ISSUES....
Inside,
confidential, off the record
Shell
and Athabasca
Our friend Dennis Gartman wrote on Monday, on its vision on Shell
move on Shell's Canada.
One
interesting bit of market information has caught our eye this
morning: Royal Dutch Shell Plc has offered to buy the remaining
22% of it Shell Canada Ltd. that it does not own for C$7.7 billion,
and it says it is doing so in order to have full control of the
oil sands facilities that Shell Canada has. Royal Dutch is paying
a 22% premium over the closing price of Shell Canada on Friday
to accomplish this task. Royal Dutch has said that this is in
keeping with its process of "simplifying" its corporate
structure, and that is of course reasonable and unassailable.
It does do that; but it further enhances the validity of the oil
sands region in Canada, and it makes budgeting for the oil sands
more reasonable and centrally located. The problem in Athabasca
is that as the region has become more and more globally understood,
and as the oil companies from around the world rush there, costs
are spiralling higher. Shell Canada has already said that its
budgets there have risen more than 80%... and that was a year
ago. They've risen even farther and faster since. This then is
the problem with Athabasca; it is THE source of energy for the
Americas in the coming decades, but its costs are rising even
faster than are crude oil prices. At first blush, the decision
by Royal Dutch to buy the remainder of Shell Canada might put
a bit into Suncor and other Athabasca related stocks, but at second
blush, perhaps not: At second blush, perhaps the recent move on
the part of SU from just under $65/share earlier this month to
very near to $78 early Friday might be about all it can do for
a while. At second blush, it is one thing for Royal Dutch to buy
its remaining position in Shell Canada because it wants to "bet"
large on Athabasca, but it is another thing entirely when it finalises
the deal because of accounting simplification reasons.
For more on interesting comments, you can
subscribe to The Gartman Letter by contacting Dennis Garthman:
Phone 757 238 9346, Fax 757 238 9346 or dennis@thegartmanletter.com
ISSUES....
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