Royal Dutch Shell moved further into the exploitation of unconventional oil reserves yesterday after agreeing to pay C$2.4bn (£1.2bn) for a Canadian oil sands company.
The acquisition of BlackRock Ventures will strengthen Shell's presence in the Alberta region of Canada where it already produces 84,000 barrels a day from oil sands and has an estimated 865 million barrels of reserves.
The deal will add 12,000 to 14,000 barrels a day to Shell Canada's production and provide it with an additional 209 million barrels of probable and proven resources. BlackRock's Peace River and Cold Lake fields in the Canadian state of Alberta are estimated to contain a total of 1 billion barrels of oil. Shell's fields in the Athabasca and Peace River regions contain an estimated 17 billion barrels.
Last week Shell tore up its target of replacing all the oil it produces with new reserves because it said much of its exploration effort in future would be concentrated on exploiting unconventional oil which often cannot be classified as proven reserves under the US Securities and Exchange Commission's strict definition. Oil is extracted from oil sand fields by injecting steam to separate the bitumen and sand or mining the rock and then melting off the oil.
Shell Canada, which is 75 per cent owned by Royal Dutch Shell, has agreed to pay C$24 a share for BlackRock, a 27 per cent premium to last week's closing price. BlackRock is liable to pay a C$65m penalty if it withdraws from the deal.
BlackRock was founded only 10 years ago and has just 22 employees. The Shell deal will net a C$334m fortune for one of the company's founders, Seymour Schulich, who owns a little less than 14 per cent of the business. A group of shareholders including all the directors of BlackRock who between them hold 21 per cent of the company, have entered a "lock-up" agreement to sell to Shell.
The BlackRock deal came as fresh uncertainty surrounded another large gas find in which Shell has a 25 per cent interest - the Gorgon field off the coast of Western Australia. Shell's partner in the project, Exxon Mobil, which also has a 25 per cent holding, said the go-ahead for the field was not now likely to take place until next year. Originally, the plan had been to give final investment approval early this year enabling the field to come on stream in 2010.
Ironically, Gorgon was one of the fields which Shell was forced to unbook after the reserves reporting scandal of 2004 which cost the jobs of its top three executives. Shell had booked 500 million barrels of "proved" reserves from the field even though none of its other partners had booked their reserves.