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The Globe & Mail (Canada): Analysts question wisdom of oil sands investments

DAVID EBNER

Royal Dutch Shell PLC’s bid for the part of Shell Canada Ltd. it does not own highlights the value of the oil sands, analysts say, but some question whether this could be the beginning of a flurry of deals.

Analyst Andrew Fairbanks of Merrill Lynch called the oil sands “very attractive” but said current oil prices around $50 (U.S.) a barrel don’t justify paying big bucks for assets in northern Alberta.

“We find it very challenging to make the acquisition economics work, particularly in a $50-a-barrel oil price context,” Mr. Fairbanks wrote in a report. He said he cannot justify investing in oil sands companies just on the basis that an acquirer will emerge. “We fail to see real value without using very high oil prices,” Mr. Fairbanks said.

Other analysts were much more bullish about the oil sands with the Royal Dutch offer for Shell. Royal Dutch owns 78 per cent of Shell Canada and is offering $45 (Canadian) a share or $8.7-billion for the rest, up from a bid in October of $40 or $7.7-billion.

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