Shell has agreed to buy a Canadian rival in its biggest deal for more than a decade as it bolsters its oil and gas reserves.

The British energy giant is buying Arc Resources in a takeover worth £12billion as it ramps up investment in fossil fuels.

The acquisition is Shell’s biggest since the £50billion takeover of BG Group in 2015 and significantly strengthens its presence in North America.

It comes as Canadian prime minister Mark Carney adopts a more pragmatic approach to fossil fuels than his predecessor Justin Trudeau – and the UK government.

Shell has large stakes in both the Jackdaw gas field and Rosebank oil project in the British North Sea – but Energy Secretary Ed Miliband has so far refused to grant drilling licences for the sites.

Announcing the Arc deal yesterday, Shell chief executive Wael Sawan said: ‘This establishes Canada as a heartland for Shell.’

Both companies have significant operations in the Montney shale basin in Alberta and British Columbia in western Canada, with Shell now set to add Arc’s 1.5m acres of land to its own 440,000. 

The deal will boost Shell’s output of 2.8m barrels of oil equivalent per day by 370,000 barrels and add 2bn barrels to its reserves.

Sawan said the deal ‘complements our existing footprint in Canada and strengthens our resource base for decades to come’. Shell shares slid 1.7 per cent despite a rise in the oil price.

Danni Hewson, head of financial analysis at broker AJ Bell, said: ‘Laying out huge sums of cash never goes down well with investors, even if it will help future-proof Shell’s oil and gas output for years to come and further diversifies its interests away from the Middle East. 

So, it’s understandable that Shell’s shares have come under pressure.

‘Shell buying Arc puts to bed any hopes it will also buy BP any time soon. Shell was rumoured to be interested in BP last year, but nothing came of it. 

Shell will now be busy getting Arc over the line and then bedding in the acquisition to be thinking about taking on another multi-billion-pound deal.’

Shell has been carrying out a new growth strategy centred on extracting more oil and gas, moving from a focus on green energy and reducing spending on renewables.

It hopes the shift will support production targets and drive greater returns for investors.

The announcement comes a few weeks after Shell said it had cut its gas production outlook for the first quarter of this year after being affected by the conflict in the Middle East.

The deal is expected to complete in the second half of 2026, subject to shareholder, court and regulatory approvals.