C$3.5 BILLION ATHABASCA OIL SANDS PROJECT A "GO"

In December Shell Canada Ltd., together with Chevron Canada Resources Ltd. and Western Oil Sands Inc., announced approval of the C$3.5 billion Athabasca Oil Sands Project. Construction will begin immediately with production planned for late 2002. Under a joint-venture agreement, Shell Canada retains a 60 percent interest in the project while Chevron and Western each hold 20 percent interest.

The Athabasca Oil Sands Project joint venture includes:

• The C$1.8 billion Muskeg River Mine, to be constructed on Lease 13, 70 kilo-meters north of Fort McMurray, Alberta, Canada (Figure 1). The Muskeg River Mine will use trucks and shovels to excavate the oil sands, as well as advanced warm water extraction technologies to separate the bitumen from the sands, to produce 155,000 barrels per calendar day of bitumen starting in late 2002. The joint venture has formed a new company to operate the Muskeg River Mine--Albian Sands Energy Inc.
• The C$1.7 billion Scotford Upgrader to be constructed next to Shell’s existing Scotford Refinery north of Fort Saskatchewan, Alberta. The Scotford Upgrader will use hydrogen-addition technology to process the bitumen from the Muskeg River Mine into a range of premium, synthetic crude oils. These crude oils will be used to produce clean, high quality fuels to help meet the transportation needs of Canadians. The Upgrader will be operated by Shell.

Figure 1

In addition to its joint-venture investment of C$2.1 billion, Shell Canada will invest approximately C$400 million to modify its existing Scotford Refinery to utilize the new synthetic crude oils produced by the Scotford Upgrader.

As well, a number of companies will construct new facilities to serve the needs of the Athabasca Oil Sands Project under long-term commercial agreements. They include:

• The Corridor Pipeline, which will transport diluted bitumen from the Muskeg River Mine to the Scotford Upgrader, and connect the Upgrader with refinery and pipeline terminals in the Edmonton area. Corridor will also provide oil storage facilities for the project. This investment of approximately C$600 million will be made by Corridor Pipeline Ltd.
• The ATCO Power Canada Ltd. Muskeg River Mine gas-fired cogeneration plant, which will provide steam and electricity to meet the needs of the Muskeg River Mine, as well as additional electricity for Alberta consumers. This 170-megawatt cogeneration facility and associated heat recovery equipment will cost approximately C$200 million.
• The ATCO Pipelines Muskeg River Mine natural gas pipeline, which will transport the natural gas needs of the Muskeg River Mine cogeneration plant. Approximately C$37 million will be invested to construct this pipeline.

Construction on the Muskeg River Mine and Scotford Upgrader will begin immediately. First oil production is scheduled for late 2002.

The resource of the Muskeg River Mine and Lease 13 contains more than 5 billion barrels of mineable bitumen. This is about equal to twice the amount of conventional oil reserves remaining in Alberta. The oil sands deposit is close to the surface and contains a high concentration of oil, making it ideally suited to mining. The Muskeg River Mine will recover 1.65 billion barrels of bitumen over 30 years. The project will provide refiners with the product necessary to produce approximately 1 percent of North American demand for transport fuels.

Canada’s oil sands industry currently produces more than 18 percent of the nation’s petroleum needs.

The project was delayed when Broken Hill Proprietary Ltd. (BHP), an Australian natural resources producer, dropped out in early 1999. Executives from BHP left the company, formed Western Oil Sands, and attracted C$900 million in capital. Western Oil Sands plans a public offering next year.

According to Shell Canada, the environmental controls at the Scotford Upgrader will offer performance advantages:

• It will make the best use of the bitumen produced at the Muskeg River Mine, with more than 100 barrels of upgraded crude oil produced for every 100 barrels of bitumen processed.
• It will produce dramatically lower levels of sulfur dioxide emissions.
• High carbon coke will not be produced as a byproduct.
• The synthetic crude oil produced will enable refiners to produce clean, high-quality refined products, such as gasoline and diesel fuel, with low levels of aromatics, particulates and sulfur.