CALGARY, Alberta (Reuters) - Royal Dutch Shell Plc (London:RDSA.L - News) said on Tuesday its Shell EP Americas unit paid C$465 million ($400 million) to buy 10 properties in northern Alberta, the highest price paid for Canadian oil sand leases last month.
The Hague-based Royal Dutch Shell said its U.S. unit has formed a new company, SURE Northern Energy Ltd., to assess and exploit its new holdings, even though its 78-percent-owned Canadian unit, Shell Canada Ltd (Toronto:SHC.TO - News), is already a top investor in the oil-rich region of northern Alberta.
The purchase, completed anonymously last month, proved grist for the Calgary rumor mill as the industry tried to identify the latest entrant in an area that's already attracted more than C$30 billion of investment and is expected to garner more than C$100 billion worth of projects over the next decade.
Some had touted Chinese or Indian companies as the likely buyer, while others suspected a Canadian or U.S. company.
However, it came as a surprise that Dutch Shell would establish its first wholly owned investment in Canada's upstream oil industry.
"The name never came up," said Wilf Gobert, analyst with Peters & Co. in Calgary. "It's bizarre...Is Shell going to compete with itself or is this a way of not diluting its interest (with other investors)?"
Shell Canada owns 60 per cent of the Athabasca Oil Sands Project. The project can produce about 155,000 barrels of synthetic crude a day from an oil sands mine near Fort McMurray, Alberta and an upgrading refinery near Edmonton that turns the tar-like bitumen stripped from the sand into synthetic crude oil. Shell Canada also plans to boost output from the project to 500,000 barrels a day.
Indeed, Shell EP Americas said the new business won't compete with its Canadian arm.
SURE Northern will test new technologies to evaluate and potentially develop its new holdings and will begin drilling appraisal wells on the leases this year.
"The establishment of SURE Northern does not change the relationship between Royal Dutch Shell and Shell Canada," Marvin Odum, executive vice president, Shell EP Americas, said in a statement.
"As the major shareholder in Shell Canada, Royal Dutch Shell maintains its full support for (Shell Canada's) business."
Analysts said SURE Canada's leases are about 80 kilometers (50 miles) west of Fort McMurray. It's at the edge of the Athabasca oil sands region and well outside the area where the deposits can be mined, the least expensive method of exploiting the resource.
Shell EP Americas said it will likely use thermal methods to exploit its holdings, the most typical being pumping steam into the reserves to loosen the bitumen so it can flow to the surface. It didn't say how much it would cost to develop its properties.
The oil sands region of northern Alberta contains an estimated 175 billion barrels of recoverable oil reserves, second only to Saudi Arabia.
Companies operating in the region now produce more than 1.1 million barrels a day and that's expected to climb to more than three million barrels a day by 2015.