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HAGUE -- Royal Dutch Shell, the second largest European oil company, offered C$7.7 billion, or $6.8 billion USD, to purchase its Canadian unit, Shell Canada, Ltd., to gain greater production from the oil sands located there, Bloomberg News reported.
Shell, the owner of 78 percent of Shell Canada Ltd., offered C$40 a share -- 22 percent greater then the closing price of the stock and the end of last week -- for the reminder of the company, according a statement issued by Shell. This week, shares rose 28 percent, topping the offer price, the report stated.
According to CEO Jeroen van der Veer, the company needs access to additional sources of oil and gas, after overstating its reserves in 2004. As much as C$125 billion could be spent over the next ten years to triple Canada's oil sands, where reserves there might only be shadowed by Saudi Arabia, according to the National Energy Board.
"There is only one purchaser in town," Alan Beaney, manager of $1.7 billion shares, including Royal Dutch Shell, at Principal Asset Management in Sevenoaks, England. "It's not going out for a super premium price."
The purchase of the Canadian unit, which is the country's fourth largest oil company, would simplify its corporate structure. The operations, in the Athabasca region of northeastern Alberta, have a capacity to produce 155,000 barrels a day, and a 100,000 barrel a day expansion is planned, Bloomberg News reported. That expansion is estimated to cost up to C$12.8 billion, the company reported in July. Shell Canada expects to receive final approval for the expansion this week from Chevron Corp. and Western Oil Sands Inc., partners in the Athabasca project, according to CEO Clive Mather. He continued, stating that the oil sands project would remain profitable unless crude prices fall to $30 a barrel.
The proposal "is a further step in simplifying the group structure," the company stated, after the merge of its Dutch and United Kingdom boards in 2005, Bloomberg News reported. Fully owning Shell Canada gives the company "full access to the group's financing capabilities," the statement continued. The buyout gives Shell a chance to control the costs of expanding its oil sands project, according to Jason Kenney, an oil analyst for ING Wholesale Banking in Edinburgh.
Royal Dutch Shell is seeking the approval from Shell Canada's board, who will make its own assessment of the offer. However, Shell can choose to hold its offer if the board does not give its support, Bloomberg News cited.