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Financial Times: Shell £3.8bn buyout of Canada unit

By Ed Crooks, Energy Editor
Published: April 3 2007 03:00 | Last updated: April 3 2007 03:00

Royal Dutch Shell has succeeded in its bid to buy out the minority shareholders in its Shell Canada unit, opening the way to restructuring the subsidiary and integrating it fully with the parent company.

Shell is paying C$8.7bn (£3.8bn) for the 22 per cent of the company that it did not own, representing a vote of confidence in the relatively high-cost production from Canada’s oil sands.

The Athabasca oil sands project in Alberta, 60 per cent owned by Shell, is an important part of the company’s future, particularly following Shell’s setback in Russia, where it was forced to cede majority ownership of the Sakhalin-2 liquefied natural gas and oil projectto Gazprom at the end of last year.

Presenting the company’s full-year results in February, executives suggested there was a trade-off between the reserves Shell was losing in Sakhalin-2 and what it would gain from taking full control of Shell Canada.

The oil sands played a critical role in Shell’s strong reported performance for replacing its reserves of oil and gas last year. It was able to book about 2bn barrels of oil equivalent more, while producing about 1.3bn, for a ratio of about 150 per cent.

Shell was forced to raise its offer, launched in October last year, from an initial C$40 a share to C$45, but has now secured acceptances from 94.5 per cent of the outstanding shares that it did not already control, and can make a compulsory acquisition of the remainder.

Its enthusiasm for oil sands sets Shell apart from BP, which has been unusual among the world’s largest oil companies in holding back from investment in Canada.

Shell’s investment gives it access to a vast resource base but one that is relatively expensive to extract and market. That means it would be less comfortable than BP if oil prices were to fall sharply.

In January, Shell Canada unveiled plans for a multi-billion-dollar expansion of the Athabasca project, although it said the timing of the expansion would depend on “market conditions, key economic indicators, the ability to meet our sustainable development criteria and the outcome of the regulatory process”. It expected to get regulatory approval by the end of 2009.

Mine production would rise from planned capacity of about 155,000 barrels of bitumen a day to 770,000 b/d.

Capacity to upgrade the bitumen to heavy oil would also be raised to about 700,000 barrels a day.

Copyright The Financial Times Limited 2007

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