Oil companies join forces

March 8, 2010

, SYDNEY, Mar 8 – Royal Dutch Shell and PetroChina joined forces for a 2.96 billion US dollar bid for Australia\’s Arrow Energy on Monday, hoping for a bigger slice of the country\’s booming liquefied natural gas (LNG) sector.

The energy giants offered 4.45 Australian dollars (4.04 US) per share, or about 3.26 billion Australian dollars, sending the coal seam gas firm\’s shares rocketing some 47 percent to 5.11 dollars.

Shell and PetroChina are also offering shares in a new company made up of Arrow\’s international business, which is set for an initial public offering.

"At this stage the Arrow Board recommends shareholders take no action in relation to their Arrow shares," Arrow said in a statement, adding that it had appointed financial and legal advisers.

News of the bid, which could herald a shake-up in the burgeoning LNG industry, helped send Australia\’s stock market nearly one percent higher to 4,807.9 as resources companies surged.

Arrow claims to have the largest reserves of coal seam gas in Australia\’s northeastern state of Queensland, in its holdings at the Bowen and Surat Basins.

Australia has already signed contracts worth tens of billions of dollars with Asian countries for the clean-burning LNG created from natural gas, which is chilled into liquid form for shipping.

Analysts say the country is set to become the "Middle East of gas" and outstrip Qatar as the world\’s biggest LNG producer as Asian demand surges for the fuel.

They said Shell, which has also teamed up with PetroChina to develop shale gas resources in China, could use Arrow\’s assets to push forward plans for a Queensland coal seam gas plant producing up to 16 million tonnes of LNG a year.

"The market was getting reasonably sceptical of whether Shell was indeed planning to go down that path," said RBS Morgans senior oil and gas analyst Nik Burns.

"Obviously the fact they are now moving to potentially acquiring Arrow suggests that they still want to move that path."

"If they get to 16 million tonnes, and it is very early days, ultimately it could be (the largest coal seam gas operation in Australia)," he added.

PetroChina\’s chairman Jiang Jiemin confirmed the bid on the sidelines of China\’s National People\’s Congress in Beijing, but said it was in its early stages. He did not give further details.

Australia\’s LNG boom has mainly centred on Western Australia, which has three huge gas fields off its northwest coast plus the massive Gorgon development worth hundreds of billions of dollars.

Analysts believe Shell and PetroChina plan to use Arrow\’s LNG to supply China, whose rapid industrialisation and urbanisation have made it a key market for Australian energy and resources.

Several companies are currently working towards producing the first LNG from coal seam gas for export.

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