Summary
*RDS' offer to buy-out the minority shareholder of Shell Canada was opportunistic at first, but interesting now
*Shell Canada's purchase of Blackrock's assets will need to be handled should RDS be successful in taking them over
*What happens then to Western and Chevron and the AOSP?
Analysis
Although everyone here in Calgary familiar with Shell Canada knew right away that RDS was not going to persuade the minority shareholders to let them have this subsidiary for only $40/share, some were hopeful. Meanwhile many close to the dealers and wheelers of this potential merger knew that an offer of $44+ would catch Shell Canada's attention.
However, should this deal go through, how would RDS handle the Blackrock assets that Shell Canada acquired, and has just now begun to work on? What would happen with Sure Northern, a company that RDS created in 2005 to acquire large amounts of acreage in the oil sands, (to experiment with various drilling techniques in an attempt to boost production and reduce F & D costs)? Depending on who you speak with, Sure Northern will most likely be the operating arm of RDS should the deal with Shell Canada go ahead. If that is true, it puts Shell Canada's current AOSP partners in quite an awkward situation.
The most talked about of the AOSP partners this past year was Western Oil Sands. It seemed as if every other week, a new deal was being worked for the acquisition of that partner. What everyone failed to notice (in my opinion), is that Western has nothing to lose, but everything to gain from a Shell Canada - RDS deal. That company would not be in a position to pressure RDS to purchase its 20% interest, should they wish to do so, by simply approaching RDS' top competitors, to get a better price. Would Western ever be offered above $40/share for their 20% in the AOSP project, I doubt it. However, what they would be offered are a lot of cost overrun, at the time of the operator's choosing, to squeeze them out of the project, should they become too cumbersome.
Deal or no deal, this news story has made the oil sands a more interesting place to do business, and has open the door to the many mergers and acquisitions that we will see in that sector of the energy industry in 2007.
