Royal Dutch Shell Plc. may consider restarting mothballed oilsands projects, but not until oil prices return to US$80 per barrel, according to the company’s top executive in North America.

“It probably needs to be in the US$80 range to be interesting, but it all depends on what it costs,” Marvin Odum, Shell’s director of the upstream Americas said in an interview Thursday. “It is a two–piece variable equation.”

Like most major players in the oilsands, Shell has seen its costs come down “considerably,” easing the pain of oil prices that have tumbled 40 per cent in the past 12 months. West Texas Intermediate closed Thursday at US$52.78 a barrel.

But the European major has also shelved a couple of oilsands projects — the 80,000-barrels per day Carmon Creek development and the 200,000-bpd Pierre River project — due to unfavourable economics. The company has also yet to sanction a 100,000-bpd Jackpine expansion which has secured regulatory approval.

“There is no particular driver to make that expansion happen right now as we look at other parts of the portfolio,” Odum said, noting that the company’s oilsands expansion “is further back on the burner in terms of where we are investing now.”

Shell has to navigate the oil downturn at a time when it’s in the midst of a massive US$70-billion takeover of BG Group Plc., expected to be completed in early 2016. The merger could lead to a scuttling of one liquefied natural gas project in British Columbia, as both companies have proposed projects on the West Coast.

“Canada remains extremely important country in the Shell portfolio, and it is hard to see anything changing,” said Odum, who was attending the Toronto Global Forum.

He also said that while new oilsands projects are on hold, the company is moving ahead with its LNG project on the West Coast and exploration offshore Nova Scotia later this year. Shell also expects to complete the Quest carbon capture & storage project this year. The project is owned by Shell, Chevron Corp. and Marathon Oil, with support from the Governments of Canada and Alberta.Shell already produces around 250,000 bpd in Canada.

Yet Canadian operations are unlikely to be shielded from the merger as the company embarks on a US$30 billion global divestment program as part of its acquisition of the UK-based natural gas company.

“There will be a serious divestments that follows on if we are successful in closing the BG deal,” said Odum without elaborating on how it would impact its Canadian operations.

Shell has a 50 per cent stake in LNG Canada being proposed for Kitimat on the British Columbia coast, and is leading the consortium which includes Korea Gas Corp., PetroChina Co. and Japan’s Mitsubishi Corp. The project would likely clash with BG Group’s delayed plans to build a rival plant in Prince Rupert.

“We will look at them side by side, and see if there is reason to have a preference of one over the other, but the Canada Shell project is more advanced and… some of the fundamental factors around the site and are very favourable.”

Although the gas-weighted BG acquisition would position Shell as the largest private LNG company in the world, Odum believes there is still scope to proceed with LNG Canada, given its proximity to the largest stranded natural gas reserves anywhere in North America.

Rival Petronas Bhd. and its partners has given a conditional approval on an LNG project on Lelu Island, but Odum says Shell and its partners are not ready to make a final investment decision on their proposal.

“I think LNG Canada, in Kitimat, looks really strong relative to the competitors – in my personal view.”

The consortium secured a provincial environmental certificate and earlier this week filed for a 40-year National Energy Board (NEB) export licence to replace the current 25-year licence LNG Canada obtained in 2013, to help improve the project’s economics.

“We are finishing the hard work around engineering and design so that we can put a specific cost on the project,” Odum said, disputing the $40 billion price tag on the project placed by Shell officials earlier.

“I don’t think we are at a stage of putting a cost on the project.”

It probably needs to be in the US$80 range to be interesting, but it all depends on what it costs

Odum said Shell is in “favour” of the Alberta’s government announcement to raise the existing $15 per tonne levy on carbon to $20 per tonne next year and $30 per tonne in 2017, as it’s part of a wider transition happening worldwide.

“This is not a Canadian issue. We believe carbon pricing, on a broader scale across the region, is the right thing to do,” Odum said.

But the province’s decision to hike corporate taxes and review royalties at a time of depressed oil prices are important questions for the Alberta government to consider as it builds a new system.

“Does that whole system around the business in oilsands in Alberta– does it still look sufficiently to competitive to other investments in the world, and that’s a very important question,” Odum said. “And that’s exactly how we will ultimately steer our dollars, on that same question.”

Source: financialpost.com

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