July 15, 2008

Shell Buys Natural Gas Company in Canada

By Ian Austen

Duvernay Oil, a natural gas company based in Alberta, agreed Monday to be acquired by Royal Dutch Shell for 5.9 billion Canadian dollars.

The deal, which must still be approved by Duvernay's shareholders, comes as major energy companies turn their attention toward difficult-to-extract natural gas deposits like those held by Duvernay. High energy prices have made such reserves much more attractive.

"Certainly companies with technology and money are better positioned to exploit these deposits," said Jeff Mann, a spokesman for Shell Canada, the Shell subsidiary that will buy Duvernay and is also based in Alberta.

The all-cash offer is valued at 83 dollars, or $82.68, a share, which Shell said represented a 36 percent premium over Duvernay's average share price over the past 30 days. Like many junior energy companies in Canada, Duvernay's shares have risen significantly this year as the sector finally recovered from a change to tax laws in October 2006.

Duvernay has large holdings in Western Canada, but investors have been most interested in a specific portion near Montney, British Columbia. That deposit, which is divided between several companies, is estimated to contain about 50 trillion cubic feet, or 1.4 trillion cubic meters, of gas, more than all the proven reserves in Alberta, the largest natural gas producer in Canada.

The catch is that Montney is a "tight gas" reserve, the industry's term for gas that is difficult to extract.

A relatively new, if costly, process that involves setting off underground explosions to release trapped gas has proven successful for some companies. Duvernay's production, including a relatively small amount of oil, averaged the oil equivalent of 25,000 barrels a day last year, and the company is moving toward 70,000 barrels. Shell extracts tight gas in North America with the oil equivalent of 80,000 barrels a day.

"Shell has a proven track record in North America tight gas activities," said Jeroen van der Veer, the chief executive of Royal Dutch Shell. "Duvernay could become a valuable part of the Shell portfolio."

Shell will require two thirds of Duvernay's shareholders to approve the transaction. The Canadian company's board has unanimously recommended that they accept the bid. Shell anticipates that the deal, if approved, will close within a month.

Originally published by The New York Times Media Group.

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