Shell puts Alberta oil sands project on the block

Mon May 28, 2012 4:08pm EDT
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By Jeffrey Jones and Scott Haggett

CALGARY, Alberta (Reuters) - Royal Dutch Shell Plc (RDSa.L: Quote) has put an Alberta oil sands project on the block, six years after acquiring it as part of a C$2.4 billion ($2.3 billion) acquisition near the height of the last Canadian energy boom.

Shell aims to sell its Orion steam-driven project in northeastern Alberta. Regulators have granted Shell approval for two 10,000 bpd production phases, though current production is just 5,000 bpd, according to Scotia Waterous, the oil major's financial adviser in the sales process.

Based on the current output and the potential for future production gains, Shell could garner as much as C$200 million for the operation, estimated Chad Friess, analyst with UBS Securities. That assumes an average unit value for such projects of C$35,000-C$40,000 per producing barrel a day.

"They are probably getting rid of it because it's such a small part of the portfolio," Friess said.

Shell said it aims to concentrate its non-mining oil sands efforts on the Peace River region, located North and West of the Cold Lake area, where the company has "a significant resource base."

"We expect it could take several months to finalize a sale," a spokesman said. "It's too early to speculate on the outcome of the sale process."

Orion came with the company's acquisition of Blackrock Ventures in 2006. In 2010, Shell took a $1 billion writedown on the assets, which also included holdings in a region called Seal.

According to the Scotia Waterous website, the project generated operating income of C$15.6 million in the first quarter of this year. It has been operating for a decade, though commercial operations began in 2007.   Continued...