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Petroleum News: Open season declared on oil sands majors

By Gary Park
Week of October 29, 2006

The grab for control of Shell Canada could bring more of Canada’s largest oil and gas companies into play as global majors look for a slice of the oil sands action.

In addition to Royal Dutch Shell’s hunger for assets in Alberta, BP and Marathon have dangled their U.S. refineries in an apparent desire to participate in the upstream, while ConocoPhillips set a precedent in forming a joint venture with EnCana to both develop and process bitumen deposits.

Now that the international powerhouses are no longer under pressure to maintain Canadian subsidiaries for political reasons and Canadian governments show little appetite for meddling in the free market, analysts think most of the major oil sands players are takeout targets.

UBS Securities said the Shell move could trigger bidding for companies such as Suncor Energy, Canadian Natural Resources, Nexen and EnCana.

It said Shell may have kicked off “widespread consolidation in the Canadian oils as majors seek to position themselves with large, low-risk resources.”

Kim Shannon, president of Sionna Investment Managers, added more big names to the list — the Syncrude Canada consortium which is the world’s largest source of synthetic crude; Imperial Oil, Canada’s largest oil and gas company which is 69.6 percent owned by ExxonMobil; and Canadian Oil Sands Trust, which owns about one-third of Syncrude.

“Symbolic for all Canadian oil companies, the trading has begun,” said Shannon.

By way of indicating that no company is off the table, other analysts have added Husky Energy, 71 percent controlled by Hong Kong billionaire Li Ka-shing, to the list.

One of the first to topple could be Western Oil Sands, which owns 20 percent of Shell Canada’s Athabasca project.

It has been touted as a takeout candidate since summer after infuriating its shareholder base by announcing plans to spend US$45 million over four years exploring for oil in Iraq’s Kurdistan region.

Breaking away from its pure oil sands base and entering such a volatile part of the world set off rumors that activist shareholders are looking to overthrow Western’s management.

—Gary Park

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