March 16 (Bloomberg) -- Arrow Energy Ltd., the Australian coal-seam gas producer whose bid for Pure Energy Resources Ltd. was topped by BG Group Plc, let its offer expire after failing to gain majority control.

The offer closed March 13, leaving Arrow with a 20.31 percent interest in Pure, Brisbane-based Arrow said today in a filing to the Australian stock exchange. Nick Davies, chief executive of the company, Royal Dutch Shell Plc’s Australian partner in gas extracted from coal seams, declined to comment on plans for the stake.

Arrow’s holding in Pure prevents BG, the U.K.’s third- biggest natural gas company, from reaching the 90 percent acceptance level it needs to take full ownership of the target in its A$1.03 billion ($674 million), or A$8.25-a-share, cash offer. BG is seeking more gas reserves to feed a proposed export project in Queensland state.

“Arrow’s stake of about 20 percent is not that meaningful, so I imagine their only course of action really is probably to sell out and cash in,” said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney. “It makes it difficult to comprehend a situation now where Arrow could come back and try and get control.”

BG held about 33 percent of Pure as of March 13, according to a separate filing to the exchange. Shell, owner of about 11.2 percent of Pure, said March 3 it will sell its stake to BG in the absence of a higher bid. BG’s offer is due to close March 23.

Capital Gains

Pure fell 2 cents, or 0.2 percent, to A$8.15 in Sydney trading, while Arrow advanced 5 cents, or 2 percent, to A$2.61.

Arrow may be seeking to hold out on accepting BG’s offer until after June 30 to take advantage of as much as A$14 million in benefits from deferring capital gains tax, the Australian Financial Review’s Street Talk column said March 13, citing talks between Arrow and investors in Europe.

Should BG not reach 90 percent in acceptances, shareholders in the Brisbane-based coal-seam gas explorer will get A$8 a share under the unconditional bid from the British company.

Pure’s independent directors reiterated their unanimous recommendation to shareholders to accept BG’s offer.

“If you do not accept BG’s offer, you should be aware that, once BG’s offer closes, it is likely that Pure’s share price will fall below current trading levels, in the absence of a superior proposal,” Company Secretary Geoff Hewett said in the statement, on behalf of the board.

Chinese Venture

Arrow separately today said its international unit agreed to buy 75.25 percent of Far East Energy Corp.’s stake in the Qinnan coal-seam methane venture in China. The Australian company also agreed to invest in convertible notes, which, if exercised, will give it an 11.5 percent stake in Far East Energy.

The Qinnan project in Shanxi Province represents “one of the best prospects for near-term commercial coal-bed methane production in China,” Davies said in the statement, sent to the exchange. “We expect Qinnan to become a material project within the Arrow portfolio.”

Houston-based Far East Energy is the operator and foreign contractor to China United Coalbed Methane for three permit areas, including the Qinnan block, which will be transferred “shortly” to PetroChina Co., Arrow said. Shell will have the right to take half of Arrow’s interest in the venture, it said.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

Last Updated: March 16, 2009 02:20 EDT