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Reuters: Shell sweetens Shell Canada bid

Wed Jan 24, 2007 6:58 AM GMT
By Scott Haggett and Tom Bergin

CALGARY/LONDON (Reuters) – Royal Dutch Shell has raised its bid for the 22 percent of Shell Canada it does not already own to C$8.7 billion (3.7 billion pounds), an offer endorsed by Shell Canada’s board but already rejected by some big shareholders.

Royal Dutch Shell, the second-largest Western oil company by market capitalisation, said in a statement on Tuesday that it increased its offer by 13 percent to C$45 a share in cash from the C$40 it proposed last October.

The Anglo-Dutch oil major wants to buy out Shell Canada’s minority shareholders to bolster its flagging reserves base and address falling production.

Shell Canada is the country’s No. 3 oil explorer and refiner, and one of the largest producers from the oil sands region in northern Alberta. It has long-term plans to quintuple output from the oil-laden sands to 500,000 barrels a day.

The bid was accepted by Shell Canada’s board and a special committee set up to appraise the offer. But owners of more than 20 percent of the public float have already come out against the deal and say they’ll refuse to tender to a C$45 bid.

“We’re not going to tender. We think it’s obviously worth more,” said Len Racioppo, chief investment officer at Jarislowsky Fraser, which controls 29.5 million Shell Canada shares.

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 development.

“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 Royal Dutch Shell that would detail how it reached its estimate of the Canadian unit’s value.

The offer is conditional on more than 50 percent of the minority shareholders accepting the bid.

Shares in Shell Canada rose 34 Canadian cents, or 0.8 percent, to C$45.25 on the Toronto Stock Exchange on Tuesday. Royal Dutch Shell gained 11 pence to 1,716.68 pence in London.

One analyst said he considered the Shell offer for its Canadian unit to be a fair price.

“It looks good to me,” said Martin Molyneaux, analyst with FirstEnergy Capital in Calgary. “We come up with about C$44 (in value) … but the wild card is valuing the stuff that’s beyond five years out.”

Hague-based Shell plans to expand the Canadian unit’s oil sands operation dramatically as it seeks ways to boost 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 nonconventional 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 the oil sands is expensive and some investors are concerned that Shell’s margins will suffer. John Browne, the outgoing chief executive of BP Plc , said he doesn’t like oil sands because of the high costs. However, other firms, including Exxon Mobil Corp. , Total SA and Chevron Corp. have all invested in the region, which has reserves second only to Saudi Arabia.

(Additional reporting by Jonathan Cable)

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