Shell share price: Oil major shelves Alberta oil sands project

By: Veselin Valchev
Veselin Valchev
Veselin is a data scientist with extensive experience in commodities and natural resources within the FTSE 100. His data… read more.
on Oct 28, 2015
Updated: Mar 11, 2020

Royal Dutch Shell Plc (LON:RDSA) announced yesterday that it is shelving its 80,000 barrel per day Carmon Creek thermal oil sands project in Alberta, Canada, as the project failed to rank in the firm’s newly aligned priorities.

“Current uncertainties”, including the lack of infrastructure needed to move Canadian oil to the global markets, were cited as the reason for the withdrawal, which was presented in the context of Shell’s wider drive to realign its assets portfolio.
“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,” chief executive Ben van Beurden said.
Shell, which owns 100 percent of the project, said it will retain the licenses and will leave some equipment in place to allow it to continue studying options for the project.
Most significantly, Shell said it expects to take $2 billion in charges relating to the exit from the project, as an estimated 418 million barrels of bitumen will be de-booked. The impairment will be included as an identified item in the firm’s third-quarter results, due for release tomorrow.
Canadian oil sands carry some of the highest breakeven costs in the industry, analysts noted. Earlier this year, Shell withdrew an application to develop the Pierre River oil-sands mine in northern Alberta.
“With this new Shell announcement, 18 future oil-sands announcements have been delayed this year,” Jackie Forrest, vice-president of Calgary-based ARC Financial Corp., said as quoted by Bloomberg. “Many of the other ones were not as expensive to cancel because not as much had been spent on them.”
Shell has said that it needs Brent at above $70 per barrel for its oil sands projects to stay afloat. The global benchmark has traded well below $70 for the past year, orbiting the high $40s in recent months.
The retreat from Carmon Creek comes after earlier this week Morningstar analyst Stephen Simko wrote that Shell’s problems extend further than the depressed oil price. Big bets on shale “destroyed huge amounts of capital” and the company has few growth assets, Simko said, underscoring that Tuesday’s announcement was no surprise.
Last month, Shell pulled the plug of another major project, as it walked away from its costly Arctic exploration campaign following disappointing first-well results. The oil major will reveal the costs of scrapping its Arctic project tomorrow as well, having spent more than $7 billion on it to date.
Shell’s share price closed with a 1.19 percent loss yesterday at 1,721.23p, in line with the broader market.
As of 07:21 GMT, Wednesday, 28 October, Royal Dutch Shell Plc ‘A’ share price is 1,709.50p.

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