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Shell’s Canadian Gas Play

The Motley Fool

Shell’s Canadian Gas Play

By David Lee Smith July 16, 2008 

By the simple act of opening its wallet and extracting a few billion dollars, Royal Dutch Shell (NYSE: RDS-A)(NYSE: RDS-B) is getting involved in what may become one of the biggest natural gas plays in North America. Or at least it’ll do so when it completes the purchase of Duvernay Oil.

Shell will pay $5.8 billion for Duvernay (sounds sort of like an after-dinner drink, doesn’t it?). That represents a healthy 42% premium to the Canadian company’s closing price immediately before the announcement. But from the information I’ve found regarding Duvernay and the Montney tight gas trend — which runs through parts of Northeast British Columbia and Alberta — you can’t help but think that Shell is shelling out sensibly. Lots of analysts have been tracking the Montney of late, and the feedback seems uniformly optimistic about the amount of gas it may contain.

Calgary’s EnCana (NYSE: ECA) has the largest stake in the area, but Duvernay obviously has a sufficiently promising position there to have piqued Shell’s interest and caused the biggest European oil and gas company to agree to pay up for its assets.

Fine, you say, but Shell is so big that, at its best, the Montney won’t be a “company maker” for it. You’re right, but don’t lose interest in the story. You need to know that there are other, smaller companies building positions in the play, Murphy Oil (NYSE: MUR) and Talisman (NYSE: TLM) among them.

So, if you’re partial to promising natural gas plays and the companies involved in them, I’m here to suggest that you check out the Montney, along with the smaller companies mentioned above. Gas prices are fast closing the gap with oil, and truly significant plays are hard to come by.

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