Shell buys Canada's ARC for $16.4 billion in a deal that boosts output

?Shell agreed to purchase Canadian 'energy company ARC Resources, in a deal worth?at least $16.4 bn, including debt. The British oil and gas giant said that the deal would increase its production by 370,000 barrels equivalent per day. Shell and analysts had predicted that Shell would need to acquire or make an exploration breakthrough in order to compensate for a production deficit of between 350,000 and 800,000 barrels of oil equivalent per day by the middle next decade.

Shell owns a 40% stake in the LNG Canada plant. Its liquefied gas can reach Asian customers faster than other North American LNG.

ARC said that it would produce a record number of boed in 2025. This will be made up of 59% natural gases and 41% crude oils?and liquids.

Shell's oil production is expected to reach 2.8 million boed by the end of 2025.

20% PREMIUM ?TO ARC SHARES OVER LAST MONTH

Shell, a London-listed company, said it would pay ARC shareholders C$8.20 cash and 0.40247 Shell Shares for each share. This is around 25% cash plus 75% Shell Shares at a premium of 20% over ARC's 30-day average share price.

Shell will assume approximately $2.8 billion of net debt and leases, resulting in a value for the enterprise of $16.4 billion. Shell stated that the equity value of $13.6billion will be funded by $3.4billion in cash and $10,2billion in Shell shares.

Shell will receive 2 billion barrels in reserves, and the deal would boost free cash flow and generate double-digit returns from 2027. This is without affecting Shell's investment budget between $20 billion and $22 billion through 2028.

SHELL INCREASES THE OUTPUT TAG

Shell's "reserve life" - the amount of time its proven reserves could sustain current production levels - was less than eight years as of 2025. This was down from nine years a year before, and its lowest level since 2021.

Shell can now increase its annual compound growth rate for the next decade from 1% up to 4% in comparison to 2025. Shell plans to maintain its liquids production at 1.4 million barrels a day until 2030.

Shell shares were down 0.1% at 1243 GMT compared to a wider index of European energy firms trading up 0.4%.

This deal pales in comparison to the $55 billion acquisition of Hess by U.S. giant Chevron, which is expected to close in 2025. Reporting by Shadia Nazarala, Stephanie Kelly, and Raechel Thankam in Bengaluru. Editing by Vijay Kishore & Alexander Smith

(source: Reuters)