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Reuters: Shell Canada's Mather sees consolidation

Shell Canada's Mather sees consolidation

Tue May 23, 2006 3:36 PM EDT



NEW YORK (Reuters) – Shell Canada Ltd. (SHC.TO: Quote) Chief Executive Clive Mather said on Tuesday he expects further consolidation among Canada's heavy oil industry and that his company will be among the buyers.


Mather earlier this month agreed to pay C$2.4 billion ($2.2 billion) for BlackRock Ventures Inc., a small Canadian heavy oil and oil sands company. He told the Reuters Global Energy Summit in New York that more deals in the sector will soon emerge.


“I suspect there will have to be further consolidation going forward,” Mather said.


“I don't think (merger and acquisition) activity is going to stop soon. And from our point of view we want to ensure we maintain our position as one of the major players in heavy oil.”


Shell Canada, 78-percent owned by Royal Dutch Shell (RDSa.L: Quote), is expanding its Canadian oil sands operations. The company's plans include a multibillion dollar investment in its oil sands mine and upgrading refinery in northern Alberta, boosting capacity to half-a-million barrels of oil over the next decade from about a current 155,000 barrels a day.


The Calgary, Alberta-based firm is also planning a 100,000 barrel a day oil sands operation in Alberta's Peace River region, adjacent to some BlackRock operations.


The acquisition of BlackRock, which closes next month, adds 14,000 barrels of oil a day to Shell Canada's production, a 6.7 percent boost. It is the first corporate purchase carried out by Shell Canada in two decades, but Mather said the deal won't strain his company's balance sheet or threaten its debt rating.


Further purchases will come if potential targets are not priced too high, he added.


“We will continue to look at opportunities as they present themselves which offer value,” he said. “You can buy assets and you can buy companies, but can you get them at a price that is attractive, long-term, to you?”


Last week a Canadian oil industry association estimated that output from the oil sands would rise to nearly 4 million barrels a day by 2020, up from daily production of just more than 1 million barrels last year.


That production boost will come from the C$100 billion in investment expected in the region over the next decade.


Canada's oil sands contain 174 billion barrels of oil. It's a resource second in size only to Saudi Arabia's reserves but which is more expensive and technically challenging to extract.  


Mather, whose company is Canada's No. 3 oil exploration and refining firm, said the increase in production will require additional investments in refineries and new markets. The firm is looking to expanding its markets in the U.S. Midwest and California.


Other oil sands producers have begun seeking alliances with U.S. refiners in the Midwest. But while Mather said Shell Canada has talked to American rivals, it has little interest in a formal agreement so far.


“We're engaged in those conversations because we are a major player and we are interested to know what the options may be,” he said. “But we haven't got very far because my primary interest is our own manufacturing capacity and the needs of the Canadian market.”


($1=$1.11 Canadian)


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