Shell, PetroChina offer $3 bn for Australia's Arrow Energy

Royal Dutch Shell Plc and PetroChina Co made an offer worth more than A$3.3 billion ($3 billion) to acquire Arrow Energy, the holder of Australia’s biggest coal-seam gas acreage, triggering a record gain in the shares.

Arrow investors would get A$4.45 a share in cash, 28 per cent more than the March 5 close, plus stock in a new company made up of Arrow’s international business, Brisbane-based Arrow said today. Shell separately said Arrow’s overseas assets are excluded from the negotiations.

The offer values Arrow’s proven and probable reserves at less than half of what BG Group Plc paid for Queensland Gas Co in 2008, and a quarter of what Origin Energy received from selling a stake in a venture to ConocoPhillips, RBS Morgans analyst Nik Burns said. Shell and PetroChina would gain supplies to feed liquefied natural gas plants to meet Asia demand.

“The market is telling you they want more,” Robert Millner, chairman of Arrow shareholder New Hope Corp, said today. Queensland-based New Hope, which owns almost 17 per cent of Arrow, is “monitoring the situation to see how we’ll proceed.”

Arrow has agreed to acquire 100 per cent of the A$2.2 billion Fisherman’s Landing project in Queensland, one of more than a dozen proposed LNG ventures in Australia aiming to tap rising demand for the cleaner-burning fuel. An increase in reserves along with a decline in the shares before today’s announcement made Arrow a more attractive takeover candidate, Burns said.

Higher bid
Arrow surged 47 per cent in Sydney today, indicating investors may expect a higher offer.

“I wouldn’t be surprised if ultimately a higher bid would have to be put on the table to ensure the deal got over the line,” Burns said by phone from Melbourne today.

Arrow’s international business is worth about A$400 million, or 55 Australian cents a share, Burns said. That means Shell and PetroChina’s A$4.45-a-share offer for Arrow, excluding its international business, values the entire company at A$5 a share, he said.

Arrow’s board has recommended “shareholders take no action in relation to their Arrow shares,” the company said. The explorer has named Citigroup and UBS AG as financial advisers and Mallesons as legal advisors.

The offer comes from a company jointly owned by Shell and PetroChina, according to Arrow’s statement. PetroChina Chairman Jiang Jiemin today confirmed his company is joining the bid.

Takeover speculation Arrow had said in August last year talks with companies about its coal-seam gas assets included discussions of a possible takeover, but that it hadn’t received an offer. Speculation of an offer contributed to a 55 per cent rise in Arrow’s shares that time.

Shell, which has a 30 per cent stake in Arrow’s coal-seam gas holdings in Queensland and a 10 per cent interest in its international unit, made a A$3 billion offer for Arrow last year, with talks ending in stalemate, London’s Sunday Telegraph reported in August.

Shell plans an LNG project on Curtis Island off the central Queensland coast that is expected to produce as much as 16 million tonnes of LNG a year and have four processing units, the company said in a document lodged last year with the state government. Arrow has said that its added reserves may help feed Shell’s LNG venture.

Today’s offer values Arrow’s proven and probable reserves at 88 Australian cents a gigajoule, Burns at RBS Morgans said.