Shell’s Arrow Unit Wins Bow Energy After Sweetening Offer to $524 Million
Arrow Energy Ltd., owned by Royal Dutch Shell Plc (RDSA) and PetroChina Co., agreed to buy Bow Energy Ltd. (BOW) after sweetening its offer to A$535 million ($516 million), gaining resources for a natural gas project in Australia.
The coal-seam gas explorer and producer in Queensland state increased its cash offer to A$1.52 a share from A$1.48, Brisbane-based Bow said in a statement today. That’s 72 percent more than the stock’s price of 88.5 cents in Sydney trading before Arrow made its initial offer on Aug. 22.
Arrow plans the fourth liquefied natural gas venture in Queensland to meet rising Asian demand for the fuel, following approvals for more than $50 billion in developments led by BG Group Plc, Santos Ltd. and ConocoPhillips. The acquisition may allow Arrow to expand output at the venture’s first two units, or trains, by as much as 15 percent, the company said today.
“These big LNG project developers will need more gas” to underpin additional processing units, Ivor Ries, an analyst at E.L. & C. Baillieu Stockbroking Ltd., said by telephone today from Melbourne. “We’ll see more consolidation.”
Bow rose 0.3 percent to A$1.465 at 4:10 p.m. in Sydney. Bow has gained 66 percent since Aug. 19 on the Australian stock exchange, before Brisbane-based Arrow made its initial offer.
The Arrow accord values Bow at about 16 cents a gigajoule of proven, probable and possible reserves, compared with an average of about 50 cents a gigajoule for Australian coal-seam gas transactions over the past two years, Andrew Williams, an analyst at RBC Capital Markets in Melbourne, said by phone.
“This is a very good deal for Arrow,” Williams said.
The Arrow LNG venture may cost more than $20 billion to develop, Deutsche Bank AG estimated in a Sept. 23 report. Bow had been the subject of takeover speculation since Santos, Australia’s third-largest oil and gas producer, agreed in July to pay about A$730 million to buy the shares in coal-seam gas explorer Eastern Star Gas Ltd. it didn’t already own.
“Our project is proceeding quite nicely on our existing reserves,” Andrew Faulkner, Arrow’s chief executive officer, said in a phone interview today. The transaction provides “the opportunity to take that project to the next level, to expand the train size and to strengthen our reserves base,” he said.
The Bow deal may allow Arrow to expand the size of each of the first two LNG processing units on Curtis Island to as much as 4.6 million metric tons of the fuel a year from the current plan of 4 million tons a year, Faulkner said. Arrow is on track to make a final investment decision in late 2013, he said.
Bow’s board recommends that shareholders vote in favor of the proposal in the absence of a “superior” bid, according to the statement. The accord is subject to regulatory approvals in Australia and China, and Bow shareholders are due to vote on the deal in December, the companies said in separate statements.
Bow said it is being advised by Bank of America Corp. and Wilson HTM Investment Group, while Arrow said it named JPMorgan Chase & Co. as a financial adviser.
The offer “absolutely reflects the underlying value of Bow’s assets and resources,” Arrow’s Faulkner said in the interview. “The price acknowledges the volatility and the technical and commercial uncertainties that are out there.”
The coal-seam gas industry on the east coast of Australia “must repair damage and rebuild the trust” of communities amid criticism from environmental groups who say the drilling of wells may contaminate water supplies, Elaine Prior, a Citigroup Inc. analyst in Sydney, said in a Sept. 21 report.
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