Royal Dutch Shell Heavy Oil Picks Up

By Eric Fox | October 07, 2010 AAA

Royal Dutch Shell (NYSE:RDS.A, RDS.B) has significant interests in various heavy oil project areas in the United States and Canada and intends to develop these assets to power future company-wide production growth. (Hedge against rising energy prices and diversify your portfolio with these funds. For more information, see ETFs Provide Easy Access To Energy Commodities.)

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Royal Dutch Shell reported average daily production of 170,000 barrels of oil equivalent (BOE) per day from its heavy oil portfolio in 2009. This production is split between mining operations in the oil sands and in situ methods, where the heavy oil reservoirs are treated in place to get the oil flowing. Royal Dutch Shell estimates that its can get its heavy oil production up above 400,000 BOE per day by 2020. This goal is dependent on the pace of development and the company has flexibility on capital allocation.

In Situ
In California, Royal Dutch Shell has a 51.8% share of Aera Energy LLC, which produces heavy oil from nine fields in the state. Aera Energy LLC produces 160,000 gross BOE per day, and Royal Dutch Shell and its partner Exxon Mobil (NYSE:XOM) use water and steam flooding to develop wells here.

Royal Dutch Shell has various operations in Western Canada where the company conducts in situ production methods. The company estimates that these areas will produce an average of 18,000 BOE per day in 2010.

Royal Dutch Shell is considering an expansion project at the Peace River area. The Carmon Creek project would involve steam injection to get the oil out of the ground. If the company goes forward with the project, it will add 80,000 BOE per day of production to the company.

Oil Sands
Royal Dutch Shell also has a 60% share of the Athabasca Oil Sands project in Canada. The company just started up the Jackpine Mine, which added 100,000 BOE per day of capacity here. The project now has total capacity of 255,000 BOE per day and expects production to rise toward that capacity once an upgrader project is complete in 2011. Marathon Oil (NYSE:MRO) and Chevron (NYSE:CVX) both have a 20% share of this project.

Royal Dutch Shell has multiple opportunities to increase capacity even higher from the Athabasca Oil Sands, and the company has applied for permits to build an additional 515,000 BOE per day of capacity. It will be decades until some of this capacity is added, but it is clear that the oil sands will be a major source of growth for the company for quite some time.

Another company with heavy oil exposure is Berry Petroleum (NYSE:BRY), which has interests in the Midway-Sunset Field in California. This field has been producing since early last century, and Berry Petroleum is using steam flooding to squeeze more production out of this field.

The Bottom Line
Watch for Royal Dutch Shell to continue its aggressive approach to heavy oil production growth.

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