Shell to Buy Natural Gas Company in Canada

By Ian Austen

Duvernay Oil, a natural gas company based in Alberta, has agreed to be acquired by a larger rival, Shell Canada, for 5.9 billion Canadian dollars.

The acquisition, for the equivalent of $5.88 billion, was made Monday and is subject to approval by Duvernay’s shareholders. It 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 more attractive.

“Certainly companies with technology and money are better positioned to exploit these deposits,” said Jeff Mann, a spokesman for Shell Canada, which, like Duvernay, is based in Calgary, Alberta.

The all-cash offer is valued at 83 dollars, which Shell said represents a 36 percent premium over Duvernay’s average share price over the last 30 days. Like many junior energy companies in Canada, Duvernay has seen a significant rise in its share price this year as the sector recovered from a negative change to tax laws introduced in October 2006.

Duvernay has about 182,000 hectares, or 450,000 acres, of holdings in Western Canada. But investors have been most interested in a specific portion near Montney, British Columbia.

That deposit, which is divided among several companies, is estimated to contain about 1.4 trillion cubic meters, or 50 trillion cubic feet, of gas, more than all the proven reserves in Alberta, Canada’s largest natural gas producer.

The catch, historically, is that the Montney is a “tight gas” reserve, the industry’s term for difficult to extract.

A relatively new, if costly, process that involves setting off underground explosions to release trapped gas has proved successful for Duvernay and other 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, Shell Canada’s parent company. “Duvernay could become a valuable part of the Shell portfolio.”

Duvernay was formed in 2003 by former executives of Berkley Petroleum after that company was sold to Anadarko Petroleum of Houston. While they took the company public a year later, Duvernay’s executives and directors still own about 18.1 percent. A pension fund, the Caisse de Depot et Placement du Quebec, holds about 10 percent of Duvernay, according to securities filings.

Approval by two-thirds of Duvernay’s shareholders will be needed to complete the transaction, and the Canadian company’s board has unanimously recommended that they accept the bid. Shell expects that the deal, if approved, will close within a month.

Originally published by The New York Times Media Group.

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