Replies to post #401 on The Rising Influence of Rising Affluence

[DewDiligence]

Shell, PetroChina Make $3B Bid for Arrow

[See #msg-42447277 for background.]

http://online.wsj.com/article/SB10001424052748703936804575108253129939146.html

›MARCH 7, 2010, 9:32 P.M. ET
By GUY CHAZAN

Royal Dutch Shell PLC and PetroChina made a joint bid of 3.3 billion Australian dollars (US$3 billion) Monday for Australian coal-seam gas producer Arrow Energy Ltd., in another sign of the surging international interest in Australia's unconventional natural gas.

If accepted, the bid would bolster Shell's position in the sector two years after it bought 30% of Arrow's coal-bed gas assets.

Coal-bed methane—methane gas that occurs naturally in coal seams—was long considered a safety hazard in coal mining. But in recent years it has been recognized as a valuable energy resource.

The major international oil companies have been flocking to Australia, which has billions of cubic feet of coal-seam gas. Their interest in part reflects the difficulties they face in accessing conventional oil-and-gas sources, many of which are in places like the Middle East that are off limits to foreign investors.

The boom in coal-bed methane has coincided with North America's explosion in output of shale gas, another form of unconventional gas that is transforming the balance of global energy markets.

In 2008 alone the Australian industry attracted more than A$17 billion in investment, with companies like ConocoPhillips and Malaysia's Petroliam Nasional Bhd., or Petronas, making big bets on the sector. Last March, BG Group PLC of Britain acquired control of Pure Energy Ltd., another Australian coal-seam gas producer.

Several big players, including Shell, are working on projects to turn Australia's coal-seam methane into liquefied natural gas, which would then be exported to the energy-hungry markets of Asia. A successful bid for Arrow would give a boost to Shell's plans to build an LNG terminal at Gladstone port in Australia's Queensland state The proposed plant would produce 16 million metric tons a year of LNG, but Shell doesn't have enough gas under its control at present to supply the planned facility.

Some observers are skeptical that all the announced LNG projects will go ahead, considering the vast development costs, capital constraints and skills shortages in the region.

PetroChina Chairman Jiang Jiemin confirmed the bid. In a statement, Shell said it was "participating in discussions" to acquire Arrow, excluding its international assets." It said the talks may or may not lead to an agreed transaction.

Under the joint proposal, Arrow shareholders would get A$4.45 a share in cash plus shares in a new entity comprising Arrow's international business, Arrow said. That would work out to about A$3.3 billion and represent a 28% premium to Arrow's last traded price Friday of $3.48.

Arrow shares soared in early Australian trading Monday, rising 44% to A$5.

The involvement of PetroChina—China's largest-listed oil company by capacity—could create a political hurdle for the bid, considering the Australian government has taken a cautious stance on the issue of Chinese entities buying Australian resource producers. Thus far, Arrow's board has recommended shareholders take no action on the offer.

Industry watchers said they expect the deal to go through. "The capital required to develop Arrow's coal-seam methane assets is beyond Arrow," said one person familiar with the company. "Either it has to engage in a massive capital-raising effort or take this offer."

In 2008, Shell acquired 30% of Arrow's coal-bed methane acreage in Queensland and 10% of its international operations for $700 million.‹

[DewDiligence]

Bearish WSJ article on Australian coal-seam gas:

http://online.wsj.com/article/SB10001424052702303343404577518080214455046.html