CANADA: Shell Canada oilsands blueprint aims for 700,000 barrels of bitumen a day

Shell Canada Ltd. (TSX:SHC), whose parent firm is attempting a full takeover of the Calgary based company, laid out its longterm vision for Alberta oilsands development Wednesday including increasing refining capacity to 700,000 barrels a day by 2020. The oilsands blueprint also includes plans to increase bitumen production to 770,000 barrels a day from 500,000 a day.

Shell CEO Clive Mather said a steady stream of expansion projects are planned throughout northern Alberta, beyond those earlier outlined for the Athabasca oil sands project, in which Shell holds a 60 per cent interest. It includes expansion of the Jackpine mine and an additional mine, Pierre River, on the west side of the Athabasca River.

Despite the ballooning costs on the $12.8 billion Athabasca project, Mather said it will be a profitable venture that requires steady progression. He shrugged off the change in commodity prices, including oil which has dropped by more than US$20 a barrel in recent months.

"It's clearly long term," Mather said in an interview, noting that commodity prices will likely rise and fall several times in during the development curve.

"We need to stick with it. Trying to second guess what the market's going to be in a few years time is highly risky. I'd much rather keep going. We have a proven operation, we've got the people together, we've got the contractor resources, we've got the capital so we should keep going."

Capacity to upgrade the bitumen will be done through a series of upgrader projects at Shell Canada's operations near Fort Saskatchewan, east of Edmonton. About 580,000 barrels will be net to Shell, up from previous estimates of 300,000 barrels.

The strategy, which analysts say will likely take until 2020 until all parts are complete, is important as Shell parent Royal Dutch Shell moves ahead on plans to buy out the 22 per cent remainder of the Canadian company.

"Understanding where the growth potential is is everything," said analyst Tom Ebbern of Tristone Capital Inc.

The Royal Dutch bid is focused on gaining complete control of Shell's oilsands stake to bolster its own reserves. On Tuesday, the Anglo-Dutch group bumped up its bid for the remaining 22 per cent of Shell Canada it doesn't own to $45 a share from $40: an $8.7 billion offer.

Some industry analysts have said the Royal Dutch offer is a "premium valuation" on Shell Canada, but would not be surprised if the price went higher. Some minority stockholders have said they want $50.

Either way, this is a positive endorsement for the sector, says Ebbern.

"It suggests they're comfortable with higher than lower oil prices," said Ebbern. "You wouldn't move into marginal play like oilsands, which is the high cost, capital-intensive oil supply for the world right now unless you thought oil prices were generally going to trend higher."