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Reuters: Shell raises Shell Canada bid

By Tom Bergin and Jonathan Cable

LONDON (Reuters) – Royal Dutch Shell Plc has raised its bid for the 22 percent of Shell Canada Ltd. it does not already own to C$8.7 billion (3.7 billion pounds), though at least one big shareholder said the higher offer was still disappointing.            

The second-largest Western oil company by market capitalisation said in a statement on Tuesday that it had increased its offer to C$45 a share in cash from the C$40 it proposed last October.

The bid was accepted by Shell Canada’s board and a special committee set up to appraise the offer.

Shares in Shell Canada rose 19 Canadian cents, or 0.4 percent, to C$45.09 on the Toronto Stock Exchange. Shell shares were up 3 pence at 1,721 pence in London.

The Anglo-Dutch oil major is buying out the Shell Canada minorities to bolster its flagging reserves base and address falling production.

High oil prices mean Shell is cash rich but scarce in exploration and development opportunities, especially after Russia pressured it to cede half its stake in the giant Sakhalin-2 project to state-controlled Gazprom in December.

While a raised bid was widely expected, some investors had — especially after the Sakhalin-2 loss — expected a higher price.

Garey Aitken, director of equity research at Bissett Investment Management, which controlled 3.7 million Shell Canada shares late last year according to Reuters Data, said he believes Shell Canada is worth around C$50 a share because of a large suite of projects under developments.

“We are disappointed with the C$45 offer,” Aitken said. “We’ve got to do more work and evaluate our options.

Aitken said he was waiting for a formal offer from Shell that would detail how it reached its estimate of the Canadian unit’s value.

Shell’s bid is conditional on more than 50 percent of the outstanding shares held by minority shareholders accepting.

Citigroup said in a note on Monday it had a price target of C$49 on Shell Canada, which produces around 100,000 barrels of bitumen a day from northern Alberta’s oil sands. The heavy, tar-like deposits are then upgraded into synthetic crude.

The company also produces natural gas.

Hague-based Shell plans to expand the oil sands operation dramatically as it seeks ways to boost its output.

Western majors face difficulty in gaining access to conventional oil and gas fields due to rising costs and a growing trend on the part of some countries to reserve the best fields for their national oil companies.

Five percent of Shell’s production currently comes from non-conventional sources such as oil sands but a spokeswoman said the company plans to increase that output to 10-15 percent of production by 2015.

Producing oil from oil sands is expensive and some investors are concerned that Shell’s margins will suffer. John Browne, chief executive of rival BP Plc , said he doesn’t like oil sands because of the high costs.

($1=$1.18 Canadian)

(Additional reporting by Scott Haggett in Calgary)

(c) Reuters 2007. All rights reserved.

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