Shell Canada Ltd. is offering $2.4-billion for upstart oil sands producer BlackRock Ventures Inc., making an aggressive bid to expand its holdings of heavy crude assets in northern Alberta.
"BlackRock has been one of our prime targets for a while," Clive Mather, Shell Canada president and chief executive officer, said in an interview this morning.
"It is for us a very significant prize."
Shell offered BlackRock $24 a share, which is 27 per cent more than BlackRock's $18.88 close on Friday. Shares of BlackRock, which were trading at $14 less than a month ago, took off in recent weeks on takeover speculation — with Shell being the widely-suspected buyer.
BlackRock shares rose $4.98 or 26.38 per cent to $23.86 on the Toronto Stock Exchange this morning.
Shares of Shell fell 98 cents or 2.39 per cent to $40.02 as some investors and analysts wondered about the deal's price tag.
UBS Securities Canada Inc. said in a report this morning that Shell "pays up for possible reserves."
Shell is spending about $180,000 for each barrel of BlackRock's current production, which was 13,310 barrels a day in the first quarter. That figure is more than double the going rate for energy assets this year..
BlackRock has said its production could reach 40,000 b/d by 2009 as two oil sands projects reach their potential.
Mr. Mather said Shell paid a fair price for a quality asset and added BlackRock's potential was a key part of the deal. He also said the deal makes sense at a wide range of prices but wouldn't say whether it would be profitable if oil was at $40 (U.S.) a barrel. Oil traded at about $68.50 today.
Companies such as Shell are chasing so-called unconventional assets such as the oil sands because they are having problems keeping their replacing their reserves from traditional sources. Royal Dutch Shell PLC owns about 78 per cent of Shell Canada and Royal Dutch in February spent $465-million (Canadian) to buy its own oil sands leases.
For Shell Canada, BlackRock is an especially good fit in the Peace River area of northwestern Alberta, far from the oil sands epicentre around Fort McMurray in the northeast of the province. The Peach River oil sands are barely developed and Shell has about 10,000 b/d of production there, with stated plans to eventually reach 100,000 b/d. The project is called Carmon Creek and a regulatory application is expected to be filed later this year.
BlackRock has a project called Seal, adjacent to Shell's operation, and Seal produced 10,370 b/d in the first quarter. Mr. Mather said Shell would reevaluate its development plans in the region, suggesting a larger than expected project, if it closes the BlackRock deal.
BlackRock has a second oil sands project called Orion under development south of Fort McMurray, which could produce 20,000 b/d.
Shell Canada is already a major oil sands player, as it owns 60 per cent of the Athabasca Oil Sands Project. It shares of production in the first quarter was 77,400 b/d.