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Dow Jones Newswires: Counterbid For Western Oil Could Trump Marathon

July 31, 2007: 06:58 PM EST

By Hyun Young Lee

OTTAWA -(Dow Jones)- Marathon Oil Corp. (MRO) might have to fend off competition in its C$6.5 billion ($6.2 billion) bid for Canada’s Western Oil Sands Inc. (WTO.T), as analysts anticipated counterbids from other heavy hitters in the Canadian energy scene.

Houston-based Marathon said Tuesday it would buy Western Oil Sands, whose main asset is a 20% stake in the Athabasca Oil Sands Project in northern Alberta, but analysts said this wasn’t yet a done deal.

Industry observers had singled out Royal Dutch Shell PLC (RDSA), the operator of the Athabasca venture with a 60% stake, as the eventual buyer, and to a lesser extent, Chevron Corp. (CVX), which holds the remaining 20%.

And these two companies are still the most likely to counter Marathon’s offer.

Shell spokeswoman Jan Rowley said the company doesn’t comment on specific merger and acquisition activity, but added that there were no changes to its plans for the Athabasca project.

Chevron couldn’t be reached for comment.

Jeff Martin, oil and gas analyst at Peters & Co. in Calgary, said the bid puts a bit of time pressure on Shell to decide whether it wants to expand its Athabasca holdings.

Shell’s Canadian unit has recently added to its oil sands holdings, most notably its purchase of BlackRock Ventures Inc. a year ago, and is currently being integrated into its parent company. In March, Royal Dutch Shell completed a C$8.7 billion deal to acquire the 22% stake it didn’t own in its Canadian subsidiary.

“So they’ve been preoccupied, and they weren’t in a hurry,” Martin said.

He added that the Athabasca holdings were among the best resources in the oil sands area and said Shell “wouldn’t want to let an interest in a premier asset slip away.”

Some analysts reckoned Shell was waiting to see who stepped up to bid first before making a move.

Mark Friesen, vice president of institutional research at First Energy Capital, said neither Shell nor Chevron had to show their cards first.

“That doesn’t necessarily preclude (bids) from others, but we haven’t heard Shell and Chevron say anything about this,” he added.

But others are more skeptical. Just because it’s possible Shell could bid for Western doesn’t mean it’ll happen, said a New York-based fund manager.

Western Oil Sands has unofficially been for sale long before the official announcement in February, he said, and it’s telling that no one has made a bid until now.

“There are lots of other oil sands companies that are really profitable,” he said. “Western isn’t the only option.”

And as the operator and majority stakeholder, there’s no pressing reason for Shell to increase its holding.

Indeed, Shell’s management may be focusing more on expanding its existing assets rather than acquiring new ones, if recent announcements are anything to go by.

Earlier this month, Shell Canada’s president, Adrian Loader, said the company would review several multi-billion-dollar projects as it integrates into its parent company.

Shell has already committed to a C$12.8 billion expansion of the Athabasca oil sands mine and upgrader with its project partners, bringing both up to a capacity of 255,000 barrels a day.

Eventually, they aim to boost mining output to 770,000 barrels a day, but processing this additional bitumen will be the individual responsibility of the partners.

On Monday, Shell filed a regulatory application to build a second oil sands upgrader north of Edmonton costing up to C$27 billion based on current industry norms, which would easily be the most expensive project ever in Alberta’s increasingly pricey oil sands patch.

The massive 400,000 barrel-a-day facility, which would process tarry oil sands bitumen into a lighter synthetic crude, would be wholly owned by Shell.

-By Hyun Young Lee, Dow Jones Newswires; 613-237-0669; [email protected]

  (END) Dow Jones Newswires
  07-31-07 1858ET
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