Daily Mail (London): BP Shell supermerger?

By: Alex Brummer, Daily Mail – London: KRTBN
Published: Oct 24, 2006

The oil price has slipped back below $60 a barrel despite the OPEC decision to cut back production. But this is proving no disincentive to the big oil players as they scramble to find new reserves.

Rather than explore themselves it is sometimes easier to let others deal with the searching and political risk and pick up assets through the stock market.

Shell, which is struggling in Russia’s Sakhalin field against surging costs and an increasingly mercurial Putin government, is opting for the calm of the Canadian wilderness for its latest investment. It is offering to buy up the 22pc minority in Shell Canada for GBP18.95 per share, or GBP3.6bn.

Even a couple of years ago this would have looked like a ridiculously high price for a company toiling to extract value from Canada’s vast tar oil sands. These fields are hugely expensive to develop, costing an estimated $30-a-barrel rising to $40 in the future.

But even with oil prices at current subdued levels oil sand deposits still look attractive. The potential is enormous. Alberta province alone is estimated to have potential deposits of a trillion barrels and purchase of the minority stake will be helpful to Shell as its seeks to rebuild reserves.

Suggestions that Shell might also be a buyer for Premier Oil are almost certainly wide of the mark, unless the smaller firm’s recent discovery in Vietnam has been seriously underestimated.

Generally, “independent” explorers such as Premier and Tullow specialise in discovering and transporting oil to market from difficult fields. Unless the minnows unearth an elephant discovery the bite is too small for the likes of Shell.

Premier’s success has been in finding energy in the Far East — from gas in Indonesia to oil in Pakistan-So it could be targeted by emerging market players such as Petronas and Pemex, who seem to regard any British domiciled companies as fair game.

Among the larger players one still hears occasion speculation that eventually Shell and BP, two old British rivals, will eventually come together to form a combine capable of producing the same economies of scale as Exxon-Mobil. It wouldn’t be the first time this has been tried.

Historian Andrew Roberts records in his new study of the English-speaking peoples that in 1923 a freelance Winston Churchill was paid GBP5,000 to try and broker a merger between Shell and the Anglo-Persian Oil Company, the forerunner of the modern BP.

It never happened but in the current 21st-century climate of supermergers anything is possible.

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