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The Calgary Herald: Royal Dutch to take reins in the oilsands: Changes likely after takeover of Shell Canada

Jeroen van der Veer, Royal Dutch Shell CEO

(Royal Dutch Shell CEO Jeroen van der Veer says the buyout of Shell Canada will further strengthen his company’s position in Canada — as well as its presence in the oilsands.
Pierre Verdy, Getty Images)

Lisa Schmidt, Calgary Herald; with files from Reuters
Published: Tuesday, March 20, 2007

After winning over a majority of minority shareholders late last week with its $8.7-billion bid, Royal Dutch Shell PLC plans to take full control of its Canadian subsidiary.

And once the deal is complete, the Anglo-Dutch energy giant is expected to move to integrate Shell Canada’s operations in North America, especially its upgrading and refining businesses.

Royal Dutch, seeking new sources of oil and gas after an accounting scandal in 2004 forced the company to repeatedly write down its reserves, has said the move will increase resources to develop oilsands holdings and simplify its North American operations.

Royal Dutch Shell chief executive Jeroen van der Veer said the buyout will further strengthen the company’s position in Canada — and oilsands presence in Alberta.

“This is an opportunity to create an integrated, unconventional oil business on an international scale,” he said in a statement Saturday, announcing more than 50 per cent of Shell Canada shareholders had tendered their shares.

With the deal expected to close before the end of June, analysts expect Shell Canada, which is also a major natural gas producer, will undergo some operational changes.

“Their upstream operations will remain fairly independent although there’s obviously going to be some overlap on the oilsands now that Shell North America has a presence in Canada,” said Andrew Boland, analyst with Peters & Co. in Calgary.

Shell Canada owns a majority stake in the Athabasca Oil Sands Project, the country’s third major mining project near Fort McMurray, which produces 155,000 barrels of oil per day with plans to expand another 100,000 bpd. Future Athabasca expansions and other oilsands projects are expected to eventually increase Shell’s production to 700,000 barrels a day.

Royal Dutch staked out new oilsands territory last year, picking up $465 million in leases in northern Alberta under a new subsidiary called Sure Northern.

“Downstream, however, could be quite a bit different, and I think that is something that could evolve over time as they decide where they need more upgrading or refining capacity north or south of the border,” said Boland.

Royal Dutch, which already holds 78 per cent of Shell Canada, said just under 97 million shares were tendered to its $45-a-share offer. That amounted to about 53 per cent of Shell Canada’s minority stake, meeting a key condition of the privatization bid.

The offer was conditional on a majority of Shell Canada’s minority shareholders accepting the $45-a-share bid, raised from an original offer of $40 a share for the 22 per cent of shares Royal Dutch does not already own.

Several large shareholders had said they would reject the offer, which they said was too low.

But with the parent in a position to take the company private, at least one decided to give up the fight.

“It’s unfortunate that when you have 47 per cent of the minority not tendering, you are still in a position to be squeezed out,” said Len Racioppo, chief investment officer at Jarislowsky Fraser Ltd., which had opposed the offer. “But that’s what is going to happen.”

Royal Dutch has extended the bid until March 30 for stockholders who have not sold their shares, after which the company will move to acquire any remaining shares.

A Royal Dutch spokeswoman said the process for acquiring the remaining minority stake is easier if the oil major has more than 90 per cent of the shares. That involves using a compulsory acquisition notice.

Without reaching that threshold, Shell Canada would have to hold a meeting for shareholders to vote.

“Given the number of shares we have already secured, we are certain of a vote at that meeting in favour of the transaction,” said Alexandra Wright.

Until then, Shell Canada said business will continue as usual.

“We’re going to keep moving forward until this is completed,” said spokeswoman Jan Rowley. “We’re just going to continue working on our plans.”

This latest transaction could prompt another rush of international interest in Canada’s oilsands, which contain the second largest energy reserves in the world behind Saudi Arabia.

Western Oil Sands Ltd., a partner in the Athabasca Oil Sands Project, said on Monday it had not received any bid approaches, despite the company being the subject of takeover rumours. The company has said it is looking at alternatives to increase shareholder value, including a possible sale.

Shares of Shell Canada rose 28 cents to $44.96 on the TSX Monday. Western Oil Sands shares rose 63 cents to $34.30.

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© The Calgary Herald 2007

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