CALGARY (CP) -- The C$8.7-billion privatization of Shell Canada [TSX:SHC] planned by parent company Royal Dutch Shell PLC [NYSE:RDS-B] could signal a change in bitumen flow out of Alberta, but not a change in business strategy for the oil sands giant, analysts said Monday.
Major shifts in company assets and policies are probably unlikely as the Dutch-based energy giant already has had a controlling interest in Shell Canada for years, said analyst Tom Ebbern, with Tristone Capital Inc. said.
Ebbern was reacting to Royal Dutch Shell's announcement early Saturday that the European giant had acquired enough shares under its going-private bid to give the parent just under 90% of its Calgary-based Canadian unit.
''Royal Dutch has owned 78% of Shell Canada and controlled the board for years and years,'' Ebbern said. ''It's not likely to see a change in business plan just because they buy out the minority.''
Royal Dutch had already included Shell Canada's reserve numbers in its books, so there would be no increase in the global company's reserves, he said.
Where the benefit of fully owning the company comes in would be privatizing it and accessing its cash flow, although in short term Shell Canada will need that cash itself to invest the billions of dollars needed to expand its oil sands business.
''At some point in time, Shell will be a massive cash flow generator, of free cash flow in the billions,'' Ebbern said. ''Royal Dutch can't utilise that cash flow across other divisions if they don't own it entirely.''
Shell Canada, which left the conventional oil business in Canada years ago, has also been one of the pioneers in Canada's offshore energy exploration and helped develop the Sable Island natural gas project off the coast of Nova Scotia.
However, its future lies in the Northern Alberta oil sands, where the Calgary company operates and owns 60% of the Athabasca oil sands development. That project began operations in 2003 and is designed to produce 155,000 barrels of tar-like bitumen a day.
The company, and its Athabasca partners, Western Oil Sands [TSX:WTO] and Chevron [NYSE:CVX] Canada, are spending an estimated C$12 billion to boost production by another 100,000 barrels on the way to ultimately generating 700,000 barrels a day from the oil sands.
The next logical move for Royal Dutch would be an offer to acquire Western Oil Sands, analysts said. Shares of Western, which owns 20% of the Athabascal oil sands project, have been valued at between C$38 and C$40, based on the C$45 per share bid for Shell Canada.
Since the early Saturday announcement, Western's shares gained C$2.15 per share to close at C$34.30 Monday, giving the oil sands company a stock value of more than C$5.5 billion.
Royal Dutch spokeswoman Alexandra Wright would not comment on the company's plans to expand its presence in the oil sands beyond the Athabasca project and its C$465-million acquisition last year in a relatively unexplored portion of the oil sands.
Royal Dutch has significant office presence in the largest oil centres in Canada and the United States, Calgary and Houston, Wright said from London, England.
''We do not envision this transaction will change our current footprint,'' she said. ''However, we will seek the most effective way of working between the Calgary and Houston) locations.''
One significant change Royal Dutch's takeover could effect is on the flow of bitumen out of the oil sands, a Calgary analyst said.
The European oil major would see about a 20% decrease in capital costs by using existing facilities in the United States, rather than going forward with a suggested new refinery in Sarnia, Ontario, according to the analyst.
''The benefit that Royal Dutch has is it can send the bitumen wherever it makes the most sense to upgrade,'' the analyst said. ''So, instead of doing it in Alberta, they could ship it to the Gulf Coast and upgrade it at existing U.S. refineries, which is a lot cheaper to do.''
The increased refinery capacity would only be required by the second expansion of the Athabasca oil sands project, expected to come on stream around 2013. By then, additional infrastructure such as pipelines to transport the bitumen could be in place
After earlier bids of C$40 per share failed to capture Shell Canada minority shareholders' fancy, Royal Dutch said another 97 million shares were tendered to its CC$45 offer, increasing its ownership to just under 90%.
Royal Dutch's offer expired at 8 p.m EST Friday night, but the company extended the bid until the same time March 30 for stockholders who have not sold their shares.
If successful, Royal Dutch could complete the acquisition by the second quarter of 2007. And it would be able to serve a compulsory acquisition notice for the acquisition of the outstanding shares.
If the minority shareholders continue to hold out, the longer process would be to hold a meeting of Shell Canada shareholders to effect a subsequent acquisition transaction.
''Given the number of shares that we've already secured, we are certain of a vote at that meeting in favour of the transaction,'' Wright said.
© The Canadian Press 2007
