Shell bids for oil sands expansion

The company has invested heavily in Canada’s vast oil sands in recent years as it looks to rebuild its oil and gas reserves.

Oil sands are more expensive to develop than traditional oil fields, but costs are falling as extraction technology improves.

Canada’s relative political stability in comparison with many oil-producing regions of the world gives assets in the area a premium.

In July, Shell Canada announced plans to increase production at the Athabasca Tar Sands project in Alberta to 550,000 barrels per day from 150,000 barrels per day at present.

Shell Canada as a whole produced around 230,000 barrels per day in 2005.

Royal Dutch Shell’s offer is conditional on support of the Shell Canada board, and on more than half of the outstanding shares being tendered.

The company said the integration of Shell Canada will simplify the group’s structure.

Royal Dutch Shell said: “Shell Canada has built a substantial position in Canada’s oil sands and is embarking on a major expansion of production and upgrading capacity.

“Canada is an important growth area for the group, and the group will be a major investor in Canada for many years to come.”

Royal Dutch Shell chief executive Jeroen van der Veer added: “Our proposal should create the opportunity for the group to build further on a strong position in Canada using the strengths that only a company of our global scale can bring.”

Broker Kepler Teather & Greenwood Merrion said the offer for the outstanding Shell Canada shares was “a good deal” for Royal Dutch Shell.

It said: “The group will also be able to fully benefit from the ramp-up in the production from the Athabasca Tar Sands, where it has been making a considerable investment.”