Jan. 23 (Bloomberg) -- Royal Dutch Shell Plc, Europe's biggest oil company, raised an offer to buy out its Canadian unit by 13 percent to C$8.7 billion ($7.4 billion) to gain increased production from oil sands.

Shell, which owns 78 percent of Shell Canada Ltd., increased its bid for the remaining stake to C$45 a share from a C$40 offer in October, according to a statement today from The Hague-based company. Shell Canada, in a separate statement, said its directors support the increased offer.

Canada's oil sands may contain 175 billion recoverable barrels, second only to reserves in Saudi Arabia. Shell agreed last month to give up half its stake in Russia's Sakhalin-2 venture to state-run OAO Gazprom, dealing a blow to Chief Executive Officer Jeroen van der Veer's efforts to find new deposits after a 2004 scandal in which the company admitted to overstating proven reserves.

The new offer is ``disappointing,'' said Jarislowsky Fraser Ltd. President Len Racioppo, whose fund manages 29.5 million Shell Canada shares. ``We won't be tendering at this price.''

Shell A shares in London rose 11 pence to 1,729 pence as in London. Shell Canada stock gained 34 cents to C$45.25 on the Toronto Stock Exchange, rising the above the new offer.

Offer Speculation

Racioppo said last week that an offer should be made ``in the C$50s.'' The Globe and Mail newspaper reported last week that Shell might raise its Oct. 23 bid for the remainder of Shell Canada to C$46 to C$48 a share.

``Maybe there are more discussions that can take place before ourselves or others can ascertain exactly what they will do with the bid,'' said Garey Aitken, who helps manage C$19 billion at Bisset Investment Management in Calgary including ``several'' million Shell Canada shares. It's ``disappointing'' Shell Canada has endorsed the new offer, he said.

Oil companies such as Shell are struggling to gain access to new deposits as Russia and Venezuela reassert control over their energy resources and the Middle East remains mostly off-limits.

Shell Canada's oil-sands project is in the Athabasca region in northeastern Alberta, where oil-laden earth is strip mined and then processed with heat and solvents to extract the tar-like crude. The project has the capacity to produce 155,000 barrels a day, and a 100,000 barrel-a-day expansion is planned.

Labor and equipment costs for oil-sands projects are surging as companies vie to expand and take advantage of higher oil prices. The expansion of the Athabasca project may cost as much C$12.8 billion, Shell Canada said in July, up from an estimate of C$7.3 billion in August 2005 and an original estimate of C$4 billion.

Benefits

The Canadian business would benefit from simplified organization, financing and technology capabilities once it's integrated into the group, Shell said in October.

Shell, which has also committed to investing up to $18 billion to build the world's largest plant to convert natural gas into diesel fuel and base oils in Qatar, reports fourth-quarter earnings on Feb. 1.

Shell Canada is the country's fourth-largest oil company by 2005 sales behind Imperial Oil Ltd., 70 percent owned by Exxon Mobil Corp., EnCana Corp. and Petro-Canada.

The increased offer is conditional on acceptance by holders of more than 50 percent of the outstanding shares in Shell Canada not yet owned by Shell, today's statement said.

To contact the reporter on this story: Stephen Voss in London at sev@bloomberg.net; Sonja Franklin in Calgary at sfranklin6@bloomberg.net

Last Updated: January 23, 2007 16:15 EST