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Shell to Acquire Duvernay Oil for C$5.27 Billion (Update2)

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Shell to Acquire Duvernay Oil for C$5.27 Billion (Update2) 

By Joe Carroll and Ian McKinnon

July 14 (Bloomberg) — Royal Dutch Shell Plc, the world’s second-largest energy company, agreed to acquireDuvernay Oil Corp. for C$5.27 billion ($5.24 billion) to expand natural-gas production in western Canada.

Duvernay shareholders will receive C$83 for each of their shares, a 42 percent premium over the closing price on July 11, according to a statement today from Calgary-based Duvernay. Shell also will assume Duvernay’s debt, which was C$581.7 million as of March 31, according to a company filing.

The premium “is quite substantial,” said Dirk Hoozemans, who helps manage the equivalent of about $23.8 billion at Rotterdam-based Robeco Group. “Probably Shell wanted to address its North American gas position with the acquisition.”

Shell is paying the equivalent of about $9.10 per thousand cubic feet of gas reserves, according to Bloomberg data. That’s more than double the price offered last month by XTO Energy Inc. in its proposed $4.4 billion takeover of Hunt Petroleum Corp.

Duvernay produces the equivalent of more than 25,000 barrels of oil a day in the Western Canadian Sedimentary Basin, consisting mostly of gas, Shell said in a separate statement. Daily output might reach 70,000 barrels by 2012, it said.

‘Tight Gas’

Shell, based in The Hague, has daily “tight-gas” production, a reference to output from sandstone or other difficult-to-access formations, equivalent to about 80,000 barrels of oil, according to the statement.

“Consolidating in the area, where they’ve already got a strong technological skills set and infrastructure in place, seems to be a reasonably logical deal,” saidJason Kenney, an Edinburgh-based analyst at ING Wholesale Banking. “These are difficult barrels” to produce, he said.

The acquisition is Shell’s largest since its purchase in April 2007 of the 22 percent stake in Shell Canada Ltd. it didn’t already own.

Shell fell 15 pence to 1,925 pence at 3:28 p.m. in London. Duvernay rose C$23.64, or 41 percent, to C$82.08 at 10:28 a.m. on the Toronto Stock Exchange. A close at that price would mark the biggest one-day gain since the company began trading in February 2004.

Duvernay gained an average of 47 percent a year since the initial public offering. CEO Michael Rose owned 2.52 million shares, or a 4 percent stake, as of June 19, according to a public filing.

Reserves

Duvernay increased reserves by 88 percent last year to the equivalent of 95.9 million barrels of oil, enough to sustain Shell’s worldwide output for 30 days, according to data compiled by Bloomberg. Duvernay’s production is 89 percent gas and the rest is crude oil.

The company employs about 100 people and was formed seven years ago, spokesman Scott Kirker said today in a telephone interview.

Peters & Co. advised Duvernay, which agreed to pay Shell a C$120 million break-up fee if the transaction isn’t completed. Shell said owners controlling 18 percent of Duvernay’s shares have agreed to support the transaction.

Irving, Texas-based Exxon Mobil is the world’s largest energy company by sales.

To contact the reporters on this story: Joe Carroll in Chicago at[email protected]; Ian McKinnon in Calgary at[email protected].

Last Updated: July 14, 2008 10:49 EDT

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