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Montreal Gazette: Privatization of Shell may signal change

Flow of bitumen out of calgary. But no shift in business strategy: analysts

DINA O’MEARA, CP
Published: Tuesday, March 20, 2007

The $8.7-billion privatization of Shell Canada planned by parent company Royal Dutch Shell PLC could signal a change in bitumen flow out of Alberta, but not a change in business strategy for the oilsands giant, analysts said yesterday.

Major shifts in company assets and policies are probably unlikely as the Dutch-based energy giant already has had a controlling interest in Shell Canada for years, said analyst Tom Ebbern, with Tristone Capital Inc.

Ebbern was reacting to Royal Dutch Shell’s announcement early Saturday that the European giant had acquired enough shares under its going-private bid to give the parent just under 90 per cent of its Calgary-based Canadian unit.

“Royal Dutch has owned 78 per cent of Shell Canada and controlled the board for years and years,” Ebbern said. ”It’s not likely to see a change in business plan just because they buy out the minority.”

Royal Dutch had already included Shell Canada’s reserve numbers in its books, so there would be no increase in the global company’s reserves, he said.

Where the benefit of fully owning the company comes in would be privatizing it and accessing its cash flow, although in the short term, Shell Canada will need that cash itself to invest the billions of dollars needed to expand its oilsands business.

Shell Canada, which left the conventional oil business in Canada years ago, has also been one of the pioneers in Canada’s offshore energy exploration and helped develop the Sable Island natural gas project off the coast of Nova Scotia.

However, its future lies in the Northern Alberta oilsands, where the Calgary company operates and owns 60 per cent of the Athabasca oilsands development. That project began operations in 2003 and is designed to produce 155,000 barrels of tar-like bitumen a day.

The company, and its Athabasca partners, Western Oil Sands and Chevron Canada, are spending an estimated $12 billion to boost production by another 100,000 barrels on the way to ultimately generating 700,000 barrels a day from the oilsands.

The next logical move for Royal Dutch would be an offer to acquire Western Oil Sands, analysts said. Shares of Western, which owns 20 per cent of the Athabasca oilsands project, have been valued at between $38 and $40, based on the $45-per-share bid for Shell Canada.

Since the early Saturday announcement, Western’s shares gained $2.15 per share to close at $34.30 yesterday, giving the oilsands company a stock value of more than $5.5 billion.

Royal Dutch spokeswoman Alexandra Wright would not comment on the company’s plans to expand its presence in the oilsands beyond the Athabasca project and its $465-million acquisition last year in a relatively unexplored portion of the oil sands.

Royal Dutch has significant office presence in the largest oil centres in Canada and the United States, Calgary and Houston, Wright said from London, England.

”We do not envision this transaction will change our current footprint,” she said. ”However, we will seek the most effective way of working between the Calgary and Houston locations.”

One significant change Royal Dutch’s takeover could effect is on the flow of bitumen out of the oilsands, a Calgary analyst said.

The European oil major would see about a 20-per-cent decrease in capital costs by using existing facilities in the United States, rather than going forward with a suggested new refinery in Sarnia, Ont., according to the analyst.

© The Gazette (Montreal) 2007

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