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Shell pulls plug on long-delayed oil sands mine

Royal Dutch Shell PLC has scrapped plans for a long-delayed oil sands mine, pulling the plug as oil prices skid to multiyear lows.

The European oil major said Monday that it is withdrawing its application with federal regulators for its 200,000 barrel-a-day Pierre River mine north of Fort McMurray, calling the project a “very long-term opportunity” that is not currently a priority.

“Our current focus is on making our heavy-oil business as economically and environmentally competitive as possible,” Lorraine Mitchelmore, president of Shell’s Canadian unit, said in a statement. “We will continue to hold leases and can reapply in the future when the time is right.”

The move is the latest sign of upheaval in Alberta’s energy sector, which is suffering after oil prices fell more than 50 per cent since last summer. U.S. crude for April fetched about $50 (U.S.) a barrel at midday Monday, down from more than $100 last June.

The collapse in crude prices has prompted layoffs and deep spending cuts across the industry, hitting profits at large companies such as Suncor Energy Inc. and Cenovus Energy Inc.

Shell in January cut as many as 300 jobs at its Albian Sands bitumen project as part of efforts to improve the project’s economics. Shell holds 60 per cent of that project with Chevron Corp. and Marathon Oil Corp., who each hold a 20-per-cent stake.

Over all, oil companies are expected to slash as much as $23-billion (Canadian) from corporate budgets this year, with oil sands spending falling by about a quarter to $25-billion. That’s down from $33-billion in oil sands spending last year, according to the Canadian Association of Petroleum Producers.

Nevertheless, companies in the oil sands are expecting to boost output as construction finishes on several new project expansions.

Shell said it has regulatory approval to potentially more than double its oil sands output from today’s level of 255,000 barrels per day.

The company originally applied to build Pierre River in 2007, as part of a joint application for a 100,000 barrel-per-day expansion to its Jackpine mine.

But the company halted work on Pierre River last year to reassess the development timeline. It said cancelling the project would result in “very limited” employment impacts.

Shell is proceeding with the initial phases of Carmon Creek, an 80,000 barrel-a-day steam-driven oil sands project in northwestern Alberta.

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