Shell Canada using 'warehouse' approach to drive down oilsands costs

CALGARY - Shell Canada Ltd., in an effort to cut costs and boost efficiency at its oilsands operations, has found inspiration in an unlikely place: online retailer Amazon.

The company recently adopted a "warehousing" approach to how it manages its tools and equipment, president Lorraine Mitchelmore told reporters Wednesday.

That way, workers don't waste their time hunting down a piece of pipe and trucks don't sit idle while mechanics wait on a certain part.

Right now, Shell has the ability to track down 76 per cent of its inventory and hopes to increase that to 96 per cent over the next few years.

"That's equivalent to Amazon," said Mitchelmore.

"It's nothing to do with oil and gas. It's to do with inventory management. So that's the kind of thinking we're bringing to the organization to really try to drive efficiencies and productivity."

Earlier this year, Shell leased warehouse space in Edmonton, which Mitchelmore says is rapidly becoming a "centre of excellence" for the industry. Shell also has a module yard in Edmonton where it builds components of its oilsands plants.

So far, the turnaround time for overhauling a truck has been decreased from five weeks to two. It used to take days to locate pipes, but now it takes minutes with the help of trackers.

The cost savings of the warehousing approach add up to about $20 million a year. That's modest in the context of Shell Canada's European parent company, Royal Dutch Shell PLC, but every dollar counts when oilsands operations must compete with other projects around the world for capital.

Since Royal Dutch Shell welcomed new CEO Ben van Beurden earlier this year, the company's focus has been on maintaining cash flow so that it can support its dividend and fund future growth.

"Royal Dutch Shell right now is rich in opportunities," Mitchelmore said."We've built a fantastic portfolio across the globe over the past decade or so. And so now we are capital constrained. We we have to focus."

"My job right now is to focus on the costs, focus on productivity improvements," Mitchelmore said.

Shell tests the economics of its projects against a long-term oil price range of between US$70 and US$110 a barrel.

In the oilsands, Shell operates the Athabasca Oil Sands Project mining operation north of Fort McMurray, Alta. and is planning an expansion to its Jackpine mine. Shell is also preparing to build its steam-driven Carmon Creek oilsands project.

The oilsands crude is upgraded into a more easily refined product at its Scotford upgrader, near Edmonton.

Shell is installing carbon capture and storage technology at Scotford. The Quest project, partly funded by the Alberta and federal governments, is meant to capture carbon dioxide from the plant and store the gas underground, preventing it from escaping into the atmosphere. On Wednesday, Shell said the project was 70 per cent complete, on budget and on track to start up next year.

Follow @LaurenKrugel on Twitter