Financial Post (Canada): Shell Canada bids $2.4-billion for BlackRock: Hefty offer will boost oilsands reserves at petroleum giant

CALGARY – Shell Canada Ltd.'s $2.4-billion friendly offer for BlackRock Ventures Inc. is probably high enough to keep competing bids at bay and signals Shell's hunger to make more reserves-boosting acquisitions in Canada.

“I hope we've now demonstrated that acquisition is a key strategy for us and part of the way we're going to build our resource base and production,” said Clive Mather, president and chief executive of Calgary-based Shell Canada, adding Shell has had its eyes on BlackRock for many months.

“I've said it would be for some time, but until you actually go out and do it, it's pretty meaningless. BlackRock represents attractive assets at good value. If I can find more, I'll be interested — right across the heavy oil spectrum.”

Shell Canada and BlackRock, a 10-year-old Calgary-based junior oil producer, unveiled the bid as rumours swirled about a BlackRock takeout following a trading halt late Friday. The deal — $24 for each BlackRock share — represents a 27% premium to Friday's closing price on the TSX.

Shares of BlackRock first jumped on Friday, closing at $18.88, up 63 cents. They added another $4.98 yesterday.

The deal would boost Shell Canada's stable of heavy oil reserves by 604 million barrels classified as proved, probable and possible, according to the results of an independent estimate BlackRock released yesterday morning. About 35% fit into the proved and possible category and the data lifts a count released on Dec. 31 by 132%.

Mr. Mather said Shell knew BlackRock was undertaking new work to delineate its reserves base, but didn't know until yesterday what the analysis by Sproule Associates Ltd. would show.

The purchase, which has the backing of BlackRock's board, also adds up to 14,000 barrels a day to Shell Canada's production, a 6.7% increase.

Oil and gas analyst Martin Pelletier of Canaccord Adams in Calgary said Shell Canada's offer works out to roughly $4 per barrel for all reserves.

He said Shell, Canada's third-largest integrated oil company and 78% owned by European parent Royal Dutch Shell PLC, is “paying up” for the reserves classified as 'possible'.

“It also looks like Shell is anteing up so they don't have to worry about losing to another big player coming in with another bid,” Mr. Pelletier said.

“In fact, I doubt someone else will come in because of the price, the synergies for Shell and the fact BlackRock's size and different assets don't really offer one of the big companies a significant oilsands toehold. But I see it as a very, very good deal for BlackRock shareholders.”

Mr. Mather said the key BlackRock asset is its Seal project near Peace River in northwestern Alberta, where production is underway and slated to soon grow to 20,000 barrels a day. He said synergies can be created with Shell's nearby and growing thermal oilsands operation, at which Shell is turning its 9,000 barrels-a-day pilot project commercial and plans to grow its daily output to 100,000 barrels.

Synergies for Shell may also occur eventually through the 85,000 acres of property BlackRock bought last year from EnCana Corp. The land sits on the outer reaches of the Athabasca region of northeastern Alberta and abuts leases acquired in February for an astronomical $465-million by Shell's parent, Royal Dutch Shell PLC.

The oilsands there are probably buried too deeply to mine and Royal Dutch said in February it would be testing thermal technologies that heat the oil underground before it's pumped to the surface. The oil at Shell Canada's Peace River operation is produced using proven thermal, steam-assisted gravity drainage technology.

“The Athabasca land wasn't the focus of our attention. However, we've acquired it and will fit that in and think about what development opportunity it offers,” Mr. Mather said of the property known as Woodhouse, which has no reserves booked on it yet.

“You can understand, the last thing that I want to do is to be counting chickens before they've hatched and the focus really is to see if we can acquire this deal.”

BlackRock's president John Festival said the company realized the “tremendous potential identified on our properties outstripped our financial and operational ability to develop them in a timely manner.”

One analyst who asked to remain anonymous said the pact gives Shell Canada an edge over rivals trying to develop heavy oil projects in the Peace River area.

“Shell's won't be competing with BlackRock for resources up there and by getting even larger, it gains an element of control. That may put the squeeze on other players in that area, such as Baytex Energy Trust or Penn West Energy Trust.”

SHELL CANADA LTD.

Ticker: SHC/TSX

Close: $40.02, down 98 cents

Volume: 341,953

Avg. 6-month vol.: 397,778

Rank in FP500: 25

BLACKROCK VENTURES

Ticker: BVI/TSX

Close: $23.86, up $4.98 cents

Volume: 18.6 million

Avg. 6-month vol.: 514,746

[email protected]