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The Globe & Mail: Royal Dutch to reign supreme at Shell Canada

But no dramatic change is expected to the operations or future strategy
NORVAL SCOTT AND DAVID EBNER

CALGARY — Shell Canada Ltd.’s existence as an independently run Canadian energy company is effectively over after parent Royal Dutch Shell PLC said yesterday that it has won the right to buy out the company’s remaining minority shareholders.

Although the ownership change could hit the boardroom, with key decision making now potentially taking place in Houston or the Hague, it likely won’t have a dramatic effect on the company’s future strategy or on its operations, according to industry observers.

“I expect some kind of consolidation, and there will be some synergies between the companies,” said analyst Andrew Neff at Global Insight consultancy in Washington. “However, there’s not going to be as much impact on the company as one would normally associate with an acquisition as it was already majority-owned by Royal Dutch Shell. It shouldn’t make too much difference on a day-to-day basis.”

In October, the Anglo-Dutch company made a $40-a-share offer for the 22 per cent of Shell Canada that it didn’t already own, raising the offer to $45 in January. Royal Dutch said yesterday it had managed to secure more than 90 per cent of the minority shares, allowing it to complete what’s called a “compulsory acquisition” of the rest. The deal is expected to close by the end of April.

Shell Canada’s current management keeps responsibility for the company’s operations and projects until the deal is complete. An integration team to combine Shell Canada with Royal Dutch’s international operations will be run by Adrian Loader, director of strategy and business development for Royal Dutch. He was point person in the talks that increased the offer to $45 from $40.

Royal Dutch has said it wants to simplify its North American business and connect its oil sands output with its refineries in the United States and around the world.

It is unclear how Shell Canada’s operations will be integrated. The most prominent holding is a 60-per-cent stake in the 155,000-barrel-a-day Athabasca oil sands project, which is being expanded.

Royal Dutch doesn’t plan to provide any details about changes until May 3, during its regular quarterly results. Shell Canada projects that have been fully approved, such as an oil sands expansion, will move ahead, but other less-formed ideas, such as a new refinery in Ontario, will be reassessed by Royal Dutch.

Analyst Adam Zive at Desjardins Securities expects that key decisions about Shell Canada will move to Royal Dutch headquarters in the Hague, as well as to Houston, where Shell Oil, the U.S. arm, is based. He doesn’t foresee the sale of major assets, such as undeveloped gas in the Mackenzie Delta or the Sable Island producing gas field offshore Nova Scotia. But he suspects Shell Canada’s proposed new refinery in Ontario might not go ahead because it could make better sense for Royal Dutch to improve existing refineries elsewhere, such as one near Seattle or in the suburbs of Houston.

Other analysts predict even fewer changes, saying the parent company already had a large say in how Shell Canada was run, making wide-scale alterations unlikely. “I’m not sure of much changes at all,” said analyst Tom Ebbern at Calgary-based Tristone Capital. “Royal Dutch could have changed things before and didn’t. If running Shell Canada out of Houston was a more efficient way of doing things, it would have been done a long time ago.”

While takeovers frequently lead to layoffs, it’s far from clear that that will happen in the Shell Canada deal, given how hard it now is to retain skilled labour in Canada, said analyst Evan Smith at U.S. Global Investors. “Shutting Canadian operations and moving people around doesn’t seem a very smart thing to do. There are some synergies in this deal, but that’s not one of them,” he said. “You wouldn’t want to lose any more talent in an industry that’s this competitive for labour.”

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