COMPANY NEWS: Shell offers $7.4 billion for Shell Canada stake

Feb. 26, 2007
Royal Dutch Shell PLC offered $7.4 billion to shareholders in its Shell Canada Ltd. subsidiary for the 22% minority stake it does not already own.

Royal Dutch Shell PLC offered $7.4 billion to shareholders in its Shell Canada Ltd. subsidiary for the 22% minority stake it does not already own. The offer is a 12.5% increase on the bid it made last year (OGJ Online, Oct. 23, 2006).

In other recent company news:

  • BP PLC will exit the UK refinery business by selling its 172,000 b/d Coryton refinery to Petroplus Holdings AG for $1.4 billion so that it can concentrate on developing its other European refineries instead.
  • Tesoro Corp. agreed to buy the 100,000 b/cd Wilmington refinery south of Los Angeles and its products terminal from Shell Oil Products US for $1.63 billion, plus the value of oil inventory at closing. The transaction also includes 250 retail sites in and around Los Angeles and San Diego.
  • Apache Corp. agreed to pay $1 billion for Anadarko Petroleum Corp.’s interests in 28 Permian basin oil fields in West Texas.
  • Dallas independent Exco Resources Inc. will acquire producing oil and natural gas properties, acreage, and other assets in several fields in the US Midcontinent, South Texas, and Gulf Coast areas of Oklahoma and Texas from Anadarko for $860 million.
  • Encore Acquisition Co. agreed to buy Anadarko’s interests in the Williston basin in Montana and North Dakota for $410 million. Encore also agreed to pay $400 million for Anadarko’s interests in the Elk basin and Gooseberry area, primarily in Park County, Wyo.

Shell-Shell Canada

Shell Canada is attractive to its parent company because it has a substantial position in Canada’s oil sands and is embarking on a major production expansion and upgrading capacity. Shell Canada hopes to increase bitumen production to 770,000 b/d while increasing upgrading capacity to 700,000 b/d. Shell Canada’s first 100,000 b/d expansion of Athabasca Oil Sands is expected in 2010.

Shell Canada shareholders will receive documents setting out Shell’s offer of $45 (Can.)/share, but investors have previously stressed that $50 (Can.)/share was reasonable. Shell also has filed a formal offer with Canadian securities regulators.

Shell Canada’s board described the revised bid as “fair” and recommended that shareholders accept it. The deadline for Shell’s offer expires Mar. 16 unless it is withdrawn or extended.

Petroplus refinery deal

Petroplus’s deal price also includes hydrocarbons valued at closing, BP’s adjacent bulk terminal, and its UK bitumen business, which is closely integrated with the refinery in Essex. After the deal closes Petroplus will have 289,000 b/d of refining capacity in the UK, as it already owns the 117,000 b/d refinery at Teeside.

Petroplus will grow its processing capacity by 55% once it starts operating Coryton and transform it into a trans-European refiner with refineries in Switzerland, Belgium, and Germany after closing a deal with ExxonMobil Corp. later this year.

Petroplus also will provide BP’s UK-based retail and other businesses with fuel products under a long-term supply agreement. BP will continue to operate its own UK logistics and supply infrastructure, however.

Coryton can process as much as 70,000 b/d of other feedstocks and is a sophisticated refinery with a Nelson complexity rating of 12.0 that produces gasoline, diesel fuel, heating oil, and jet fuel. Heathrow and Gatwick airports take their jet fuel from there and Coryton has one of the largest road distribution terminals in Europe.

Tesoro buys refinery

Tesoro plans to spend at least $1.1 billion in 5 years on improvements and maintenance at the sour heavy crude refinery.

The refinery began operations in 1923 as California Petroleum Corp. Shell acquired a stake through a joint venture in 1998 and became sole owner in 2002.

Tesoro said it plans to offer employment to most, if not all, of about 500 affected Shell employees at the refinery and terminal and certain employees within Shell’s retail organization.

Some supply contracts that Shell has with its wholesalers and open dealers in the area will be assigned to Tesoro.

Apache-Anadarko deal

Apache’s agreement with Anadarko allows the companies to create a joint venture to effect the transaction.

The Permian basin fields are expected to produce 9,000 b/d of oil and 19 MMcfd of gas this year from 3,950 wells on 143,000 net acres.

Anadarko operates nearly 90% of the properties. Oil makes up more than 70% of the production, produced primarily through waterflood recovery operations.

This deal is the latest in a slew of Anadarko asset divestments following the company’s separate purchases of Kerr-McGee Corp. and Western Gas Resources Inc. last year. Anadarko as of yearend 2005 had 2.4 billion boe of proved reserves.

Exco-Anadarko deal

Exco’s acquisition includes assets in the Golden Trend, Watonga-Chickasha, Mocane-Laverne, and Reydon areas in Oklahoma, and the Felicia, Speaks, and Cage Ranch areas of South Texas.

This acquisition includes producing properties with net production at yearend 2006 of 103 MMcfd of gas equivalent from 1,327 producing wells. Production consists of 50 MMcfd of gas equivalent from 1,062 wells in the Midcontinent, and 53 MMcfd of gas equivalent from 265 wells in South Texas.

Average acquired working interests and net revenue interests are 75% and 59% in the Midcontinent, and 63% and 49% in South Texas, respectively.

Proved reserves of the assets total more than 400 bcf of gas equivalent and are 72% proved developed and 87% gas. Exco has identified about 200 proved undeveloped drilling opportunities in the package, with 88% of the opportunities in the Midcontinent.

The Midcontinent assets contain 76% of the total proved reserves in the transaction. The reserves are in multiple formations, including the Big 4, Bromide, Springer, Morrow, Chester, Tonkawa, Redfork, and Granite Wash in the Midcontinent, and the Frio, Vicksburg, Miocene, Yegua, and Wilcox in South Texas.

About 91% of the estimated value of the Midcontinent reserves are operated, while 85% of the estimated value of the reserves in South Texas are operated. Net acreage included in the acquisition totals 290,000 acres, more than 71% of which is in the Midcontinent.

The Oklahoma assets being acquired bring Exco’s overall Midcontinent production to more than 75 MMcfd of gas equivalent, the company said. The transaction is expected to close in April.

Encore-Anadarko deals

Encore estimates the Williston basin assets have total proved reserves of 21 million boe, which are 90% oil and 81% proved developed producing. The properties currently produce 5,000 net boe/d. Encore will operate 85% of the acquired properties.

The Williston basin assets produce from more than 50 different fields across eastern Montana and western North Dakota. The 70,000 net acres involves primarily waterfloods and producing properties in the Bakken play.

Encore plans to enhance production from the acquisition through drilling, redevelopment, stimulation, and waterflood optimization.

Anadarko operates 93% of the properties, and oil accounted for 90% of the 2006 production.

Encore’s other sale agreement, signed last month, includes the 12 MMcfd Elk basin gas plant and Clear Fork Pipeline Co., an oil and gas gathering system.

As of Jan. 1, production was 4,350 b/d of oil equivalent (net) from 614 wells in two fields in the Elk basin and Gooseberry area. Anadarko holds 17,550 net acres and operates all of these properties. Oil accounted for 80% of 2006 production.