Shell Issues Formal Proposal to Expand the Athabasca Oil Sands Project

Royal Dutch Shell plc said that it welcomes Shell Canada’s formal proposal to expand the Athabasca Oil Sands Project.

Shell Canada Limited announced that it has issued a formal proposal to proceed with Expansion 1 to the other Athabasca Oil Sands Project (AOSP) joint venture owners. They have 90 days to respond.

"We have received our Board's support to take the next step on this important growth project," said Clive Mather, president and CEO of Shell Canada Limited. "Issuing this proposal to the other owners is a key milestone in our strategy to grow mining production from the Athabasca region to 550,000 barrels per day (bpd)." Shell’s share of this production is 330,000 bpd.

Shell Canada completed an extensive feasibility study followed by a rigorous cost estimate and assurance review process in support of this formal proposal. The heated markets for labor, materials, and equipment have impacted all facets of this 100,000-bpd expansion project. Although the capital intensity of the project, estimated at between $275 and $350 per annual flowing barrel, has increased significantly from earlier estimates, Expansion 1 remains viable under a wide range of pricing scenarios.

Expansion 1 is a fully integrated expansion of the existing AOSP facilities, with both new oil sands mining operations on Lease 13 and associated additional bitumen upgrading at Scotford. It also includes construction of common infrastructure that will be sized to support future expansions. The previously announced solvent de-asphalting plant is not included in Expansion 1 because the technology is not yet ready for integration into the upgrading process. It is expected that the Expansion 1 expenditures will be similar between the mine and the upgrader.

Shell Canada intends to make a final investment decision for this project in the fourth quarter of 2006 pending regulatory approvals. First bitumen production is expected in late 2009 followed by upgrader production in late 2010.

The Muskeg River Mine is located about 75 kilometers north of Fort McMurray, Alberta. The Scotford Upgrader is located near Fort Saskatchewan, northeast of Edmonton. Together the facilities make up the existing Athabasca Oil Sands Project, a joint venture among Shell Canada Limited (60%), Chevron Canada Limited (20%), and Western Oil Sands L.P. (20%).


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