Arrow Spinoff Dart Energy Aims to Be Leader in Coal-Bed Methane Production

Arrow Energy Ltd.’s proposed spinoff, Dart Energy Ltd., targets first gas sales in 2012 and aims to become the world “leader” in coal-bed methane production.

Dart, which will hold the company’s exploration assets in China, Indonesia, India and Vietnam, is considering expansion to other regions, Brisbane-based Arrow said in a statement lodged with the Australian stock exchange today. Dart’s acreage makes it larger than Arrow was in early 2007, it said.

Royal Dutch Shell Plc and PetroChina Co. agreed in March to pay A$4.70 a share in cash for Arrow’s Australian operations. Arrow shareholders also will receive shares in Dart, which will include Arrow’s stakes in Australian-listed companies Apollo Gas Ltd., Bow Energy Ltd. and Liquefied Natural Gas Ltd.

“Long term, with a five-year plus view, Dart looks pretty compelling,” Adrian Wood, an analyst at Macquarie Group Ltd., said from Sydney. “They have massive hurdles in the short term” to attract investors, manage their balance sheet, raise funds and demonstrate they have commercial gas resources.

While Wood previously estimated Dart is worth 98 Australian cents a share, he said its value would be higher after China increased wholesale natural gas prices by 25 percent, the first rise in more than two years. Dart’s value may rise to A$1.50, he said.

“Dart is higher risk, so it may not appeal to existing Arrow shareholders,” Nik Burns, an analyst at RBS Morgans in Melbourne, said by phone today. “But what people will ultimately back is the management team’s track record.”

Dart may seek to raise A$75 million selling shares after listing on the Australian stock exchange, according to a report released today by Deloitte Touche Tohmatsu, hired by Arrow’s board to evaluate the Shell transaction. Dart may be worth 50 cents to 60 cents a share, giving the company a stock market value of A$365 million to A$440 million, Deloitte said.

Arrow shares rose 1 percent to A$4.90 in Sydney, while the benchmark S&P/ASX 200 Index climbed 2.4 percent.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net.

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