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Investors question Shell's price for BlackRock Add to ...

Investors questioned Monday whether Shell Canada Ltd. is paying too much with its $2.4-billion offer for upstart oil sands producer BlackRock Ventures Inc. — the most aggressive move yet for assets in the booming crude region of northern Alberta.

Financial analysts said the company is paying a record amount for oil sands reserves, a valuation that is more than triple the price Total SA of France paid last year for the assets of Deer Creek Energy Ltd., another oil sands upstart.

The deal also drew attention because it is Shell Canada's first corporate takeover in nearly three decades.

Clive Mather, president and chief executive officer of Shell Canada, defended the deal but wouldn't say whether it still made sense if the price of oil was $40 (U.S.) a barrel. Oil traded just under $70 Monday.

“[BlackRock]is not just about current production but it's about what we can foresee in the future,” Mr. Mather said in an interview, adding that “at a wide range of prices, this stacks up from our point of view.”

Royal Dutch Shell PLC owns 78 per cent of Shell Canada and both companies have made the oil sands a key part of their plans for future growth.

These decisions have been made because opportunities for conventional oil developments are hard to find in Canada, and, elsewhere, are generally located in unstable countries.

Even in the oil sands, there aren't many options because most of the assets are already in the hands of large companies.

“This is the kind of transaction they get backed into,” said Fred Pynn, president of Bissett Investment Management, a Shell Canada shareholder. “But it appears to make sense ... The price is obviously full.”

Glenn MacNeill, a money manager at Sentry Select Capital Corp., a Shell shareholder, described the price in a Bloomberg News report as “awfully high.”

Stock of Shell fell $98 cents (Canadian) or 2.4 per cent to $40.02 on the Toronto Stock Exchange.

BlackRock stock surged, closing up $4.98 to $23.86. Shell is offering $24 a share in cash, 27 per cent more than BlackRock's $18.88 close on Friday and about 70 per cent higher than the $14 level the stock was at just one month ago.

The shares soared 22 per cent last week, riding takeover speculation — with Shell Canada named as the likely buyer. The stock was halted six minutes before the close on Friday, pending news, which was issued Monday by Shell before the market opened.

Market Regulation Services Inc. said it wasn't until late Friday that BlackRock said it had material information and the regulator added that it looks at all cases of unusual trading ahead of a major announcement but couldn't say much about the BlackRock case.

“It would be premature to even speculate if there was insider trading or people just trading on speculation,” said Mike Prior, manager of market supervision at Regulation Services.

Shell Canada is already a major oil sands producer, with 77,400 barrels of bitumen a day in the first quarter as owner of 60 per cent of the Athabasca Oil Sands Project. It has also said it wants to produce 100,000 barrels a day of bitumen from the Peace River region in northwestern Alberta and far from the Fort McMurray area, the epicentre of the oil sands and home to the Athabasca project.

It is in Peace River that Shell Canada found its complement in BlackRock, which produces 10,370 b/d at a project called Seal in the area, next door to the Shell operation that has produced about 10,000 b/d for many years.

“BlackRock has been one of our prime targets for a while,” Mr. Mather said. “We've fitted our long-term strategy to the oil sands.”

Mr. Mather said Shell will re-evaluate its plan in Peace River if it closes the BlackRock deal, with an eye to expanding the project. Shell will also consider several options of how to upgrade the low-quality crude, including facilities it owns in Alberta or possibly at refining assets it holds in Eastern Canada.

BlackRock produced a total of 13,310 b/d in the first quarter and has said it could reach 40,000 by 2009, bolstered by increases at Seal and at another oil sands project called Orion south of Fort McMurray. The 10-year-old company — which has 22 employees — said it didn't have the money or operations to develop its assets “in a timely manner.”

The key figure behind BlackRock is Seymour Schulich, who made his money in gold mining and is one of Canada's richest businessmen. He is a BlackRock director and owns more than 14 million shares — about 14 per cent of the company. More than half his stake was purchased before 2000, when BlackRock traded at roughly $1 a share. Mr. Schulich is selling for about $340-million, a position that was amassed for roughly $50-million.

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