2nd UPDATE: Arrow Energy Recommends A$3.44 Billion Shell, PetroChina Offer
22 March 2010 - 2:06PM
Dow Jones News
Arrow Energy Ltd. (AOE.AU) said Monday that it has agreed to
sell the bulk of its Australian coal seam gas assets to Royal Dutch
Shell PLC (RDSB) and PetroChina Co. (PTR) for A$3.44 billion.
The transaction, which still needs shareholder and regulatory
approval, is set to add to a flurry of deal activity in the world's
unconventional gas resources and is further evidence that China
remains hungry for offshore natural resources to feed its
powerhouse economy.
Pressure for big oil to invest in unconventional fuels is being
driven by much of the world's remaining oil and gas reserves being
owned by states, often in politically unstable environments that
are hostile to foreign investment. And gas is gaining favor as a
cleaner alternative to coal that's cheaper to produce than
renewable energy sources like wind power.
The deal to buy Brisbane-based Arrow also shows that big oil
companies like Shell are banking on continued strong demand for
energy from Asia.
Shell and PetroChina, which have bid for the assets in an equal
joint venture, said in a joint press release Monday that they
intend to sanction a big liquefied natural gas export project in
Queensland state using Arrow's gas as feed stock by 2012. Shell has
said previously it would like to ship LNG from Queensland by 2014
or 2015.
Doubts about unconventional gas's significance as a future
contributor to the world's energy needs were put to bed in December
when Exxon Mobil Corp. (XOM) agreed to sink US$31 billion into
U.S.-based shale gas producer XTO Energy.
In Queensland, over A$20 billion has been spent on coal seam gas
acreage by companies including Shell, ConocoPhillips and BG Group
that have various LNG projects in the works at the port town of
Gladstone.
Arrow, meanwhile, said Monday that it will keep its
international operations, which include coal seam gas acreage in
China, Indonesia, Vietnam and India, and its holdings in small
Australian companies Apollo Gas Ltd. (AZO.AU), Bow Energy Ltd.
(BOW.AU) and Liquefied Natural Gas Ltd. (LNG.AU). These assets will
be listed separately on the Australian stock exchange through a new
entity called Dart Energy Ltd., it said.
Shell and PetroChina's offer of A$4.70 cash per Arrow share is
25 cents higher than a previous bid put to Arrow's board that was
made public two weeks ago.
Although the new offer is significantly higher, it's below some
analysts' expectations and could disappoint investors, who will no
doubt be keen to get a better idea of the value of Arrow's
international business before approving the deal.
"We are reasonably confident that people will support this,"
Arrow Chief Executive Nick Davies told reporters on a conference
call. He said Arrow will keep confidential an internal valuation it
has on its international assets and would only say that analysts'
average estimate is about 55 cents a share.
Arrow shareholders are set to vote on the deal in "mid-July",
Arrow said.
New Hope Corp. (NHC.AU) Chairman Robert Millner said the company
plans to make a statement on its plans for its 16.8% interest in
Arrow Tuesday. Arrow directors and executives hold about 3.2% of
Arrow. The involvement of China in the bid may invite extra
scrutiny from Australian regulators amid ongoing public concern
about state-backed entities taking large stakes in Australia's
natural resources.
Arrow's announcement comes on the same day that four executives
from Anglo-Australian miner Rio Tinto Ltd. (RTP) are set to go on
trial in China on allegations of bribery and stealing commercial
secrets.
Davies said Shell and PetroChina have already held initial
discussions with Australia's Foreign Investment Review Board. "We
have a reasonable confidence that things will go ahead there,"
Davies said. "It's a good deal in terms of having the world's
leading LNG company and one of the world's top LNG buyers to help
develop Queensland resources."
No rival takeover proposals have been put to Arrow, Davies
said.
-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692;
ross.kelly@dowjones.com
(Alex Wilson in Melbourne contributed to this article)
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