Tuesday, May 29, 2012

Shell looking to sell Orion SAGD project

Facilities at Orion.
Photo by Joey Podlubny 

via the Oilsands Review   
Shell is looking to sell its Orion project. They have government approval to produce up to 20,000 barrels a day from it, but are producing only a quarter of that. This suggests to me that it's not a particularly good project, but I guess whoever ends up buying it will be more than aware of its limitations.

A guy at UBS says it could be worth up to $200 million, based on a "rule of thumb" saying each producing barrel per day is worth $35,000 to $40,000. Multiply by current daily production of 5,000 barrels to follow his unassailable logic. Incidentally, as mentioned yesterday Oil India is looking to spend between $100 and $200 million on oil sand projects. They don't want to be an operator, however, and certainly not an operator of a troubled property, so I suspect they'll pass.

Shell took a billion dollar write-down on the property in 2010 (actually this might have included other assets as well, like Seal). There are 22 well pairs, suggesting average production per well of 230 bbl/day, very low by industry standards. No word on steam requirements, although they say they made a profit of $15.6 million in the first quarter.

In short, this is an insignificant part of Shell's oil sands portfolio, which is dominated by the Athabasca Oil Sands Project, aka Albian Sands. Shell has a 60% interest in that large mining and upgrading operation, which includes the Muskeg River mine producing at 125,000 barrels per day and the Jackpine mine producing at 60,000 barrels per day, with plans to expand to up to half a million barrels per day in total.

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