Shell buys Duvernay Oil Corp.

Duvernay Oil Corp. has agreed to be taken over by Shell Canada Ltd. The deal is worth $5.9 billion including assumed debt. Duvernay has significant land holdings in the Montney natural gas play north of Fort St. John – a region that has drawn a great deal of attention from major Canadian and U.S. energy companies.

Shell, one of Canada’s biggest natural gas producers, has already teamed up with EnCana Corp. (TSX:ECA) to develop the emerging Haynesville shale play in Louisiana and Texas, so the Duvernay takeover will serve to deepen its unconventional gas business.

In May of this year, the B.C.Government announced it had made a record $441 million in land sales, with a large parcel next to Duvernay’s Montney position garnering the biggest price.

While the buyer of that land was not revealed at the time, there had been a lot of speculation that it was Shell, said BMO Capital Markets analyst Mark Leggett. "The market’s love for the Montney Northeast B.C. natural gas play is so strong that the possibility of Duvernay becoming a target was speculated upon by investors," Leggett said, adding that the takeover price was in line with his expectations. The Duvernay takeover is likely a harbinger of more consolidation in the Montney play, Leggett said.

The Boards of Duvernay and Shell have unanimously endorsed the deal, which requires approval from shareholders and regulators.

Duvernay was founded in 2001 and has 1,800 square kilometres of land holdings in the sedimentary basin in Western Canada. It produces 20,000 barrels of oil equivalent per day and is aiming to increase output to 70,000 boe/d by 2012.