Shell targets Arrow Energy

SYDNEY - Arrow Energy, the Australian coal-seam gas producer, says it has received an offer worth more than A$3.3 billion ($4.3 billion) from Royal Dutch Shell and PetroChina.

Arrow shareholders would receive A$4.45 a share in cash and stock in a new company comprising Arrow's international division, the Brisbane-based energy company said yesterday.

An offer of A$4.45 a share is worth about A$3.3 billion based on the company's 733 million shares.

The decline in Arrow's shares since August, with an increase in reserves and a move to acquire 100 per cent of the Fisherman's Landing project in Queensland, had made the company a more attractive takeover candidate, Nik Burns, an analyst at RBS Morgans in Melbourne, said.

Fisherman's Landing is one of more than 12 proposed liquefied natural gas (LNG) projects in Australia aiming to tap rising Asian demand for fuel that burns cleaner than coal and oil.

"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," he said.

The shares rose 47 per cent to close at A$5.11. It was the biggest gain since August 13, 2003.

Arrow's board has recommended "shareholders take no action in relation to their Arrow shares", the company said.

The Australian gas explorer said it has named Citigroup and UBS as financial advisers and Mallesons as legal advisers.

Speculation of a takeover offer contributed to a 55 per cent increase in Arrow's shares last year. 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.

Buying Arrow would give Shell gas to feed multiple LNG production units, the analyst Burns said.

The possibility of Arrow selling a stake in Fisherman's Landing might have added to Shell's reasons for seeking a bid, he said.

Arrow said last month it was considering selling a stake and taking on debt or offering shares to help finance the A$2.2 billion Fisherman's Landing project in Queensland state.

Queensland's government is expecting A$50 billion of investment in the state's coal-seam gas resources as companies, including Britain-based BG Group and ConocoPhillips, vie to export the fuel to Asia.

- BLOOMBERG