Posted on 03/18/2008 5:58:05 AM PDT by thackney
Shell’s Canadian oil sands business is suffering a profitability squeeze because of the soaring cost of energy needed to extract bitumen from sand.
The oil company’s annual report, published yesterday, reveals that operating expenses at the Athabasca Oil Sands Project in Alberta have soared by almost 50 per cent in the two years since 2005, while output at the bitumen mining project has either remained static or declined.
Shell’s oil sands profits dipped sharply last year when a fire temporarily reduced the output of its upgrader, a refinery that converts bitumen into a synthetic crude oil. Earnings from oil sands fell from $651 million in 2006 to $582 million (£291 million), which the company attributes to lost output from the shutdown. The net production of the oil sands business, after deducting royalty payments, fell from 95,000 barrels per day (bpd) in 2005 to 81,000 bpd in 2007.
However, Shell’s filing to the US Securities and Exchange Commission (SEC), published yesterday, also shows a massive surge in the operating cost of the Athabasca project. It rose from $664 million in 2005 to $722 million 2006 and $967 million in 2007.
The burgeoning overheads in Canada emerged as Shell revealed that it had fully replaced its oil and gas output in 2007 with additional reserves. Shell’s total proven reserves were unchanged at 11.9 billion barrels of oil and gas, Jeroen van der Veer, Shell’s chief executive, said.
Excluding the effect of purchases and sales of oil-producing assets, such as the sale of part of its Sakhalin gas project to Gazprom and the buy-in of Shell Canada’s minority interest, Shell added 1.5 billion barrels of oil to its reserves last year. According to Shell, that equates to a reserve replacement ratio of 124 per cent, compared with an average for the top five oil companies of 108 per cent.
A big proportion of the extra barrels relate to gas reserves, notably in Qatar, where Shell has agreed sales contracts for liquefied natural gas, which enables Shell to book reserves. Other reserve additions include gas in Australia’s North West Shelf and the Ormen Lange gasfield in Norway.
Peter Voser, Shell’s finance director, said that overall internal cost inflation was running at 10 per cent per annum. He estimated that the operating cost of an oil sands barrel was in the range of $20 to $25 per barrel.
Shell will not reveal the development cost of its oil sands projects, including an expansion that will add 100,000 barrels per day of output, but it is likely to be close to $20 per barrel, well above the average of between $6 and $7 per barrel for the company as a whole.
Oil sands represent about 10 per cent of Shell’s proven reserves of 11.9 billion barrels and are assessed separately by the SEC, which considers oil sands to be a mining business. However, the potential resource in the ground in Shell’s acreage is 20 billion - which is not in dispute, since the reserves are close to the surface.
Separately, Shell disclosed yesterday that the US Department of Justice is investigating Shell’s use of Panal-pina, a Swiss freight forwarding company, in connection with alleged corruption in relation to customs officials in Nigeria. The Justice Department began a criminal investigation last year into illegal payments to customs agents in Nigeria and sent letters to 11 oil and oil-service firms. Shell said that it had started an internal investigation and would cooperate with the Justice Department.
Just shows how much oil companies are willing to pay to get reliable production in today's world. I wish our government would open up more of the US resources and let them invest more of those dollars here.
Canadian Oil Sands lowers Syncrude oil production forecast
http://www.forbes.com/markets/feeds/afx/2008/03/18/afx4785181.html
3/18/08
LONDON (Thomson Financial) - Canadian Oil Sands Trust said it is revising its estimated production for the quarter to 24 mln barrels from 29 mln and also adjusting its annual production target to a new target of 108 mln barrels from 115 mln barrels.
A statement from the Toronto-listed company said crude oil production from the Syncrude facility in Alberta is expected to average about 265,000 barrels per day — 97,000 barrels per day net to the Trust — for the first quarter of 2008.
The reduced production to date following the disruption at the end of January/early February has resulted in a shortfall of about 5 mln barrels, gross to Syncrude.
The company said the planned turnaround of its first of two cokers is still scheduled to occur in early April with a second coker turnaround planned for later in the year.
(excerpted)
Sounds like a mess to me....
For the last few years I have wondered what happend to all of the Canadian “sand oil” reserves we always heard about! Looks like there’s no magic answer there either.
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With oil now over $100 a barrel, the return on oil sands investment is obvious. The problem is the relative isolation and the requisite energy supply to expand production. So they had a fire that slowed production. Unless oil drops to $60 or so a barrel, the oil sands are going to continue to attract investment. FWIW, most of the oil is shipped south to the USA.
We were all told on here, NUMEROUS times, that this would become viable once the price of a barrel reached the sustained amount of greater than $30 a barrel. What happened? Hubris get in the way of all the "experts" here who said the price of oil going up was no big deal?
Even if the Canadian net cost of recovery exceeds the world oil recovery cost Canada is a more stable supplier than most others, and its closer to the US and China than the others.
The Saskatchewan tar sands are an extension of the Alberta Tar sands. They are not as extensive.
Saskatchewan tends to elect NDP governments and has an active Green Party so it is likely to listen to those people who think that tar sands development is evil.
Alberta Oil sands have been in continuous commercial production for over 4 decades.
It has been in continuous commercial production for over 4 decades. Even through the late 90's they kept producing, although very little expansion then.
So what's not viable about 81,000 bpd?
Coal seems like a better option. It’s much cheaper and has less total CO2 output when production emissions are included.
Extraction requires a lot of process heat. Seems like a good place to put a small nuke plant, to supply heat for extraction, and electricity for the equipment, in an out-of-the-way environment where few will care
There have been several proposals for nukes there. Bruce Power is looking at putting a nuke in Alberta but I don’t know whether it’s for the oilsands or for electricity only.
Well, maybe the fact that the “experts” here claimed it was the nail in the coffin for the Middle East oil dominance. 81,000 bpd is far from the claim that was touted here many times. Now we are hearing about problems that threaten even this meager output.
Those estimates were made assuming that real oil (that is, sweet sweet light crude from Saudi Arabia, not frozen asphalt) cost $20 a barrel. I pointed out numerous times that energy was the prime cost so the $30 number (or any number) made no sense. I can turn dirt in my yard into energy at $xxx a barrel using the same logic.
I don't think it is either cheaper or lower CO2 (not that I see CO2 as an issue).
Can you provide any links discussing either?
Upstream and Downstream Business are different profit centers. Each are reported separately in Annual Reports.
81,000 BPD is only the output from one company. The entire area produced their Billionth Barrel a decade ago.
In 2006 Alberta’s oil sands were the source of about 62 per cent of the province’s total crude oil and equivalent production and about 47 per cent of all crude oil and equivalent produced in Canada.
Annual oil sands production is growing steadily as the industry matures. Output of marketable oil sands production increased to 1.126 million barrels per day (bbl/d) in 2006. With anticipated growth, this level of production could reach 3 million barrels per day by 2020 and possibly even 5 million barrels per day by 2030.
Alberta.ca > Energy Home > Our Business > Oil Sands
http://www.energy.gov.ab.ca/OurBusiness/oilsands.asp
That is not a meager reserve replacement. As for the "experts"; barring a wholesale construction of new nukes (here and in China, India), nothing will will drive a nail in the coffin of mideast dominance.
50% of our electricity comes from coal because it is really cheap compared to everything else. Tar sands have higher overall CO2 emissions because the tar sand has to be cooked, refined, then transported. Coal only needs to be mined and transported. I don't have links googled up for you but if you are aware of any tar sand electric power plants or large scale low-CO2 tar sand preparation in operation let me know.
The article talks of the production of petroleum from oil sands. Very little petroleum is used for the production of electricity. Much of what is used for electricity is the “leftovers” of refining; Petroleum Coke and Residual Oil that cannot economically be turned into products like gasoline and diesel.
Petroleum is primarily used for transportation fuel. I thought you were referencing diesel from coal. You are comparing apples and oranges if you are comparing oil sands and coal fired electrical generation.
The demand for oil sands is expected to reach 10.31 million bbl in 2008,
Is this production per year, per day, or what?
Those numbers make no sense at all. Alberta Oil Sands are producing about 1.1 Million barrels a day.
Alberta Energy Department
Oil Sands Statistics
http://www.energy.gov.ab.ca/OilSands/791.asp
If you count the Orinoco Heavy Oil Belt of Venezuela, world wide production is 1.9 million barrels a day.
Oilsands Review
The world gets heavier
http://www.oilsandsreview.com/articles.asp?ID=535
That article appears to have been copied from this advertisment:
http://www.energybusinessreports.com/shop/item.asp?itemid=1049
The same site in another advertisment states:
“Canadian oil sands production is expected to reach 1.2 million barrels per day during 2006”
http://energybusinessreports.com/shop/item.asp?itemid=273
Needless to say, they are not a source from which I would recommend purchasing data.
Okay. The numbers seemed somewhat out of kilter.
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