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Shell - Heavy Oil

Posted by Steve Day


Shell Heavy Oil

Running time: 5:39


When it comes to energy, Canada is in a unique position. For one, we’re blessed with the third largest oil reserves in the world, with 97% of those reserves situated in the Oil Sands. And we also operate within a politically stable environment, compared to many other parts of the world.

So where does our Heavy Oil business fit into this picture?

Well, we have Mining, Upgrading and In Situ operations across Alberta. And we are building the world’s first oil sands carbon capture and storage project. And we bring together Shell Canada’s full value chain, from extraction, to refining, to retail gas stations and aviation fuel. Right now, our operations make up about 4% of Shell’s global production.

But in terms of future potential, we could represent 25% of Shell’s entire global resources. So while we already produce a lot, just imagine how massive we’d be if we could find a way to unlock all of that potential. We already have some pretty big things to be proud of.

In ten years we’ve built a business where thousands of employees and contractors can produce up to 262,000 barrels of oil daily. That’s enough to power the entire world of 7 billion people, for 4 minutes, every… single… day.

The oil we produce gets our kids to school, runs our hospitals, and ensures we have fresh produce year-round. It provides us with products we all use every day – like plastics and cosmetics, medicines and smartphones.

So what we all do every day really matters. Plus, we offer Shell big possibilities for the future. That means we have the power to create jobs for our kids, and for their kids too.

Contribute billions to Canada’s economy. And provide reliable and responsible energy to Canadians and beyond for decades to come.

So when you put all of this together, it sounds like our Heavy Oil business is sitting in a pretty great place with lots of opportunity right?

Well… sort of. We also face some big challenges. Internally, we have struggled for years to meet our targets for Safety, Production, Compliance, and Cost.

Developing the oil sands is very complex, and it takes a huge amount of investment and operating capital just to get the resource out of the ground.

Externally, we face some of the toughest regulatory processes in the world.

We also face public and political opposition because of the potential environmental impacts associated with our operations.

Our entire industry is landlocked with no direct access to global markets where the demand exists to get us a higher price per barrel, so we sell our oil at a discount.

And that’s a bad thing when your operating costs are as high as ours. This all means we are one of the most expensive barrels in the energy business. On average, when we sell a barrel of our oil for around $90, we are only making about $13 profit. So yes, we do make a profit, but for all the funds invested in our operations, we only offer a 6% return.

Would you invest in a business that faces so many pressures and delivers such a small return? In a company like Shell, we are just one part of a giant global portfolio of opportunities. So we have to be very aware of how we show up on paper to our investors.

And they expect us to deliver double-digit returns. Sustaining and growing our Heavy Oil business is going to require even more investment, as in billions of dollars, well into the future. We’re competing with a number of other future opportunity businesses for Shell’s investment, and we will need to outperform them all. Because unless we prove that we deserve it, these future funds could dry up.

So we need Royal Dutch Shell, and the rest of the world, to see us as a safe, profitable, sustainable long term investment, that delivers on its targets. So how are we going to get there? There are five big levers that we can pull.

Operational Excellence: Getting our base business right now to secure future investment. Growth: Getting the most out of our existing assets by debottlenecking, and adding barrels through our future growth projects.

Technology: Using technology to improve the way we get our oil out of the ground and embedding Environmental performance Improvement into everything we do. Commercialization: maximizing the cash we can generate from our existing assets, like the aerodrome, and processing other companies’ bitumen at the Upgrader.

Social License: earning the public’s trust in order to pave the way for global market access. We won’t all be working on every lever. Each of us will be working to deliver on our own specific targets...

So that together, across the whole business, we can pull ALL these levers to prove that we are ready for long term growth. Remember Deliver Now and Build to Win? That’s exactly what this is about. So we have a big challenge in front of us.

We need to show Shell and the world that we have what it takes. We have the best people and greatest minds in the industry on our team. And we have the potential to unlock 25% of Shell’s entire global resources – that’s over a million barrels a day – more than half of Canada’s daily oil consumption!

Most people can only dream about an opportunity like this, and it’s ours for the taking. If anyone can do it it’s us. So let’s go!