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Shell in C$5.9bn Canada gas deal

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Shell in C$5.9bn Canada gas deal

By Ed Crooks In London

Published: July 14 2008 15:30 | Last updated: July 14 2008 20:01


Over a barrel: Shell’s bid illustrates the importance of moving away from oil and into ‘unconventional’ resources

Royal Dutch Shell, Europe’s biggest oil company, has made its first takeover bid since 2006, launching an agreed C$5.9bn (US$5.87bn) offer for Duvernay Oil, a Canadian gas company.

The bid is Shell’s second significant deal in Canada in successive years; last year it bought out the minority interests in its Shell Canada subsidiary for $7.1bn.

It illustrates the growing importance of “unconventional” resources that require greater investment and more sophisticated technology to access.

Duvernay, based in Calgary, has substantial assets in Alberta and British Columbia in “tight gas” – gas trapped in rocks from which it will not flow easily.

Shell has a tight gas business in the US producing about 80,000 barrels of oil equivalent a day. Duvernay has announced plans to raise its production from about 25,000 boe/d, mostly in gas, to about 70,000 boe/d by 2012.

As concerns over carbon dioxide emissions rise, the pressure to close coal-fired power stations and to stop new ones being built is growing, raising demand for gas. Tight gas is expected to play a growing role in meeting that demand in the US.

Canada’s oil sands in Alberta, where Shell has a significant presence and is investing in a large-scale expansion, also create a heavy demand for gas in the production process. Shell said it was too soon to say whether any of Duvernay’s gas would be used for oil sands production.

At C$83 per share, Shell’s offer, recommended unanimously by Duvernay’s board, is at a 36 per cent premium to the average price over the past 30 days.

But the valuation appears to be lower than in a similar deal. Plains Explorationthis month agreed to pay Chesapeake Energy $1.65bn for a 20 per cent stake in its Haynesville Shale tight gas assets in Louisiana, a price that works out at about $30,000 per acre. Shell is buying abut 450,000 acres with Duvernay, at about $13,000 an acre.

Jeroen van der Veer, Shell’s chief executive, said: “Duvernay could become a valuable part of the Shell portfolio, where we can add value through technology and scale.”

Shell’s production has been falling as it grapples with the problems of reserve replacement and access to resources faced by big Western oil companies. Shell has put more stress than its competitors on unconventional resources and has the industry’s heaviest investment programme to support that strategy.

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