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Calgary Sun, Canada: Shell Canada Q3 profit jumps

Wed, October 25, 2006

CALGARY (CP) – Shell Canada Ltd. (TSX:SHC) powered its way to a third-quarter profit of $581 million, up from a year-earlier $457 million, as higher crude oil prices and refining income more than compensated for a slump in natural gas prices.

The Canadian oil and gas major, which received a $7.7-billion buyout offer from parent Royal Dutch Shell PLC (NYSE:RDS) this week, said Wednesday it continues to lay the foundation for more growth in its oilsands and unconventional gas businesses.

“Production at the Athabasca oilsands project is back above design rates following its first major turnaround in the second quarter,” CEO Clive Mather said in a release.

“Strong earnings reflect our drive for operational performance in an environment of falling commodity prices.”

The company’s latest profit amounted to 70 cents per diluted share, compared with 55 cents per share in the same quarter a year before.

Revenues for the quarter were $4.03 billion, compared with a year-earlier $3.96 billion. Production was flat year-over-year at 234,000 barrels of oil equivalent per day.

The company said its earnings were boosted by a $102-million gain from its long-term incentive plan, versus a $83-million charge for the corresponding quarter in 2005.

Analysts polled by Thomson Financial had been looking on average for earnings of 61 cents per share, before one-time items.

Andrew Potter of UBS Investment Research said while the headline earnings per share of 70 cents exceeded those expectations, the operating EPS of 58 cents was generally in line with the forecast.

“Overall, the impact is neutral as results were in line and the focus remains on the buyout offer from Royal Dutch,” he wrote in a note to clients.

Royal Dutch Shell, which already owns 78 per cent of Shell Canada, has offered $40 a share to minority shareholders. Its offer, announced Monday, is conditional on the acceptance of 50 per cent of minority shareholders.

Shell Canada shares gained 32 cents to $43 during afternoon trading on the Toronto Stock Exchange. Its stock has been generally trading above the Royal Dutch offer this week on speculation that a raised bid may be necessary for the parent company to take over its subsidiary.

Said Potter: “We believe RD will likely bump the bid for SHC to the $42.50 to $45 range.”

Meanwhile, Andrew Fairbanks of Merrill Lynch said the stock is “no longer trading on equity fundamentals” and changed his investment opinion to “no rating” from “B-2-7.”

“We estimate that the group’s bid for Shell Canada lies in the middle of the comparable valuation trading range and is about 50 per cent higher than the recent capital cost estimates for expanding the AOSP (Athabasca) oil sands project,” he said in a note to clients. “We estimate that the bid reflects a valuation for the oil sands of about C$170,000/flowing barrel.”

Shell Canada said Wednesday it will make a final investment decision for the expansion of the Athabasca oilsands project in the fourth quarter of 2006.

However, it has already signalled that it will forge ahead on aggressive oilsands development despite soaring costs for labour and materials. In July, the company said it will expand on the project, which has seen cost estimates spiral as high as $12.8 billion from $7.3 billion.

Shell owns a 60 per cent operating stake in the joint-venture project, while Western Oil Sands and Chevron Canada Ltd. own 20 per cent each.

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