February 23, 2015 / 9:04 PM / 2 years ago

UPDATE 1-Shell shelves 200,000-bpd Pierre River oil sands mining project

(Adds details and comment on Shell decision, industry background)

By Scott Haggett and Nia Williams

CALGARY, Alberta, Feb 23 (Reuters) - Royal Dutch Shell Plc is shelving plans to build a new oil sands mine in northern Alberta, the largest such project to be deferred as producers struggle with low energy prices.

The company said on Monday it is withdrawing its regulatory application for the 200,000-barrel-per-day Pierre River project. Instead, it will concentrate on boosting the profitability of its existing 255,000-bpd oil sands operations.

"The Pierre River Mine remains a very long-term opportunity for us, but it's not currently a priority," Lorraine Mitchelmore, president of Shell's Canadian unit, said in a statement. "Our current focus is on making our heavy oil business as economically and environmentally competitive as possible."

The deferral of the mine is the latest blow to the oil sands industry as one of the world's highest-cost production regions tries to cope with low prices that fallen to six-year lows.

Cenovus Energy Inc deferred spending on some of its prospective oil sands projects while it awaits higher pricing. As well, Total SA and Statoil ASA also recently postponed big oil sands projects due to weak economics.

The government of Alberta, which expects a C$7 billion reduction in its revenue this year because of low oil prices, called Shell's move "a business decision", saying the oil sands remain viable despite low prices.

"Oil production in Alberta will continue to grow," said Derek Cummings, a spokesman for the province's energy minister. "Production may grow at a slightly slower pace ... but we see the oil sands as being resilient."

Mitchelmore said the European oil major continues to hold the leases on the mine and could reapply in the future.

Shell has regulatory approval to expand its Jackpine oil sands mine in northern Alberta by 100,000 bpd. Spokesman Cameron Yost said he could not speculate on when a final investment decision on that project would take place.

The company said that because planning for the Pierre River mine was still in early stages, few jobs will be cut because of the deferral.

However, Shell was one of the earliest oil sands producers to slash staff due to low prices, laying off as many as 300 from its mining operations last month.

Shell has a 60 percent stake in the Athabasca Oil Sands Project, while Chevron Corp and Marathon Oil Corp each hold a 20 percent interest. (Reporting by Scott Haggett and Nia Williams in Calgary; editing by Lisa Von Ahn and Andrew Hay)

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