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Howard's End: What Is Shell Oil Really Up To?

What's going on? Shell Oil appears to be on a global buying spree for oil and natural gas resources following its successful bid for New Zealand's Fletcher Challenge. Shell has now made a hostile US$1.8 billion bid for the US company Barrett Resources and a further AUD$ 10 billion bid for Australia's Woodside Petroleum. John Howard writes.

In making its successful bid for Fletcher Challenge shares Shell chairman, Ed Johnson, said " Shell's offer is not only the best for shareholders and Fletcher Challenge employees, but also for New Zealand."

But Shell Oil has also made an unsolicited bid US$1.8 billion bid for Barrett Resources, a natural gas and oil exploration firm based in Denver. Shell has offered $55 apiece for outstanding shares, a 21 percent premium over the stocks closing price of $45.62 on Tuesday. Barrett's shares rose 34 percent on Wednesday to close at $61.11.

Shell's offer to Fletcher Challenge shareholders was US$ 3.55.

Barrett was invited to accept Shell's offer or negotiate different terms. Barrett directors were told by letter that Shell would pursue the deal even if Barrett's board voted against it.

"While we would prefer to negotiate and announce a definitive agreement between our companies in the very near term, we are prepared to go forward unilaterally by taking our proposal directly to your shareholders," the Shell letter said.

Fadel Gheit an analyst who follows Shell says, "This is like asking a girl out and saying if she doesn't show up at 6 o'clock you're going to break her arm. Obviously they made a lowball offer, they have plenty of cash burning a hole in their pocket."

Meanwhile in Australia, Shell has also made a hostile AUD$ 10 billion bid for Australia's largest independent oil and gas company, Woodside Petroleum,which puts Treasurer Costello in a classic no-win situation.

Government backbenchers, with another crucial by-election set for March 17, have already gone ballistic in opposing the Shell bid.

Foreign aquisitions of iconic Australian companies and resources do not sit well with their electorates, the difference being that their politicians have the guts to speak out.

The Australian Treasurer can block a foreign takeover if it is deemed to be contrary to the national interest. Most Australians see retaining control over oil and natural gas resources, which they see as strategic assets, is something which is not negotiable.

Moreover, Australia's interests and those of Shell may not coincide, particularly in relation to marketing in Asia.

Shell seems to be buying up oil and natural gas assets around the world because prices are likely to spike again later this year as producers cut back on production.

I recall a major overseas investor once telling me that he came to New Zealand to invest because the people were so docile. From the Fletcher Challenge shareholder acceptance of Shell's offer and the lack of noise from our politicians, it seems nothing has changed.

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