Shell PLC (LSE:SHEL, NYSE:SHEL) proposed acquisition of Canada’s ARC Resources buys the oil major something investors have increasingly looked for: resource life.
UBS, in a note, said the transaction struck at a US$13.6 billion equity value (and around US$16.4 billion enterprise value including assumed debt and leases) gives Shell access to low-cost resources outside the Middle East.
The Swiss bank is keeping a 'Neutral' rating and 3,850p price target, implying around 16% upside.
“Equity markets rarely support the acquirer,” UBS analysts said, pointing to the 25% premium Shell is paying to ARC’s last closing price as a likely reason for the shares’ initial underperformance. But the deal is not being framed as empire-building.
UBS analysts reckon it should be free cash flow per share accretive from 2027 as synergies come through, while also giving Shell additional resource depth in the Montney shale in western Canada.
ARC produces around 374,000 barrels of oil equivalent per day, about 40% of it liquids, with UBS’s US team forecasting production to rise to around 457,000 boe/d by 2029.
That supports Shell’s target of sustaining liquids production at around 1.4 million boe/d. UBS estimates the transaction values ARC at 5.3 times FY27 EV/EBITDA and an 8.3% equity free cash flow yield, improving to 4.9 times and 10.2% after synergies.
Shell has flagged more than US$250 million of annual synergies within a year of completion, largely from drilling and completion cost efficiencies.
ARC adds 1.26 billion barrels of oil equivalent of 1P reserves, extending Shell’s reserve life by around 0.2 years to roughly eight years on its calculations. It also increases Shell’s commercial resource base, measured as 2P plus 2C, by 33% to around 27 billion boe, UBS said.
Citi takes a similar strategic view, saying Shell’s move “fits with our long-held view that the company needs to look towards M&A to rebuild resource length in its core upstream business”.