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Petroleum News: Royal Dutch Shell quiet on Mackenzie

Vol. 12, No. 12  Week of March 25, 2007
By Gary Park

Now that it has the assets of Shell Canada in its grasp, Royal Dutch Shell sees the takeover as an opportunity to “create an integrated unconventional oil business on an international scale,” said Chief Executive Officer Jeroen van der Veer.

That is a clear reference to the extensive oil sands holdings of Shell Canada in the Athabasca, Cold Lake and Peace River regions of Alberta.

Royal Dutch has never made much of a secret of its desire to rebuild its global reserves after an accounting scandal three years ago.

The billions of barrels of oil sands reserves offered a quick fix.

But the parent company has never talked about its intentions for Shell Canada’s frontier interests — offshore Nova Scotia, offshore British Columbia and, above all, an 11.4 percent stake in the Mackenzie Gas Project.

Nova Scotia’s Sable project has been in decline for years, with Shell Canada consistently reporting downward reserve revisions; offshore British Columbia, regardless of its rich prospects, remains more of a dream than a near-term hope; and the Mackenzie hangs in the balance, awaiting negotiation of a fiscal arrangement with the Canadian government.

Whether Royal Dutch sees any benefit to retaining those stakes has never been made clear.

Shell Canada spokeswoman Jan Rowley told Petroleum News that until Royal Dutch Shell completes the transaction it is premature to discuss what they have in mind for any holdings.

But, by the second quarter, Royal Dutch is likely to be in a position to decide the future of the entire Canadian operations.

Battle for Shell Canada appears over

However, the battle for the future of Shell Canada appears to be over, with 53.1 percent of the minority shareholders tending to the Royal Dutch bid of C$45 a share for the 22 percent of Shell Canada it doesn’t already own, although there are lingering threats of court challenges by the dissident minority shareholders who feel the true value of their shares is closer to C$50.

Royal Dutch has set a March 30 deadline for the balance of the Shell Canada investors to join the tendering.

Rowley said that once Royal Dutch controls 90 percent of the minority shares it has a “variety of mechanisms” it can deploy to acquire the remainder.

Royal Dutch Shell spokeswoman Alexandra Wright told the Financial Post that “we may be able to use a shorter process” to conclude the transaction when the 90 percent threshold is achieved.

As a result of passing the minimum threshold of 50 percent support, Royal Dutch Shell’s overall ownership of the Canadian subsidiary has climbed to 89.6 percent.

Van der Veer said the “positive outcome” is another step towards building on his company’s position in Canada “using the strengths that only a company of our global scale can bring.”

Speculation is now building over the future of Western Oil Sands, a 20 percent partner in Shell Canada’s Athabasca oil sands operation.

Western is currently working with financial advisors on a strategy to “realize the full value of our assets and our future growth potential,” including a possible outright sale.

Shell Canada had previously been touted as a buyer after Western ran afoul of some shareholders over the involvement of a wholly owned subsidiary in Iraq’s Kurdistan region.

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