Bloomberg: Shell Boosts Offer for Remaining Shell Canada Stake (Update4)

By Stephen Voss and Mathew Carr

Jan. 23 (Bloomberg) — Royal Dutch Shell Plc, Europe’s biggest oil company, raised an offer to buy out its Canadian unit by 13 percent to C$8.7 billion ($7.4 billion) to gain increased production from oil sands.

Shell, which owns 78 percent of Shell Canada Ltd., boosted its bid to C$45 a share, from a C$40 offer made in October, The Hague-based company said today in a PR Newswire statement. Shell Canada stock closed at C44.91 yesterday, signaling that investors were expecting an improved offer.

Canada’s oil sands may contain 175 billion recoverable barrels, second only to Saudi Arabia. Shell agreed to give up half its stake in Russia’s Sakhalin-2 venture last month to state-run OAO Gazprom, dealing a blow to Chief Executive Officer Jeroen van der Veer’s efforts to find new deposits after a 2004 scandal when the company admitted to overstating its proven reserves. “They desperately need reserves anywhere in the world they can find them,” said Antoine Leurent, an analyst with KBC Securities in Paris who has an “accumulate” rating on Shell shares. The latest offer will probably be “enough” to win over the minority shareholders, he said.

Shell A shares in London fell 0.5 percent to 1,710 pence as of 12:54 p.m. in London. Shell Canada stock trading in Germany was up the equivalent of 39 Canadian cents, with 80 shares changing hands.

Offer Speculation

Jarislowsky Fraser Ltd. President Len Racioppo, whose fund manages 29.5 million Shell Canada shares, said last week that an offer should be made “in the C$50s.” The Globe and Mail newspaper reported last week that Shell may raise its Oct. 23 bid for the remainder of Shell Canada to between C$46 and C$48 a share.

Oil companies like Shell are struggling to gain access to new deposits as Russia and Venezuela reassert control over their energy resources and the Middle East remains mostly off-limits.
Shell Canada’s oil-sands project is in the Athabasca region in northeastern Alberta, where oil-laden earth is strip mined and then processed with heat and solvents to extract the tar-like crude. The project has the capacity to produce 155,000 barrels a day, and a 100,000 barrel-a-day expansion is planned.

Higher Prices

Labor and equipment costs for oil-sands projects are surging as companies vie to expand and take advantage of higher oil prices. Shell’s expansion may cost as much C$12.8 billion, the company said in July, up from an earlier estimate of C$7.3 billion in August 2005 and an original estimate of C$4 billion.

The Canadian business would benefit from simplified organization, financing and technology capabilities once it’s integrated into the group, Shell said in October.

Shell, which has also committed to investing up to $18 billion to build the world’s largest plant to convert natural gas into diesel fuel and base oils in Qatar, reports on fourth- quarter earnings and corporate strategy on Feb. 1.

By itself, Shell Canada is the country’s fourth-largest oil company. Imperial Oil Ltd., 70 percent owned by Exxon Mobil Corp., is Canada’s biggest oil company by 2005 sales, followed by EnCana Corp. and Petro-Canada.

The increased offer is conditional on acceptance by holders of more than 50 percent of the outstanding shares in Shell Canada, today’s statement said.

To contact the reporter on this story: Stephen Voss in London at [email protected] ; Mathew Carr in London at [email protected] 

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