Shell on target with Arrow
The Age
Tuesday March 9, 2010
ROYAL Dutch Shell and PetroChina's $3.3 billion bid for Arrow Energy is unlikely to be blocked on foreign investment grounds or trumped by a superior offer, analysts have said, as the Australian coal seam gas hopeful considers the indicative offer.In a play to shore up gas reserves for its Queensland coal seam gas project on Curtis Island, Shell has moved on its 30 per cent owned upstream gas partner, Arrow, before it could launch its proposed capital raising and advance its own Fishermans Landing project.Another factor behind Shell's bid was news that Arrow's largest shareholder, New Hope Coal, was keen to sell its 17 per cent stake in the company.Under the proposal, Shell and PetroChina will offer $4.45 a share plus a share in a new entity that would include Arrow's international business, which comprises coal seam gas acreage in countries such as China and India, but which has not been included in the offer.Arrow shares soared $1.63, or almost 47 per cent, to $5.11, meaning the market is valuing the international business as high as 66 a share.Most analysts are pricing in a value of about 55 for Arrow International, or about $400 million. That figure is much less than the $750 million to $1 billion Arrow claimed the business was worth when it flagged a float of the international operations last month.Arrow would need to stump up $2 billion to finance its two-train, 1.5 million tonne-a-year Fishermans Landing project if it rejects the offer.Sources close to the bid said meetings between the two camps had been held in Brisbane at the weekend following the offer, which was put late on Friday night."The dialogue has been constructive at this stage and we are now in the process of negotiation," the source said.Consolidation in the Queensland coal seam gas space has long been expected. Combining Shell's proposed 16 million tonne-a-year liquefied natural gas project at Curtis Island (which at present does not have enough gas) with Arrow's neighbouring project (which has the biggest gas reserves) makes the most sense.The addition of PetroChina also gives the liquefied natural gas a market for the product. The other Queensland coal seam gas proponents €” Santos/Petronas, BG and Origin/ConocoPhillips €” have secured their own resources, with some already signing off-take agreements.Arrow said it had appointed Citi and UBS as financial advisers and Mallesons as legal advisers. Shell and PetroChina are being advised by Morgan Stanley and Rothschild. "At this stage the Arrow board recommends shareholders take no action in relation to their Arrow shares," the company said.Royal Bank of Scotland analyst Nik Burns said the bid was unlikely to encounter road blocks in the form of the Foreign Investment Review Board or a superior offer.
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