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Shell to tie up Shell Canada acquisition

ROYAL Dutch Shell has reached an agreement to buy the 22% of Shell Canada that the company does not already own. In a statement last month, the company said it had obtained the unanimous recommendation of the special committee and board of directors of Shell Canada on the revised offer of C$45 ($38.20) a share.

The offer values Shell Canada's fully diluted share capital at C$8.7bn. That compares with an initial offer, in October, of $40 a share, valuing Shell Canada at C$7.7bn. The deal should be completed around the end of this month.

If the latest offer is successful, it will bring to an end Royal Dutch Shell's efforts to tidy up its ownership of the Canadian company. Analysts were divided about whether the offer represented good value for the parent company. Given that it indicates a firm commitment from the group to Shell Canada's oil-sands operations, much will depend on the profitability of those developments. Critics have claimed that Shell's project costs in the oil sands are escalating at the same time as the oil price has fallen close to the oil sands' break-even level.

Despite the softer oil price, Shell Canada was last month planning to expand its Athabasca Oil Sands Project (AOSP), in northern Alberta. The company said it updated its long-term oil sands growth plans to increase production to some 770,000 barrels a day (b/d), while increasing upgrading capacity to 0.7m b/d. Capacity at AOSP is around 155,000 b/d, with a 100,000 b/d expansion project already under way. Shell Canada previously targeted long-term production of 0.55m b/d.

Additional expansions could include a new mine, Jackpine, and another, called Pierre River Mine, on the west side of the Athabasca River. Expansion of upgrading capacity to 0.7m b/d will be either at the company's existing facilities in the Fort Saskatchewan area, east of Edmonton, although it is also considering building a new 150,000 b/d heavy-oil upgrader and refinery at Sarnia, in Ontario, central Canada. Shell Canada says the timing of the developments depend on market conditions.

Shell Canada holds a 60% interest in AOSP. The other shareholders are Chevron, 20%, and Western Oil Sands, 20%. AOSP consists of the Muskeg River Mine, north of Fort McMurray, and the Scotford Upgrader near Edmonton, Alberta. Shell Canada also has in situ bitumen operations near Peace River and Cold Lake in Alberta.

Meanwhile, Shell Canada's fourth-quarter profit was sharply lower than the same period a year earlier. It earned C$223m, down from C$0.6bn a year earlier. Revenue fell from C$4.04bn to C$3.58bn.

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