: |3 C% j$ s7 ?8 Q) YCanadian PressAMSTERDAM, Netherlands - Royal Dutch Shell PLC, Europe's largest oil company, is delaying a planned expansion of its major oilsands project in northern Alberta, joining many other oilsands operators who have delayed similar projects because of soaring costs and weaker oil prices.
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) |4 z+ B. N! k, KDespite reporting a 22 per cent jump in net profit for the third quarter, Shell said Thursday it's pushing back a decision on expanding the Athabasca oilsands project near Fort McMurray, Alta. due to tough economic conditions, CEO Jeroen Van der Veer told a conference call. % S3 c1 `. o. P, l
l' S# z p3 KThe British-Dutch company is already going ahead with an initial expansion of Athabasca, raising its output from 155,000 barrels a day to more than 250,000 barrels by the end of next year. More expansions had been planned with the goal of producting 500,000 barrels a day.
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% V! m3 E7 p2 \3 G" Q"We had in mind to decide on the second expansion in 2009," Van der Veer told analysts. "But at this moment, if you look at the combination of inflated labour costs and raw material prices in the form of equipment, we felt that we had better delay that."
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7 n/ F. ]6 ]! `2 GThe Athabasca project, 60 per cent owned by Shell, starts at the Muskeg River mine, where giant trucks excavate the ore that contains tar-like bitumen. After the bitumen is processed with water and liquefied using solvents, it is shipped by pipeline to the Scotford Upgrader refinery near Edmonton, where the bitumen is converted into synthetic oils and later into various fuels.
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The Shell delay follows other major Canadian oilsands players who are scaling back energy projects and cutting spending as they cope with falling crude prices, volatile stock markets and tight credit markets that make it harder to raise money. 3 N& q' Z7 u1 ?
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The major partners in the proposed $24-billion Fort Hills oilsands project in northern Alberta - Petro-Canada (TSX: PCA.TO), Teck Cominco (TSX: TCK-B.TO) and UTS Energy (TSX: UTS.TO) - announced last week they may defer a decision to build an upgrading refinery northeast of Edmonton. 1 [6 k9 \) |! m
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The move could chop about $10 billion from the cost of the oilsands project's development.
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Meanwhile, Suncor Energy Inc. (TSX: SU.TO), Canada's oldest oilsands operator, reduced its planned 2009 capital spending by more than one-third to $6 billion as the company focuses its spending on "prudence, growth and flexibility" going ahead.
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Earlier, EnCana Corp. (TSX: ECA.TO) of Calgary put on hold plans to split itself into separate oilsands and natural gas producing companies, blaming the turmoil in global financial markets for the move.
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6 c, m$ K0 s% C& C! c2 UNexen Inc. (TSX: NXY.TO) and its partner Opti Canada (TSX: OPC.TO) have also delayed a decision on expanding their 50-50 Long Lake oilsands operation in northern Alberta because the credit crunch made it harder to raise capital. ! a1 q) v% T% F6 I U. v
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In addition, BA Energy delayed a planned oilsands refinery near Edmonton.
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/ `) K# R" A7 L6 n0 Y1 _1 IIn the conference call, Van der Veer declined to say whether the company would cut capital expenditure on other projects next year. + Q% Q6 p5 Z) `- A6 Y, @
% z# ]: e( R2 o9 A% i) Y- V w5 o"Our strategy remains to pay competitive and progressive dividends, and to make significant investments in the company for future profitability," he said. ! ~+ t4 H A7 t6 ], W( h
m1 Q; G2 {5 @" N# F! r$ CIn its earnings report, Shell's net profit roared ahead in the third quarter, despite a fall in production, thanks to high oil prices and gains from the sale of operations.
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The company earned US$8.45 billion, up from $6.92 billion a year ago, as sales rose 45 per cent to $132 billion. The earnings included one-off gains of $2.06 billion, mostly from the sale of operations, up from $265 million in such gains a year earlier.
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Shell's largest European rival BP PLC reported net profit rose 83 per cent to $8.05 billion Tuesday. $ }6 I3 z' e, H" Z: Q) G$ O
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The world's largest oil company, Exxon Mobil Corp., reported Thursday income that shattered its own record for the biggest profit from operations by a U.S. corporation, earning US$14.83 billion in the third quarter.
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+ w8 H* p3 {- z4 lShell's oil production fell to 2.93 billion barrels of oil and equivalents per day from 3.14 billion a year earlier. The company's average selling price was $111.18 per barrel, up from $70.81 a year ago. Oil hit a record $147 in July but has fallen by more than half. # w. |* K. h5 x5 o" e5 S
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Given the steep fall of oil prices in recent weeks, Van der Veer said the company was watching the global economic situation closely, but added Shell would be profitable amid a wide range of energy prices.
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4 Y1 C' @ U" [' K( `"It was very difficult to forecast $147 in July, and then in October that they would fall below $60 - there are so many factors at work and even then you miss what will OPEC do," Van der Veer said on the conference call. ' A( h& D* s6 Y6 g" w
3 b2 T8 Q9 ~+ s0 NOn Wednesday, Shell said chief financial officer Peter Voser will be promoted to Van der Veer's job after he retires in July 2009. Shell maintains dual headquarters in London and The Hague. Voser, a Swiss national, will be the company's first CEO from outside Britain or the Netherlands.
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Analyst Alexandre Weinberg of Petercam Securities said the results were "clearly better than what was expected ... and this is throughout all divisions."
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"Going forward, we clear expect the weaker pricing environment to take its toll on profit," he said. But he said the impact of a weakening economy would be less on oil majors since production costs will fall and smaller competitors may face financing problems. 6 b) m# D6 _, [9 K% o- f( }- `
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