(Adds detail on Shell's future expansion plans, background)
OTTAWA -(Dow Jones)- Project costs for a 100,000-barrel-a-day expansion at Royal Dutch Shell PLC's (RDSA) Athabasca Oil Sands Project have climbed to $13.7 billion, partner Chevron Corp. (CVX) said in a filing with the SEC.
The increase, from Shell's previous estimate of between C$10 billion and C$12.8 billion ($8 billion to $10.2 billion), comes as other oil sands developers signal that the plunge in crude futures prices is starting to rein in rampant cost inflation.
The Athabasca development currently produces 155,000 barrels a day of thick, tarry bitumen from the oil sands mine, which is subsequently processed into a higher-grade synthetic fuel at the project's upgrader. Shell is the project leader with a 60% stake, while Chevron and Marathon Oil Corp. (MRO) own 20% apiece.
Shell doesn't provide cost estimates for specific projects, senior oil sands spokesman Paul Hagel said, directing further inquiries to Chevron. Chevron wasn't immediately available for comment.
A number of proposed developments in Alberta's high-cost oil sands sector have been delayed or canceled as crude prices dove more than 70% off July's record highs near $150 a barrel and financial markets seized up last year. Work on Shell's expansion was already underway at the time, and the Anglo-Dutch major still expects the project to start up in late 2010 or early 2011, Hagel said.
However, Shell has put a second expansion on hold, saying in October that it would wait until costs fall before making a decision on boosting output by another 100,000 barrels a day. The company hasn't set a new timeline for making this investment decision, though it will happen "in due course," Hagel said.
"There are signs of the market getting less heated and materials costs coming down, but we haven't seen significant price reductions yet," he said. "But I think it won't be long before we see the market reduce costs, and that will help us make our decision."
Oil sands peers such as Suncor Energy Inc. (SU) and Petro-Canada (PCZ) have pushed back multibillion-dollar developments, planning to renegotiate contracts with suppliers and service providers to tamp down project costs. Husky Energy Inc. (HSE.T) said earlier this month is has already slashed 30% off cost estimates for its Sunrise oil sands development due to falling costs.
On Thursday, the chief executive of engineering and construction company KBR Inc. (KBR) reckoned it will take another three to six months before costs in the supply chain come down enough to encourage producers to start on the next round of projects.
-By Hyun Young Lee, Dow Jones Newswires; 613-237-0669; hyunyoung.lee@dowjones.com