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Shell Canada Pays $5.9 Billion for Gas Company

Shell Canada Pays $5.9 Billion for Gas Company

Published: July 15, 2008

OTTAWA — Duvernay Oil, a natural gas company based in Alberta, agreed on Monday to be acquired by a larger rival, Shell Canada, for $5.9 billion.

The acquisition, which must be approved by Duvernay’s shareholders, comes as major energy companies turn their attention toward difficult-to-extract natural gas deposits like those held by Duvernay. High energy prices have made such reserves more attractive.

“Certainly companies with technology and money are better positioned to exploit these deposits,” said Jeff Mann, a spokesman for Shell Canada which, like Duvernay, is based in Calgary, Alberta.

The all-cash offer is valued at 83 Canadian dollars ($82) a share, which Shell said represents a 36 percent premium over Duvernay’s average share price over the last 30 days. Like many junior energy companies in Canada, Duvernay has seen a significant rise in its share price this year as the sector recovered from a negative change to tax laws introduced in October 2006.

Duvernay has about 450,000 acres of holdings in western Canada. But investors have been most interested in a specific portion near Montney, British Columbia. That deposit, which is divided among several companies, is estimated to contain about 50 trillion cubic feet of gas, more than all the proven reserves in Alberta, Canada’s largest natural gas producer.

The catch, historically, is that the Montney is a “tight gas” reserve, the industry’s term for difficult to extract.

A relatively new, if costly, process that involves setting off underground explosions to release trapped gas has proven successful for Duvernay and other companies. Duvernay’s production, including a relatively small amount of oil, averaged the oil equivalent of 25,000 barrels a day last year and the company is moving toward 70,000 barrels. Shell currently extracts tight gas in North America with the oil equivalent of 80,000 barrels a day.

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

Duvernay was formed in 2003 by former executives of Berkley Petroleum after that company was sold to Anadarko Petroleum of Houston. They took the company public a year later, but Duvernay’s executives and directors still own about 18 percent. A pension fund, the Caisse de dépôt et placement du Québec, holds about 10 percent of Duvernay, according to securities filings.

Shell will require two-thirds of Duvernay’s shareholders to approve the transaction. The Canadian company’s board has unanimously recommended that they accept the bid. Shell anticipates that the deal, if approved, will close within a month.

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