SHELL CANADA COMMISSIONS PILOT PLANT FOR C$3.4 BILLION MUSKEG RIVER PROJECT

Shell Canada Limited and The Broken Hill Proprietary Company Limited (BHP) are moving forward with a feasibility study on their proposed C$3.4 billion Athabasca oil sands project.

Shell and BHP are spending more than C$100 million on detailed commercial and technical evaluations of the 150,000-barrel per day project, which includes:

• Muskeg River Mine
• Corridor Pipeline
• Scotford Upgrader

Shell will contribute 75 percent of the costs, along with their petroleum expertise. BHP will contribute 25 percent of the costs and their mining and mineral processing expertise. The regulatory process also continues through 1998. The Muskeg River Mine application was filed at the end of 1997 and the upgrader and pipeline applications will be filed before mid-1998. Shell and BHP will continue environmental studies and public consultation throughout the year. At the completion of the feasibility study in early 1999, the companies will decide whether or not to go ahead with the project—which would start up in 2002.

The Muskeg River Mine is a C$1.2 billion surface mine and extraction facility on Shell’s Lease 13 in Northeastern Alberta. A significant milestone of the feasibility study is a C$25 million pilot plant on the lease to test extraction processes on a large scale. Commissioning of the pilot, which received regulatory approval in January 1998 is now under way. The pilot plant was expected to be fully operational in the third quarter of this year. The pilot plant will provide information to develop the detailed design of the full-scale extraction facility.

The Corridor Pipeline is a C$400 million, 500 kilometer pipeline which will transport diluted bitumen from Lease 13 to the Scotford Upgrader. (See The Sinor Synthetic Fuels Report, January 1998, pages 3-3 and 3-4.) BC Gas Inc. and its wholly owned subsidiary Trans Mountain Pipe Line Company Ltd. will join Shell and BHP in the feasibility study now under way.

The Corridor Pipeline will transport 215,000 barrels per day of diluted bitumen from the Muskeg River Mine to the Scotford Upgrader. A return line will carry 65,000 barrels per day of diluent back to the Muskeg River Mine.

If the oil sands project is approved following the current feasibility study, BC Gas and Trans Mountain will build, own and operate the Corridor Pipeline. If all goes well, construction is expected to begin in 2000, with shipping starting in 2002. At any time prior to 30 days after final project approval, Shell and BHP have an option to take an equity interest of up to 49 percent in the pipeline.

The Scotford Upgrader is a C$1.8 billion project which will be built next to Shell’s existing Scotford Refinery north of Fort Saskatchewan.

The Scotford Upgrader will process 140,000 to 150,000 barrels per day of bitumen from Shell’s proposed Lease 13 Project.

Pending regulatory approval, and the successful completion of the feasibility study and other key technical and commercial milestones, construction of the Scotford Upgrader is expected to begin in 1999. First processing is scheduled for the fall of 2002 when production from the Lease 13 Project is scheduled to begin.