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Daily Mail: Shelling out for takeovers: Shell will have to weigh into the takeover market or risk being gobbled up

EXTRACT: Nevertheless, it is seen as inevitable that at some point Shell will have to weigh into the takeover market or risk being gobbled up itself.

THE ARTICLE

28 September 2006

Oil prices may be falling now but the appetite for finding and building reserves is growing. The minor league takeover battle for Australia’s Hardman Resources, in which Tullow Oil is the first to put cash on the table, could be symptomatic of bigger deals to come.

The crown jewel at Hardman is drilling rights in Mauritania. Together with Uganda it looks like one of the better oil prospects in Africa.

Every oilfield is important in an age of dwindling reserve. But the smaller African discoveries made by Tullow and are never going to make sense for the Shells of this world which need ‘elephant’ fields to bolster their reserves.

For years now Shell has been seen as a possible buyer of BG, the exploration and refining arm of the former British Gas, but the price has looked toppy. Nevertheless, it is seen as inevitable that at some point Shell will have to weigh into the takeover market or risk being gobbled up itself. Who, for instance, could ever have imaged Exxon-Mobil coming together? Yet it was essential for renewal of reserves and economies of production and distribution.

Since the coming together of Royal Dutch and Shell Transport & Trading the unified company has gained something it never had before – a proper paper currency. Before, the complex share relationship of the two Shell’s made it difficult to do paper deals, as BP did in the late 1990s, because of the need to keep the balance between the two Shells. That obstacle is now removed.

It might be thought Shell has enough on its plate sorting out the environmental and political problems that have developed around Sakhalin 2. But in the end, takeovers may be the only really effective way it can reap benefits of scale. If the oil price continues to fall, or even remains at current levels share values might follow it down and explorers like BG and Marathon might come into reach.

It may soon be a case of Shell, still in a state of post-scandal transition, moving first before it moves into the sights of one of the other majors.

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