Wednesday, March 11, 2015

Shell Waterton reps say closure is not imminent

Shell Waterton
C. Davis file photo
Chris Davis

Shell Waterton Complex Operations Manager Peter Argument and Community Affairs Coordinator Rod Sinclair appeared as a delegation before Pincher Creek's Committee of the Whole (COTW) on the morning of March 4. Their message was clear, Shell Waterton will close one day, but that day is still likely more than a decade away. "There will be an end to Waterton," said Argument, explaining that when he was in engineering school a plant was expected to have a 25 year life expectancy. "This plant's at 53. It's phenomenal."

"Everything comes to an end at some point. We are right now forecasting the late 2020s, maybe, if everything goes well, early 2030s."

The Shell Waterton Complex is located approximately 30 kilometres southwest of Pincher Creek. It produces natural gas (methane), ethane, propane, butane, condensate, and sulphur.

"The next 5-10 years hopefully everything stays relatively fine," Argument continued, saying Shell employment, contracts, and social investment in the area is expected to remain stable. According to Argument there are 8 to 12 more untapped wells. Since it opened in 1957 Shell Waterton has drilled more than 340 wells, according to the Shell Waterton web page. Waterton #77, located south of the plant, was added last year. Argument said Shell may start drilling at Del Bonita (in Cardston County) in the near future. He told the COTW that new technology was making it increasingly possible to reach previously inaccessible or cost inefficent areas. "Outside of that, once we stop drilling, with the natural decline of the reservoirs... You will see our spend drop proportionally to that."

"We'll try to avoid a hard stop, but it will be an eventual decline."

Rod Sinclair said "We are working at a very high level right now, through our social performance sector of our company, where we develop an exit strategy. Now we deal with that kind of a taper off, what that means to the community, and try to set the community up as best we can before that happens."

"As Peter said, it's really important that we're able keep this drilling program going." Sinclair said two new wells are in the tentative planning stages, one to be drilled in 2016 and the other in 2017. "Those wells are a 20 million dollar investment, for one of those wells."​

"We need permission from the business to do that."

Sinclair said there were three key items for Shell Waterton to move forward - business, regulatory, and social licenses. "If we have those three, we can continue. We lose any one of those, then we are at risk."

"We can do this, but we really need to do this as a community."

Sinclair said that he knows people will have concerns and issues about development and drilling. "It's in everybody's best interest to work through that and try to keep this thing going. The economics alone, today, when we crunch the numbers, I think it's a $28 million investment, annually." Sinclair said that number includes employment, taxes, local contracted services, and materials.

"We are still in business, the business plan has us in business for a while yet. We need to keep our costs in order, and we're looking for support from the community to help the social side of it."

Sinclair said that his social budget (primarily money that Shell donates to are not-for-profits) has been cut, but not significantly. He said he has a social budget of approximately $100,000 for 2015.

According to Argument, Shell's Executive Vice President said 'Because of the actions we took in 2013, 2014, we are relatively robust right now'.

"He is still looking to decrease our overall costs."

If the prices recover by the end of 2016, to $80-$90 a barrel, "His prediction is that we should be relatively immune from drastic cuts."

A cautionary note was sounded when Argument said a sale of Shell Waterton to another company is unlikely, but "anything is possible" in business.

"We need to be competitive, globally."

Sinclair said government regulations would not likely allow Shell to close the plant without warning, but cautioned “It’s a volatile business.”

Councillor Doug Thornton cited natural gas prices figures of $2.75 - $3.00 per 1000​ ​cubic feet, and asked "How are you projecting that to remain, keeping in mind the fact that the Americans are putting up at least ten liquefied natural gas ports... and we have two such units proposed for our west coast?"

"If we had to run just on gas price, we probably wouldn't be in business," Argument replied. "A lot of our gas is quite wet from hydrocarbon perspective, we produce quite a lot of condensate."

"Condensate prices actually have been relatively robust." 

Argument explained that condensate is critical for heavy oil production.  It's used to dilute thick bitumen to allow it to flow through pipelines, "so as long as heavy oil production stays high" in the oil sands, demand will also stay high.

"...And they're short on condensate," interjected Sinclair. "Our focus is more on the wetter gas, for the long term."

"That's more robust at this point, and probably will be for the immediate future, anyhow."

Sinclair and Argument explained that there are opportunities for both a wetter and a drier well in this area.

Sinclair said that he would like to keep the community informed on what Shell's plans are "and what it means to them in the long term".

"Hopefully, this will set some of the rumo​u​rs straight. We are not going out of business, but we cannot sustain what we've gotten to now, in the long term." 

"Right now there's no exploration programs down in this area," Argument said, adding that there was more exploration currently going on west of Red Deer and Rocky Mountain House.

Argument and Sinclair offered to meet​ ​regu​l​ar​l​y with Town representatives when there are updates to share. 

Argument asked "What can Shell do for a small community where we are looking at exiting?" He suggested business development and​ training​ initiatives might lessen the impact.

"Ideally that's 15 years out, but we don't start it the day we shut down.​"​

Related link/source: Shell Waterton Complex web page

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