Royal Dutch Shell and PetroChina have won a board recommendation from Arrow Energy after lifting their joint takeover bid for the Australian energy producer from A$4.45 to A$4.70 a share in cash.
The revised bid announced early on Monday values Arrow’s Australian assets, chiefly its reserves of coal-bed methane gas in Queensland, at A$3.5bn (£2.1bn) and excludes the Brisbane-based group’s international operations that are worth an estimated A$400m.
Arrow is one of a number of groups aiming to invest a combined A$50bn to convert reserves of coal-bed methane into liquefied natural gas. The methane will be extracted by drilling into coal seams before it is piped overland to the coast where it will then be converted into liquefied natural gas and shipped to Asia.
Shell, which has pursued Arrow for about two years, is also developing a project in Queensland but it needs Arrow to bulk up its gas reserves. Arrow is among Australia’s largest holders of coal-seam gas acreage.
Shell’s partnership with PetroChina is on a 50:50 basis and includes an agreement for the Chinese group to take half of the LNG produced.
“Shell and PetroChina bring technical capabilities, capital backing, major project experience and LNG marketing ability,” Shell said.
The value put on Arrow’s Queensland operations will also provide a boost to the other consortiums planning to develop similar projects. These include projects from the UK’s BG Group and a joint venture between ConocoPhillips and Australia’s Origin Energy.
Malcolm Brinded, Shell’s executive director of upstream international, said the new joint venture would be a growth asset that would help meet rising demand for cleaner energy. “We expect to take the final investment decision on this large LNG project by 2012,” he said.
The offer needs to be cleared by Australia’s Foreign Investment Review Board, which last year blocked a number of Chinese takeovers, and the National Development and Reform Commission of China and China’s State Administration of Foreign Exchange.
Arrow is advised by Citigroup and UBS, NM Rothschild is advising Shell and Morgan Stanley is advising PetroChina.
