Royal Dutch Shell to buy Canada's Duvernay Oil Corp. for $5.87 billion

15 July 2008

Royal Dutch Shell Plc, the world's second-largest energy company after Exxon Mobil, has agreed to acquire Duvernay Oil Corp for C$5.9 billion ($5.87 billion) to expand natural-gas production in western Canada and double its current capacity in the continent.

Shell is offering C$83 per share ($82.59) for Alberta-based Duvernay Oil, which plans to triple its natural gas production of about 25,000 barrels of oil equivalent per day (boe/d) to about 70,000 boe/d by 2012. This offer is at a whopping 42 per cent premium over the Friday closing price of C$58.44.

Based on Duverney's 62.5 million shares outstanding, the transaction is valued at $5.16 billion. Including assumed debt, Royal Dutch Shell says the acquisition is worth C$5.9 billion ($5.87 billion). The acquisition is Shell's largest since its purchase in April 2007 of the 22 per cent stake in Shell Canada Ltd. it didn't already own.

As per calculations, Shell will be paying the equivalent of about $9.10 per thousand cubic feet of gas reserves. That's more than double the price offered last month by XTO Energy Inc. in its proposed $4.4 billion takeover of Hunt Petroleum Corp announced last month. (See: XTO Energy to buy Hunt Petroleum in $4.19 billion cash-stock deal)

Shell's offer is conditional on holder of at least 66.67 per cent of the outstanding common shares of Duvernay tendering their shares. Duvernay directors have committed to selling their own shares, representing 18.1 per cent of the company. The company has also agreed to pay a fee of $119.4 million in the event the deal doesn't go through.

Alberta-based Duvernay  has concentrated its activities to northwest Alberta and northeastern British Columbia and has 1,800 square kilometres (450,000 acres) of land holdings, producing 25,000 barrels of oil equivalent (boe) a day, consisting mostly of gas, and is developing so-called tight-gas projects in rock which Shell hopes could add to its portfolio of tight gas interests of 80,000 boed in the US.