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Daily Telegraph: Shell pays £1.2bn to develop oil sands interests in Canada

Shell pays £1.2bn to develop oil sands interests in Canada
By Christopher Hope, Industry Editor (Filed: 09/05/2006)

Royal Dutch Shell is betting that the price of oil will stay above $50 a barrel, after paying C$2.4bn (£1.2bn) for Canadian oil sands business BlackRock Ventures.

The acquisition is Shell's first notable deal since it paid £3.5bn for Enterprise Oil in 2002. It comes months after Shell's chief executive Jeroen van der Veer said acquisitions up to $10bn were back on the agenda.

Just last week Shell was stressing that oil sands could be the answer to long-term difficulties in replacing its reserves. Yesterday Shell Canada, which is 78pc-owned by Shell, backed up the words by offering C$24 a share for BlackRock Ventures, which sits on large reserves of oil sands in Canada.

Clive Mather, chief executive of Shell Canada, said: “This acquisition will add 12,000 to 14,000 barrels per day of heavy oil production and provide Shell Canada with access to significant additional resources.”

The company is funding the deal through cash and short-term debt. Analysts at JP Morgan Cazenove noted that many of the assets are next to Shell Canada's fields. However they said the valuation was “assuming a long-term oil price of over $50 a barrel”. The key to unlocking value was for Shell to develop new technology to make it cheaper to extract the oil, they added.

Last night the price of a barrel of Brent crude in London was down 74 cents at $70.21 by the close. Shell's shares ended down 25 at £19.29.

Record crude prices have made oil sands increasingly attractive to companies such as Shell as they can make adequate returns on their investment in getting the supplies out of the ground.

Experts believe there are more than 170bn barrels of the tar-like substance of bitumen held by oil sand deposits in Alberta alone.

Last week Mr Van der Veer told analysts that Shell planned to open up around 20bn barrels of oil by the end of the decade. Oil sands and gases that can be converted into liquids would help sustain the firm's ability to produce more over the long term.

However, such unconventional sources may not qualify under rules laid down by the Securities & Exchange Commission in the United States as proved oil and gas reserves.

Comment: Burning oil money
Trillion dollar gamble on future of Gulf
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