Royal Dutch Shell will halt construction of its Carmon Creek thermal oil sands venture in Canada due to “uncertainties” facing the project, including a lack of infrastructure, the energy giant said Tuesday.
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Shell originally sanctioned the project in October 2013 and announced in March 2015 that the project would be re-phased to take advantage of the market downturn to optimise design and retender certain contracts.
After careful review of the potential design options, updated costs, and the company’s capital priorities, Shell’s view is that the project does not rank in its portfolio at this time.
Ben van Beurden, CEO of Shell stated that company is thinking of altering its portfolio mix.
The energy giant said it would discontinue its 80,000 barrel-a-day Carmen Creek oil-sands project, citing an uncertain business environment and highlighting concerns about sufficient pipeline capacity to ship oil-sands crude to markets.
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.
Oil-sands projects were struggling to compete against lower-cost US shale and offshore developments even before the price of crude plunged. Earlier this year, it mothballed a 200,000 barrel-per-day oil sands mine called Pierre River, joining a long list of companies that have slammed the brakes on big-ticket growth projects to cope with plunging commodity prices.
The company had already completed site clearing, designing and procurement process, accommodation building for the project.
The company will however continue to retain the Carmon Creek leases and preserve a few equipment it exploring option for this asset.
“It is too early to quantify staff and contractor impacts” from the decision to abandon Carmen Creek, said Tara Lemay, a spokeswoman for Shell’s Canadian subsidiary.
Shell owns a 60% stake in its core oil sands mining operations with Chevron Corp., and Marathon Oil Corp. splitting the remainder.
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It’s getting even tougher for the world’s third-largest reserves in Canada to attract investment with prices for West Texas Intermediate and Brent crudes both hovering below $50/bbl.
