IMPLEMENTING CONSERVATION OFFSETS IN CANADA: ONE COMPANY’S PERSPECTIVE

Lorraine Brown, Emerging Regulatory Policy and Issues Advisor

OUTLINE

1. Introduction to Shell Canada

2. Business context for Sustainability

3. Business context for Conservation Offsetting in Canada

4. Shell’s Approach

5. Shell Canada Conservation Projects

6. Implementation Issues

1. INTRODUCTION TO SHELL CANADA

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4

SHELL IN THE WORLD

Headquarters: The Hague,

the N etherlands

Parent company: Royal Dutch Shell plc

O perates in over 80 countries

Approximately 90,000 employees

43,000 Shell service stations worldwide

50% of production is natural gas

W e produce 2% of the W orld’s oil and

3% of its natural gas

5

THE CANADIAN UPSTREAM BUSINESS

Heavy O il (In Situ) Heavy O il (Mining) Unconventional G as/ Liquid Rich Shales Foothills Sour G as Frontier G as Monetization

GROUN DBIRCH

Large contiguous land base with existing infrastructure

Tight G as

DEEP B A S IN G A S (B CG )

Deep tight gas

Major growth opportunity

O R IO N

SAG D in situ

A O S P

Mining JV (60%, Chevron 20%, Marathon 20%)

255 kbpd capacity on line

S CO TFO R D U P G R A DER

Located next to Scotford Refinery

Uses hydrogen-addition technology to upgrade bitumen into synthetic crude oil

Q uest carbon capture and storage project

O R P H A N B A S IN (CH EV R O N )

N on-operated exploration

20% SCAN position

Deep water, harsh environment

S A B LE (EX X O N )

N on-operated exploration

31.3% SCAN position

Liquid rich

Very mature

N O V A S CO TIA O FFS H O R E / S H ELB U R N E B A S IN

Four 100% (operated) deepwater exploration blocks, located 220 km SW of N ova Scotia coast

Deepwater, harsh environment

CA N A DA G R EEN CO R R IDO R (G fT)

0.3 mtpa LN G facility being built at JP

Market development underway

LN G for Transport (truck)

Distributed through Flying J

W ES T CO A S T

Major acreage position

Moratorium since 1970s

N o current activity

LN G CA N A DA (Ex p o r t)

Project in Select phase with FID in Q 1 2015

First phase - 12 mtpa

FO O TH ILLS

Four sour gas plants

Mature operations

LIQ U ID R ICH S H A LES (LR S )

Exploration

Frontier/ emerging growth opportunity

K LA P P A N (cb m )

Moratorium

G R EA T LA K ES CO R R IDO R (G fT)

0.25 mtpa LN G facility onsite at Sarnia Manufacturing Centre

Market development underway

LN G for Transport (truck, rail and marine)

P EA CE R IV ER

Thermal and cold in situ production

Carmon Creek 80 kbpd thermal project in regulatory process

G R O S M O N T

Major in situ opportunity

Technology is key

M a ck e nz ie G a s P r o je ct

Co-venturer in 1220 km pipeline from Mackenzie Dellta.

100% interest in N iglintgak natural gas field,, one of the gas fields anchoring the MG G P.

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THE CANADIAN DOWNSTREAM BUSINESSES

Retail Locations Refineries Lubes and G rease Plants Chemicals Bulk Fuel Terminals

CHEMAIN US

CALG ARY

W IN N IPEG

SAULT STE MARIE

LABRADO R CITY

HAMILTO N TO RO N TO

O TTAW A

KIN G STO N

SARN IA

SCO TFO RD

BRO CKVILLE

BURN ABY (2)

LUBRICAN TS PQ S and Shell – Burlington, O ntario P LA N TS Calgary (aviation greases) Brockville (largest pmo)

R ETA IL 1,300 branded stations

TR A DIN G N atural gas, Power &

Environmental Products Crude O il Refined Products

K EY S TR EN G TH S Integrated “mine to motorist” Leadership in cleaner fuels & biofuels Sustainable Development focus

(neighbours; compliance)

R EFIN ER IES Sarnia (1952) 71K

bpd Scotford (1984) 92K

bpd

B 2 B Aviation Commercial Fuels LPG Marine Sulphur

CH EM ICA LS Scotford Chemicals Plants Sarnia (Basel Energy IPA

Plant)

DIS TR IB U TIO N 14 Shell terminals

across the country

EDMO N TO N

MO N TREAL (2)

2. BUSINESS CONTEXT FOR SUSTAINABILITY

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THE NEW ENERGY FUTURE BY 2050

Rising energy demand, supply pressure, climate change

9 billion people, 75% living in cities (2 billion more than today)

2 billion vehicles (800 million at the moment)

Many millions of people will rise out of energy poverty; with higher living standards energy use rises

Energy demand could double from its level in 2000.. .. while CO2 emissions must be half today’s to avoid serious climate change

Twice as efficient, using half the energy to produce each dollar of wealth

3 times more energy from renewable sources

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THE ENERGY LANDSCAPE

Source: Shell analysis, January 2012

PROJECTED GLOBAL ENERGY DEMAND TO 2050 million barrels of oil equivalent a day

0

100

200

300

400

500

1980 1990 2000 2010 2020 2030 2040 2050

Crude oil N atural gas Coal N uclear Biomass W ind Solar O ther renewables

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INTEGRATED NATURAL GAS LEADERSHIP

EXPLORATION & PRODUCTION

TECHN OLOGY LIQUEFACTION LN G SHIPPIN G REGAS, PIPELIN ES, STORAGE

M ARKETIN G & TRADIN G

Largest LN G supp lier

Largest ship opera tor

Stra teg ic posit ions, active por tfo lio m anagem ent

Globa l posit ions and capab ilit ies

Leader in LN G and gas conversion technolog ies

One of the w or ld ’s la rgest gas p roducers

Among International Oil Companies.

CONSIDERING NEW ‘BOUNDARIES’

1. We risk taking the planet to a biophysical state of which there is no historical experience

2. There are non-negotiable (quantified) boundaries we should not exceed

3. Can we live within the planetary boundaries without any impact on development or well being?

Rockstrom, J et al. A Safe Operating Space for Humanity (Nature 46, September 2009)

SHELL’S ROLE IN THE PROTECTION OF BIODIVERSITY

We all share the responsibility: Governments, corporations, organizations and individuals

Increase in agricultural and residential footprints is the biggest problem, but energy plays an important role

Recognizing these pressures, we look for ways to minimize our impact

3. BUSINESS CONTEXT FOR CONSERVATION OFFSETS IN ALBERTA

November 2013 13

• Majority (~ 80%) of oil sands will be recovered using in situ methods

• Involves drilling and recovering the bitumen “ in place”

• Usually involves the addition of heat or steam to make the bitumen flow

• Other 20% of bitumen closer to the surface is mined

• Usually involves hot water to separate the oil from the sand

MINEABLE OIL SANDS VS IN SITU OIL SANDS

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SHELL ALBIAN SANDS AT A GLANCE

Albian = Muskeg River Mine (MRM) + Jackpine Mine (JPM)

2,500 employees + thousands of contractors each month

MRM 155,000 bbls/ day capacity; officially opened June 2003

JPM 100,000 bbls/ day capacity; officially opened 2011

~40 years production

Jackpine Mine Expansion just approved

Pierre River Mine undergoing environmental assessment

AOSP = 60% Shell and 20% each Chevron & Marathon. Volumes on100% basis.

SHELL JACKPINE MINE

IN-SITU OIL SANDS PRODUCTION

Well Heads

Pump Jacks

Manifold Building

MCC

ENVIRONMENTAL IMPACTS - LAND

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Mining operations have bigger “footprint” than in situ beacuse the bitumen separation happens underground

Reclamation is done in stages but it takes several decades to complete

Reclamation work is constantly being done and we work with local Aboriginal people to ensure that once mining ends, the land will meet their needs as well

W e purchase lands elsewhere to offset our impact

ENVIRONMENTAL PERFORMANCE IMPROVEMENT PLAN

Shell began its Environmental Performance Improvement (EPI) Program in 2011. We focus on the areas of CO2, land and water.

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CO2 Fresh Water Land

Equivalent intensity to average barrel refined

in US No use of river water Net neutral land

disturbance

Energy efficiency

Lower carbon energy

Q uest CCS

Business related offsets

O ptimize current use

Brackish H2O for insitu

Technology R&D

Facility integration

Interim reclamation

Conservation offsets

Tailings management

O re recovery R&D

GO

AL

OUTSIDE ENVIRONMENT

Multiple agencies with policies and requirements

Changing environment for approval of major projects

Greater scrutiny of both the regulator and the regulatees

Litigation by Aboriginal and environmental groups

20 November 2013

GOING “ GREEN” IS BECOMING THE STANDARD

Adapted from Rio Tinto

Requirement 3:Compensation

Requirement 3:Q uantification

Requirement 2:Mitigation

Avoidance Avoidance Avoidance Avoidance

Minimisation Minimisation Minimisation

Reinstatement Reinstatement

Biodiversity and ES Impact

Biodiversity and ES Impact

Biodiversity and ES Impact

Residual Biodiversity

Impact

BiodiversityO ffsets

Additional Conservation

Actions

-Bio

dive

rsity

Val

ue +

Avoidance

Minimisation

Reinstatement

Avoidance

Minimisation

Reinstatement

BiodiversityO ffsets

Net

Los

s/G

ain

The old way – some level of impact was acceptable

The future – no net loss or net positive impact

Impact recognized but deemed in the

“public interest”

4. SHELL’S APPROACH

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SHELL’S POSITION ON CONSERVATION

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PARTNERING ON CONSERVATION

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SHELL CANADA AND CONSERVATION OFFSETTING Shell assesses and manages the environmental impact of our activities, including impacts to biodiversity and ecosystem services

Shell follows the Mitigation Hierarchy in new projects

Shell Canada has a significant portfolio of conservation projects dating back 20 years

Shell supports the concept of Conservation Offsets as compensation for residual impacts in Critical Habitat

Aspiring to Land Footprint Neutrality in Heavy Oil Upstream Business

Actively leading advocacy to support implementation of CO in Alberta

5. SHELL CANADA CONSERVATION PORTFOLIO

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CASE STUDY: TRUE NORTH FOREST

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CASE STUDY: BUFFALO HILLS CONSERVATION RANCH

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6. ISSUES AND CHALLENGES

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CHALLENGES TO ADDRESS

Service area – need for Government leadership

Landscape level or project specific

No Net Loss of what?

Agriculture and housing impact more than oil and gas

NGOs not aligned and/ or getting message across in support of CO

Policy development takes time… and investment is very dynamic

Alignment and cooperation between different levels of government

30 November 2013

Q & A

Month 2010 31 Footer