Terry Macalister
Tuesday January 23, 2007
Guardian Unlimited
Shell has been forced to raise its offer and spend £3.7bn buying out the 22% stake that it does not own in its Canadian business in a move to bolster production in the aftermath of the US reserves scandal and the forced sale of assets at Sakhalin in Russia.
The Anglo-Dutch oil group offered C$40 (£17) a share for the remaining stake in its Shell Canada operation last October but found local directors unwilling to back the bid. Shell headquarters in the Hague said that it had won local support for an improved C$45 a share proposal allowing it to obtain further control over 230,000 barrels a day.
Much of the output will come from the 60%-owned Athabasca Tar Sands project in Alberta where Shell has recently taken a decision to ramp up production.
“The group intends to proceed with the offer by way of a takeover bid by Shell Investments Ltd, a wholly-owned subsidiary of the group,” Shell said in a statement.
The move had become extremely important for Shell because it offers the chance to boost reserves from the Canadian business while streamlining its global management structure.
The world’s third largest independently-quoted oil company is still recovering from the 2004 fiasco when it was forced by the Securities & Exchange Commission to downgrade its reserves by a quarter.
This led to the exit of Sir Phil Watts, the chief executive, and the exploration director, Walter van de Vijver.
Since then Shell has tried to rebuild its reserves but this strategy has been undermined by the Russian government’s desire to take more control over the Sakhalin-2 scheme in the east of the country.
Shell is still under pressure to clean up the environment at Sakhalin where regulators have been critical and where project costs have doubled to $20bn (£10bn).
Production at Athabasca is also facing cost pressures. It is very expensive to extract oil from tar sands but Shell had made clear it wants to raise output from “non-conventional” sources from 5% at present to up to 15% by 2015.
Competitors such as BP have declined to participate in the tar sands business in Canada, saying it is too expensive.
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