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Daily Mail (London): Shell moves to control costs in Canada buyout: BP Shell mega merger?

Published: Oct 24, 2006

Royal Dutch Shell is taking control of its Canadian venture as it tries to stem massive budget overruns. The firm, which has been plagued by spiralling costs across the world, will spend GBP3.6bn of its acquisitions war chest buying out its Canadian minority shareholders.

Shell, which already owns 78pc of Shell Canada, is offering C$40 (GBP18.95) a share for the rest, 22pc more than last week’s closing price.

The move underlines the growing importance to Shell (down 3p at 1763p) of the oil sands in Alberta in Canada, which could contain the world’s biggest source of recoverable oil after Saudi Arabia.

It will allow the Anglo-Dutch firm to consolidate control over its Canadian activities, after simplifying its overall management structure last year.

Shell has been struggling to replace its oil after its reserves scandal in 2004. More recently it has been grappling with soaring costs at projects in Russia and Canada and attacks on its Nigerian infrastructure.

Last year Shell admitted it would spend GBP10.7bn on its Sakhalin venture in Russia — twice what it previously estimated. It warned this year that the expansion of the Canadian oil sands project could cost over GBP6bn, three times its original estimate.

Chief executive Jeroen van der Veer has said he aims to spend around GBP5.3bn on acquisitions.

The fact that the firm is throwing money at minority shareholders could indicate a paucity of other opportunities.

Fadel Gheit of Oppenheimer & Co. said: “They have plenty of money and financial power but unfortunately access to resources is severely restricted. So Shell is expanding in one area still open to them.”

Shell’s project in the Athabasca region in north-eastern Alberta involves digging up oil-laden sands and processing them to extract crude.

Gheit added that the overhaul in Canada could smooth the way towards a mega-deal with another oil giant. Shell is known to have considered a tie-up with BP. Some analysts argue a merger is needed to give the firms greater global clout.

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