Shell snaps up Canadian energy firm ARC for $16.4bn in bid to boost production
Shell is to buy Canadian shale producer ARC Resouces in a $16.4bn deal that the oil major says will boost its production and deliver “value for decades”.
The London-listed oil major, which has been under pressure from shareholders to increase output and revive its ageing reserves base, will pay for the deal using 25 per cent cash and 75 per cent shares at a 20 per cent premium to its 30-day average before the deal was announced.
The megadeal is the latest evidence of an industry-wide push from petrochemicals giants to return to their core oil and gas functions, after a years-long embrace of renewable energy. Shell has promised to ramp up gas production by between four and five per cent by 2030 and increase its total oil and gas output by one per cent in an effort to bolster shareholder returns after several years of underperformance.
Shell said the deal would help support its aim to produce 1.4m barrels of oil per day by the end of the decade, combining ARC’s 1.5m net acres of gas fields with Shell’s 440,000 in the Montney region in Canada.
Shell deal ‘unanimously supported’ by both boards
“This establishes Canada as a heartland for Shell while furthering our strategy to deliver more value with less emissions,” Wael Sawan, Shell’s chief executive, said in a statement, adding that the deal compliments its “existing footprint in Canada and strengthens our resource base for decades to come”.
The boards of both companies “unanimously supported the transaction”, which is expected to close before the end of the year subject to the approval of ARC shareholders and regulators.
The tie-up is the first major transaction under Sawan’s stewardship, and is Shell’s largest in more than a decade. It also marks a new chapter in Sawan’s turnaround plan, which had initially focused heavily on cost reduction and shoring up the oil major’s balance sheet. He has also overseen the sale of several underperforming assets, including its lubricant shop chain Jiffy Lube and the abandonment of several wind and hydrogen projects.
“ARC is combining with a company that has a global portfolio of best-in-class assets,” said ARC president and chief executive, Terry Anderson.
“I’m excited that ARC’s assets and world class people will play an important role in helping Shell to further strengthen Canada’s resource landscape whilst also providing the secure energy that the world needs.”
Shell said the deal would generate double digit returns for the oil major, adding 370,000 barrels of oil per day of production.
Shell’s share price closed two per cent lower on Monday, while ARC’s rose by more than 20 per cent after the deal was announced.
“Shell buying ARC puts to bed any hopes it will also buy BP any time soon,” AJ Bell’s Danni Hewsom said. “Shell was rumoured to be interested in BP last year, but nothing came of it. Shell will now be busy getting ARC over the line and then bedding in the acquisition to be thinking about taking on another multi-billion-pound deal.”
The FTSE 100 oil major’s shares have been carried considerably higher this year thanks to its turnaround plan bearing fruit and the war in Iran, with the firm on course to book bumper profit thanks to the conflict’s effect on and gas prices.
Its stock is worth 16 per cent more than at the beginning of February, when Donald Trump started sending warships to the Gulf ahead of launching a series of air strikes.