CORRECTED-Shell halts construction on new Alberta oil sands project

Wed Oct 28, 2015 1:15pm EDT
 
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(In Oct 27 item, corrects C$ to US$ in ninth paragraph)

CALGARY, Alberta Oct 27 (Reuters) - Royal Dutch Shell Plc will not continue construction of its 80,000 barrel per day Carmon Creek thermal oil sands project in northern Alberta because of the lack of infrastructure to move Canadian crude to market, the company said on Tuesday.

Shell said the decision to halt the project was also the result of "current uncertainties" and chief executive Ben van Beurden said the company was having to manage costs in today's low oil price environment.

"We are making changes to Shell's portfolio mix by reviewing our longer-term upstream options world-wide, and managing affordability and exposure in the current world of lower oil prices. This is forcing tough choices at Shell," van Beurden said in a statement.

Canada's oil sands hold the world's third largest crude reserves but carry some of the highest project breakeven costs globally. Western Canada also struggles with market access issues due to limited export pipelines, which can lead to a glut of crude building up in Alberta and weighing on prices.

The plunge in benchmark oil prices has prompted a number of companies to defer costly new oil sands projects, although so far few have been cancelled outright once underway.

Shell originally sanctioned the Carmon Creek in October 2013 but said in March that it would be delayed by two years as the company retendered some contracts and adjusted the design to take advantage of lower costs during the market downturn.

On Tuesday the company said following a review of potential design options, updated costs, and capital priorities, it had decided the project did not rank in its portfolio at this time.

Shell, which owns 100 percent of Carmon Creek, will retain the leases and preserve some equipment while continuing to study options for the project.

The company expects to take net impairment, contract provision, and redundancy and restructuring charges of around $2 billion as a result of the decision.

Last month Shell also pulled the plug on its plans to drill for oil in the Arctic, citing high costs and disappointing well results and in February shelved plans for its 200,000 bpd Pierre River oil sands mining project. (Reporting by Nia Williams)