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Shell buys Duvernay for ‘tight gas’ assets

telegraph.co.uk

Shell buys Duvernay for ‘tight gas’ assets

By Roland Gribben

Last Updated: 11:56pm BST 14/07/2008

Shell has agreed to pay almost C$6bn (£3bn) for a small Canadian gas company heavily involved in the production of difficult-to- exploit gas reserves.

The price for Calgary- based Duvernay Oil, founded just seven years ago, surprised the market but Shell is anxious to build up assets of what the industry calls “tight gas” in western Canada.

Duvernay has accepted a cash offer from Shell Canada of C$83 (£41.50) a share, a near 30pc premium on Friday’s closing price.

Duvernay directors, headed by William Kirker, chairman, and Michael Rose, chief executive, have already pledged their 18pc holding.

Shell and BP are trying to boost holdings of tight gas, which is very difficult to extract because it is trapped in rocks that have to be cracked “like a crunchy bar”.

The high cost of extraction has made development costly but the soaring oil price is changing the economics.

BP says there are thousands of billions of cubic feet of tight gas in deep reservoirs waiting for investment and technology.

Land prices have been rising as acreage housing tight gas reservoirs comes up for sale. Shell has been paying $30,000 an acre for territory in Texas but the Duvernay holding of 450,000 acres in Alberta and north east British Colombia has been bought for the equivalent of $13,000 an acre.

Duvernay is producing 25,000 barrels of oil equivalent per day (boepd) from its holdings and predicts an output of 70,000 by 2012.

Shell, with reserves in Wyoming and Texas as well as western Canada, is producing 80,000 boepd from its tight gas basins.

Jeroen van der Veer, Shell’s chief executive, said: “Shell has a proven track record in North America tight gas activities. Duvernay could become a valuable part of the Shell portfolio.”

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/15/cnshell115.xml

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