Shell shuns new oilsands amid low crude prices

Expense makes new projects unlikely: CEO

LONDON •

is unlikely to take on new oilsands projects as it maintains a grip on costs after crude’s crash forced competitors to write down Canadian reserves.

While Shell’s existing oilsands operations generate strong cash flows, the expense of developing new projects discourages additional investments, chief executive Ben Van Beurden said in an interview.

Oilsands, the reserves of heavy crude found primarily in northern Alberta, lured investors in the past decade as oil’s surge above US$100 a barrel made the difficult extraction process economic. But they’ve fallen out of favour following the subsequent market collapse as companies dump expensive projects amid fears that competition from low-cost crude could strand costlier assets.

“All of those are reasons we are unlikely to develop new oilsands projects,” Van Beurden said in London. “There are no plans for growth capital to be invested in oil sands.” slashed reserves after removing the US$16 billion Kearl oilsands project in Athabasca from its books last week. A day earlier, said that erasing oilsands barrels had reduced its reserves to a 15-year low. In 2015, Shell itself took a US$2 billion charge as it shelved an oilsands project in Alberta, and last year sold other assets in the area for about US$1 billion.

The oilsands mines in the region are among the costliest petroleum projects because the raw bitumen extracted must be processed Shell’s Muskeg River Mine project in Alberta. and converted to a synthetic crude before being transported to refineries, mainly in the U.S. In addition, Canadian oil sells for less than benchmark U.S. crude because of the cost to ship it and an abundance of competing supplies from shale fields.

said last month that there’s enough oil in the world to meet demand to 2050 twice over and this may prompt producers of low-cost crude, like those in the Middle East, to bring production forward.

While oil prices have recovered from the sub-US$30 lows of early 2016, they’re still far below the levels of 2012 and 2013. Shell has promised investors it’ll keep annual spending between US$25 billion and US$30 billion for the rest of this decade — and at the lower end of that range this year — following its US$54 billion acquisition of BG Group PLC in 2016.

That purchase drove up debt near to US$80 billion last year, the highest in the industry after Brazil’s Petroleo Brasileiro SA. Shell has been selling assets to pare borrowings and Canadian oilsands have been part of that plan.

Shell told investors in a presentation last June that although oilsands were among its “cash engines,” future growth would be focused on deep-water, chemical and shale projects. The company said the return on average capital employed in oil sands from 2013 to 2015 was one per cent at an average oil price of US$90 a barrel; it expects that to rise to about five per cent from 2019 to 2021 at US$60 crude, according to the presentation.

Shell holds a 60 per cent stake in Canada’s Athabasca Oil Sands Project, and also runs a bitumen processing plant and a carbon-capture facility.