UPDATE 2-Shell puts Alberta oil sands project on the block

Mon May 28, 2012 3:19pm EDT

* Orion pumps 5,000 bpd from 22 well pairs

* Came with acquisition of Blackrock in 2006

* Bids due mid- to late July

* Analyst estimates top value at C$200 mln

By Jeffrey Jones and Scott Haggett

CALGARY, Alberta, May 28 (Reuters) - Royal Dutch Shell Plc has put an Alberta oil sands project on the block, six years after acquiring it as part of a C$2.4 billion ($2.3 billion) acquisition near the height of the last Canadian energy boom.

Shell aims to sell its Orion steam-driven project in northeastern Alberta. Regulators have granted Shell approval for two 10,000 bpd production phases, though current production is just 5,000 bpd, according to Scotia Waterous, the oil major's financial adviser in the sales process.

Based on the current output and the potential for future production gains, Shell could garner as much as C$200 million for the operation, estimated Chad Friess, analyst with UBS Securities. That assumes an average unit value for such projects of C$35,000-C$40,000 per producing barrel a day.

"They are probably getting rid of it because it's such a small part of the portfolio," Friess said.

Shell said it aims to concentrate its non-mining oil sands efforts on the Peace River region, located North and West of the Cold Lake area, where the company has "a significant resource base."

"We expect it could take several months to finalize a sale," a spokesman said. "It's too early to speculate on the outcome of the sale process." Orion came with the company's acquisition of Blackrock Ventures in 2006. In 2010, Shell took a $1 billion writedown on the assets, which also included holdings in a region called Seal.

According to the Scotia Waterous website, the project generated operating income of C$15.6 million in the first quarter of this year. It has been operating for a decade, t hough commercial operations began in 2007.

It is a steam-assisted gravity drainage project, in which the company injects steam into the earth, loosening up the bitumen so it can be pumped to the surface.

Production comes from 22 well pairs on an eight-section lease located 30 km (19 miles) northwest of Cold Lake, Alberta.

It is not the only asset Shell seeks to part with in Canada. Last year, it put its interest in the long-delayed Mackenzie Gas Project in the Far North on the block. It has yet to find a buyer.

In oil sands production, Shell is better known for its Athabasca Oil Sands Project, a 255,000-barrel-a-day mining and synthetic crude processing operation in which it has a 60 percent stake.

Scotia Waterous said confidential operating and financial data for Orion will be available to prospective buyers next week and bids will be due in mid- to late July.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.