Royal Dutch Shell Plc  .com Rotating Header Image

New York Times: Royal Dutch Shell Seeks to Buy the 22% of Shell Canada It Doesn’t Own

October 24, 2006

OTTAWA, Oct. 23 — Royal Dutch Shell, seeking to streamline its businesses and increase reliance on unconventional sources of fuel, offered on Monday to buy the public shares of Shell Canada for 7.7 billion Canadian dollars ($6.8 billion).

Shell hopes to buy the 22 percent of Shell Canada that it does not own for 40 Canadian dollars ($35.56) a share, a premium of 29 percent over Shell Canada’s closing price Friday on the Toronto Stock Exchange. The deal is being examined by Shell Canada’s board. Holders of 50 percent of the outstanding public shares would need to approve it.

Merrill Lynch analysts said that the “premium paid appears rich,” but that the deal would have little impact on the Shell group’s overall financial results. Canada represents an “important growth area” for the company, the Merrill Lynch analysts said.

Shell Canada is one of the largest owners of oil sands fields in Canada. Transforming these tarry sands into usable petroleum products has become a booming business in recent years thanks to high oil prices, though many projects have been plagued with cost overruns, and environmentalists are critical of the energy-intensive process.

Shell’s chief executive, Jeroen van der Veer, said the offer was “all about the future.” In a conference call with investors, he said that Shell was focusing on “how you can use emerging technologies to build a very major business” based on unconventional petroleum sources.

“The unlocking of Canada’s resources requires the industrial and financial skill of a company like Shell,” Mr. van der Veer said. Canada’s oil sands have become an attractive and nearby source to supply the United States’ petroleum needs.

Shell, like most other oil giants, has reaped record profits in recent years on the back of high gas and oil prices. For many oil companies, one of the biggest challenges has been finding places to invest the money they are earning, without overpaying.

Competition is tough for shares in new oil fields, particularly in the developing countries where most new oil is being found. Local governments have fiercely guarded their oil assets as prices increased, and in some cases they are trying to dissolve existing field-sharing agreements.

Many oil companies have bought back shares and passed profits along to investors instead of making big acquisitions.

Shell’s most significant oil sands holding is a 60 percent stake in the Athabaska Oil Sands Project. In addition to properties near Fort McMurray, Alberta, that project includes a plant in Edmonton, Alberta, that converts the tar from the sands into heavy oil.

The project currently yields 155,000 barrels a day, although there are plans to increase that to 550,000 barrels over the next 15 years, an expansion that could cost more than $20 billion. The company acquired an additional 270,000 acres of land in 2005.

Extracting the tar from the sands is expensive compared with conventional drilling and enormous amounts of natural gas are burned to create steam to loosen the sand.

As well, the current boom in oil sands development has led to substantial cost increases at many projects because of shortages of materials and labor.

The oil sands are also coming under increasing criticism from Canadian environmentalists. Not only does the extraction and processing of the sand generate gases that are believed to contribute to global warming, but the process also often involves strip mining and the spent steam is believed to be increasing the temperature of Arctic rivers, while creating oily waste.

More than other oil sands producers, Shell has been directly addressing the environmental concerns. It has an extensive television advertising campaign that emphasizes its controls and its plans to restore mining areas to a natural state.

A Société Générale analyst, Deborah White, predicted that oil has a long-term equilibrium price, or price where supply and demand are equal, of about $50 a barrel. Oil companies have estimated that producing oil from tarry sands can still make a profit when prices are $30 to $35 a barrel, but production costs have been more than expected.

“Even with the cost overruns, they are economic at $45” a barrel, Ms. White said.

The loss of Shell Canada’s shares would be another blow for the Toronto Stock Exchange, which has recently had other major Canadian resource companies vanish from its boards because of foreign takeovers. Shell Canada is the exchange’s 16th-most capitalized stock.

Ian Austen reported from Ottawa and Heather Timmons from London.

This website and sisters,,,, and, are owned by John Donovan. There is also a Wikipedia segment.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.