Shell Canada Provides AOSP Expansion 1 Update

Shell Canada Limited provided the following update on expansion plans for the Athabasca Oil Sands Project (AOSP).

AOSP Expansion 1
Shell Canada is the majority owner of the AOSP, which is currently designed to produce 155,000 barrels of bitumen per day. Shell Canada's surrounding acreage could support production expansion to more than 500,000 barrels of bitumen per day, and the company is planning a series of expansions over the next decade to reach that long-term production goal. The AOSP Expansion 1 will add approximately 100,000 barrels per day of capacity and lay down associated infrastructure foundations for subsequent expansion phases. Plans for AOSP Expansion 1 include expansion of both the existing Muskeg River Mine and the Scotford Upgrader.

Earlier this year Shell Canada initiated a detailed review of the proposed AOSP Expansion 1. Although not yet complete, it is already clear that there has been significant upward pressure on capital costs of the project.

"Clearly, AOSP Expansion 1 has great potential, and has to be seen as a stepping stone in the broader expansion plan for AOSP,” said Brian Straub, Shell Canada’s senior vice president for oil sands. “However, in this heated marketplace, cost and schedule control is the top priority. We see signs of a heated market for labor, materials, and equipment everywhere, and we must assure ourselves that we can execute successfully. Right now our focus is on mitigating the costs and risks."

Shell Canada is currently involved in a number of internal and external project reviews to capture best practice in all aspects of the design, schedule, and construction strategies for the AOSP expansion. These reviews will continue through the month of July. They include how to address the twin challenges of cost and supply of labor and materials. A further update will be provided at the end of the month.

In the meantime, Shell Canada continues front-end engineering work on AOSP Expansion 1 to support the planning schedule and is securing commitments for major long-lead items. A final investment decision is currently scheduled for the fourth quarter of 2006 and will be set in the context of both the ultimate potential of this substantial resource and long-term shareholder value creation.

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