Royal Dutch Shell
Royal Dutch Shell consists of the upstream businesses of Exploration & Production and Gas & Power and the downstream businesses of Oil Products, Chemicals and Oil Sands.
Exploration & Production
Our Exploration & Production business searches for and recovers oil and natural gas around the world and is active in more than 39 countries. The majority of these activities are carried out as joint venture partnerships.
Gas & Power
Our Gas & Power business liquefies and transports natural gas and develops natural gas markets and related infrastructure. It also markets and trades natural gas and electricity, and converts natural gas to liquids to provide clean fuels. A number of new opportunities are also emerging to apply our proprietary coal gasification process.
Oil Products
The Oil Products organisation comprises a number of different downstream businesses, which include Manufacturing, Supply and Distribution, Retail, Business to Business and Lubricants. Collectively these businesses refine, supply, trade and ship crude oil products around the world and market fuels and lubricants for domestic, industrial and transportation use. Read more about our products on your
Chemicals
Our Chemicals business produces petrochemicals for industrial customers. They include the raw materials for plastics, coatings and detergents used in the manufacture of textiles, medical supplies and computers.
Is tight gas behind Shell Canada’s $5.9bn offer for Duvernay Oil Corp.?
Right out of the blue on Monday, July 14, 2008, Calgary based Duvernay Oil Corp. (Duvernay) (DDV; www.duvernayoil.com) revealed that its board of directors had unanimously accepted an offer from Shell Canada Ltd. (Shell) worth around $5.9bn. Stockholders that were in from 2001, when Duvernay’s stock was first listed, should be pretty happy. Over the last 52 weeks Duvernay stock has gone from $23.91 to the close on Friday, July 11, 2008 at $58.44 and now in early trading on July 17, 2008 to $81.78. Shell’s offer values the company at $83 a share and is conditional on 66 per cent of the outstanding common share holders agreeing. Duvernay’s board and officers control around 18 per cent of the stock and have already agreed to tender their shares.
So, why has Shell stepped in for a company such as Duvernay?
Duvernay is one of many energy companies based in Alberta’s oil and gas mecca in Calgary. The company has a pretty low profile in the media but has been performing pretty well, growing nicely and announcing record quarterly production in May 2008, showing quarterly production up 15 per cent to 24,102 boepd (barrels of oil equivalent per day) and a quarterly cash flow of $15m. In terms of Alberta, Duvernay’s proved and probable reserves of 3.8 million barrels of oil and 663 million cubic feet of natural gas are nice but not remarkable for the area. Yet, look over the border into the neighboring province of BC and to the Alberta Deep Basin and you will see what Shell may be anxious to get a slice of. In addition to Alberta, Duvernay has holdings in Northeastern BC where EnCana Corp., EOG Resources Inc. and Nexen Inc. have hopes of extracting trillions of cubic feet of tight natural gas.
Tight gas, as defined by the Canadian Association of Petroleum Producers (CAPP), which gets its definition from the Centre for Energy, is, “Gas with very low flow rates. Found in sedimentary layers of rock that are cemented together so tight that it "greatly hinders" the extraction. Getting tight gas out usually requires enhanced technology like "hydraulic fracturing" where fluid is pumped into the ground to make it more permeable.”
Duvernay’s Deep Basin and Montney holdings have been reported as being capable of producing up to 200 million cubic feet of natural gas per day and could have reserves of a trillion cubic feet each or more; the company also has properties in Alberta’s Deep Basin. So, basically lots of natural gas, possibly three trillion cubic feet of it, which is going to be more expensive to extract but certainly is an ace in the hole for Shell for the future and a possible major strategic direction to take should problems arise in the oil sands. Every granny knows that you don’t put all your eggs in one basket.
Corporate wheels seem to have been turning at the giant resource company over the last couple of weeks. The Duvernay deal is Shell’s first major play in Canada for 2008, the last being 2007’s $8.7bn buyout of the minority shareholders of Shell Canada Ltd. On July 8, 2008, citing cost, Shell announced that it was canceling its plans for the Sarnia, Ontario refinery and on the same day revealed that it was considering processing oil sands crude in the U.S. rather than in Canada. What next?
While energy prices are high now there is some debate that the cost is now damaging the global economy and some sort of correction is on the way and may indeed be happening now. Nonetheless, over time, the tight gas deposits will become more viable and, particularly in BC, there is an attraction for energy companies to exploit resources when Alberta royalties are set to increase substantially in 2009.
More activity in tight gas is highly likely. Investors looking to get in on the action with Duvernay have pretty much missed the premium boat. However, with some digging there will be other resource companies that have holdings in the right place that may be a target for the major players as they strive to build a tight gas asset base.