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Shell and PetroChina circle Arrow

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Joint takeover bid values CSG player at over $3bn

Energy giants Royal Dutch Shell and PetroChina have launched a joint takeover bid for Arrow Energy - proving that the race to develop major liquefied natural gas projects from Queensland's vast coal seam gas reserves is heating up.

The takeover bid from the Anglo-Dutch oil major and the Chinese company values the Queensland-based CSG company at up to $3.85 billion.

In a statement to the Australian Securities Exchange, Arrow said it had received a non-binding indicative and conditional proposal from a company jointly owned by the two firms.

Under the proposal, Arrow shareholders will receive $4.45 cash per share, plus a share in a new entity comprised of Arrow’s international business.

In a surprise move last month, Arrow announced it would become an LNG producer in its own right by taking control of the Fisherman's Landing LNG plant and associated infrastructure, from Liquified Natural Gas subsidiary, Gladstone LNG.

Shell's move however, doesn't come as too much of a suprise. It has long been held that Shell's action in acquiring 30 per cent of Arrow's CSG acreage almost two years ago and taking an option over a possible LNG site at Curtis Island (to be supplied with CSG from Arrow) would lead to a move on Arrow.

Its bid for Arrow suggests that Shell now wants to commit to a major development, and is seeking to fast track the project.

Arrow had earlier announced its intention to demerge Arrow International, which has CSG exploration interests in China, Indonesia, India and Vietnam. Shell already has a 10 per cent stake in Arrow International and Arrow had been planning to list 20 per cent of its international arm, while retaining 70 per cent.

Arrow Energy chief executive Shaun Scott said in February Arrow International would most likely list on either the Singapore or Hong Kong stock exchanges following an IPO in the first half of the 2010/11 financial year.

The company also said at the time it planned to increase total production by tenfold by 2015, driven by the $2.2 billion Fisherman's Landing LNG project at Gladstone.

The Shell-PetroChina bid for Arrow is the latest move by major energy firms into Australia's coal seam gas sector, after energy majors such as BG Group, ConocoPhillips and Petronas, already poured in about $20 billion since 2008, looking to convert the abundant gas resource into LNG for export into Asia.