PetroChina, Shell in $3B Bid for Australian Gas Firm

(THE WALL STREET JOURNAL), Mar. 8, 2010

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 in Australian coal-seam gas, two years after it bought 30% of Arrow's exploration and production 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 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 sources of oil and gas, much of which is in places like the Middle East that are off-limits to foreign investors.

The boom in coal-bed methane has coincided with the explosion in output of shale gas in the North America, 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.

Under the 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 $3.3 billion and represent a 28% premium to Arrow's last traded price Friday of $3.48.

Arrow said it was recommending shareholders take no action in relation to their Arrow shares.

(Cynthia Koons and David Winnings contributed to this article.)

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