Global Insight Perspective | |
Significance | Shell Canada, which is 78% owned by Royal Dutch/Shell, said that it had agreed to an all-cash deal with BlackRock Ventures to pay C$24/share to acquire 100% of the heavy oil producer, marking a 27% premium over BlackRock's closing stock price of C$18.88/share on Friday (5 May). |
Implications | The acquisition will give Shell Canada an expanded presence in northwest Alberta's oilsands, with access to significant oil reserves and long-term production growth prospects. The offer is subject to regulatory and shareholder approval, but there appears little likelihood that the takeover would not be completed, given that BlackRock's board of directors has already unanimously approved the deal. |
Outlook | Shell Canada's move, along with its parent company's renewed interest in Alberta's oilsands, could trigger a new push by the supermajors in targeting acquisitions in Canada's fragmented oil sector, especially as oilsands production moves from the realm of the unconventional to the mainstream. |
Striking While the Iron is Hot
After rumours circulated late last week that Shell Canada and Imperial Oil were eyeing Calgary-based BlackRock Ventures for a potential acquisition, Shell's Canadian subsidiary beat ExxonMobil's Canadian unit Imperial to the punch, announcing yesterday morning that it had reached a deal to acquire BlackRock and its 603.4 million in possible oil reserves for C$2.4 billion (US$2.18 billion). The all-cash offer, which was unanimously approved by BlackRock's board of directors, was for C$24/share, a premium of 27% on BlackRock's closing price on Friday (5 May) of C$18.88/share. The acquisition, which must still receive regulatory and shareholder approval, would add BlackRock's 12,000-14,000 b/d in production to Shell Canada's portfolio and give Shell Canada greater exposure to north-western Canada's booming oilsands industry. The deal comes less than two months after Royal Dutch/Shell itself expanded its position in Alberta with the acquisition of new acreage and just days after the Dutch/U.K. supermajor released its first-quarter financial and operational results (see 'Related Articles' below).
BlackRock Ventures at a Glance | |
Total Reserves (proven, probable and possible) | 603.4 million barrels |
Total Proven Reserves | 142 million barrels |
Total Oil Production | 12,000-14,000 b/d |
Source: Sproule Associates | |
Shell Chief Executive Officer (CEO) Jeroen van der Veer had reiterated that the company saw unconventional oil production as a more important component of Shell's growth strategy, and the move to acquire BlackRock in a friendly takeover showed that Shell means business. Shell was known to have explored the possibility of buying Chief Oil & Gas before U.S.-based Devon Energy reached a US$2.2-billion deal with Chief last week. Therefore, faced with the prospect of a potential competition with Imperial Oil for BlackRock, Shell Canada veered from Shell's conservative mergers and acquisitions (M&A) strategy to snatch BlackRock. The takeover will be the first for Shell since the company acquired U.K. independent Enterprise Oil for US$5 billion in 2002.
Clive Mather, Shell Canada's President and CEO, said that the BlackRock acquisition 'is consistent with our growth plan, and BlackRock's assets are an excellent fit with our Peace River in situ assets.' Indeed, BlackRock, which operates exclusively in western Canada, has assets in three heavy oil regions: the Peace River oilsands; the Cold Lake oilsands; and the Lloydminster area. The acquisition of BlackRock fits neatly into Shell Canada's plans to invest more heavily in its Carmon Creek project to boost output from its Peace River holidays to 100,000 b/d for 30 years. A revision of BlackRock's estimated reserves yesterday puts the company's total proven, probable and possible reserves at over 600 million barrels (although only 142 million are 'proven'), giving Shell Canada substantial long-term growth prospects for the acquisition.
Outlook and Implications
Considering the current oil market, the Shell Canada-BlackRock takeover may prove more important to the wider Canadian oil industry than just a one-off acquisition. With oil prices continuing to hover around US$70/b, Canada's oilsands are increasingly moving from the fringe of the industry to a more accepted form of alternative oil production moving into the future. The growth of the oilsands industry has mirrored the rise in prices in recent years, while the huge investment dollars that are being committed by a range of oil companies - including the supermajors - indicates that Alberta's heavy oil is seen as a risky investment, but a long-term growth prospect. As the supermajors face growing competition for oil on the international scene - from NOCs in both host countries and third countries - a renewed interest in oil and gas reserves in politically stable countries like the United States and Canada is manifesting itself in increased M&A activity. Rather than sink additional money into politically risky but high-growth areas such as Nigeria and Azerbaijan, the supermajors are directing more attention to the U.S. mid-majors and the Canadian oilsands, where reserves can be had with less risk, but at a steep price.
The fragmented Canadian oil sector, in particular, appears to be a prime target for potential further M&A activity by the supermajors, and Shell Canada's move to take over BlackRock could be the trigger. Just as ConocoPhillips could have acquired Burlington Resources for far less than the US$35.6 billion it paid in December if it had acted earlier - when prices were lower and Burlington's market cap was smaller - so could Shell Canada have purchased BlackRock for much less if the deal had been completed earlier. BlackRock's share price had increased 64% this year alone, making some question the timing of yesterday's announcement. Yet, with Shell still seeking a splashy acquisition to make amends for its 2004 reserve downgrade and cleanse the company's reputation from that fiasco, the move to acquire BlackRock - and ongoing rumours that the parent company will seek to raise its stake in Shell Canada back to 100% - indicates that Shell sees the Canadian oilsands as a significant future growth area as well as a good investment for the long term. Considering the problems that the company faces in Nigeria, increasing Shell's exposure in Canada is clearly beneficial. As the supermajors are increasingly squeezed on the international scene and access to reserves becomes more difficult in competition with NOCs, smaller companies in the United States and Canada figure to come into focus as M&A targets for the supermajors looking in their backyards for less risky investments.
Related Articles
- Europe: 4 May 2006: Rising Oil Prices Boost Q1 Results Over 12% at Total, Shell and Suez
- United States: 3 May 2006: Devon Energy to Acquire Chief Holdings
- United States: 18 April 2006: U.S. Mid-Majors - Predators or Prey? Part Two
- United States: 11 April 2006: U.S. Mid-Majors - Predators or Prey? Part One
- Canada: 22 March 2006: Shell Acquires More Oil Sands Acreage in Alberta
- Canada: 3 January 2006: Shell Considering Buyout of Canadian Subsidiary, According to Report
- Canada: 19 July 2005: Investment Trends and Challenges in Canada's Unconventional Oil Production