Calgary-based Shell Canada Ltd., a unit of Royal Dutch/Shell Group, reported a record 73% earnings increase in the first three months of 2004 on high prices and a strong contribution from its Athabasca Oil Sands Project, which was in start-up mode a year ago.

Natural gas production from Shell’s portion of the Sable Offshore Energy Project (SOEP) reached 140 MMcf/d in the first quarter, compared with last year’s 136 MMcf/d. However, Western Canada gas production was down in the quarter at 427 MMcf/d, compared with 1Q2003’s 444 MMcf/d. Natural gas sales for the quarter were also down, standing at 549 MMcf/d, versus 572 MMcf/d a year ago.

Overall the company’s first quarter earnings were C$368 million (C$1.34/share), compared with C$213 million (C77 cents/share) for 1Q2003. First quarter 2004 earnings also included a one-time benefit of C$25 million from a future income tax revaluation following announced Alberta income tax changes.

Cash flow from operations was a record C$552 million, compared with C$414 million, and capital and exploration expenditures were C$150 million versus C$196 million in 1Q2003.

“Positive earnings from oil sands, and strong commodity prices and refining margins contributed to the quarter’s record earnings and cash flow,” said CEO Linda Cook. “I continue to be pleased with the performance of all businesses, in particular with the strong operational performance at our refineries and the increasing contributions from Oil Sands to earnings and future growth.”

First quarter 2004 oil sands production was 135,900 bbl/d of tar-like bitumen, 88% of the 155,000 bbl/d design rate. Earnings for oil sands were C$96 million, compared with a loss of C$105 million last year, when the operation, in which Shell Canada has a 60% interest, was just starting up.

In its Exploration and Production unit (formerly known as Resources), earnings were C$156 million, down from C$202 million a year ago. Shell said earnings decreased on lower realized Canadian dollar prices for natural gas and natural gas liquids and lower production volumes. Depreciation charges, meanwhile, were up because of higher Sable Offshore Energy Project (SOEP) unit rates. The unit’s average plantgate netback price so far this year was C$6.54/Mcf, compared to the average during 1Q last year of C$7.94/Mcf/

Volumes for Sable have increased due to start-up of the Alma field in late 2003, and South Venture facilities are expected to start up later this year, which will help sustain SOEP production rates. Production reached new daily and weekly highs and averaged 4% higher sequentially over 4Q2003.

In other news, Shell Canada said its parent company’s recent downgrades by Standard & Poor’s Ratings Service and Moody’s Investor Services are not expected to have any material effect on its financing costs.

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