Royal Dutch
Shell Plcand
PetroChina Co.
made an offer worth more than A$3.3
billion ($3 billion) to acquireArrow Energy Ltd., 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 percent 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 said separately that 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
Ltd. received from selling a stake in a venture to ConocoPhillips, RBS Morgans
analystNik Burnssaid. 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 by phone today. Queensland-based
New Hope
, which owns almost 17 percent ofArrow,
is “monitoring the situation to see how we’ll proceed.”
Arrowhas
agreed to acquire 100 percent 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 percent 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 advisers.
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 said
Aug. 13 that 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 percent rise in Arrow’s shares last year.
Shell,
which has a 30 percent stake in Arrow’s coal-seam gas holdings in Queensland
and a 10 percent 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 metric tons 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.
BG Group
Today’s
offer values Arrow’s proven and probable reserves at 88 Australian cents a
gigajoule, Burns at RBS Morgans said. BG Group’s Queensland Gas acquisition was
valued at about A$2.00 a gigajoule, while Origin’s sale of a stake in its
Gladstone project to ConocoPhillips was worth about A$4 a gigajoule, said
Burns, who predicted Feb. 12 that Shell may bid for Arrow.
Buying
Arrow would giveShellgas to feed multiple LNG production units,
Burns said. The possibility of Arrow selling a stake in Fisherman’s Landing may
have added to Shell’s reasons for seeking a bid, he said.
Arrow said
last month it’s considering selling a stake and taking on debt or offering
shares to help finance the Fisherman’s Landing project.
“Arrow
needs to raise significantfunds, and that may require an equity
sell-down, potentially introducing a third party that Shell may not have
liked,” Burns said.
Arrow’s
international unit is drilling in
India
,
China
,
Indonesia
and
Vietnam
, and Arrow aims to boost gas
production tenfold by 2015. It may offer as much as 20 percent of that division
in a share sale in the second half of 2010, Arrow said Feb. 17.
Queensland
’s government is expecting as much as A$50
billion of investment in the state’s coal-seam gas resources as companies
including U.K.-based BG Group and ConocoPhillips vie to export the fuel to
Asia
.