Dart Plans to Spend A$100 Million on Gas Exploration

Dart Energy Ltd., the Arrow Energy Ltd. spinoff whose shares began trading in Sydney today, aims to spend A$100 million ($88 million) on exploration and development through 2011 and to expand in Europe and southern Africa.

The shares reached 78 Australian cents by the market’s 4:10 p.m. close, valuing Dart at about A$286 million. The gas explorer said today it raised an initial A$35 million selling shares to institutions at 69 cents apiece. Dart may seek a further A$45 million later this year selling shares, Chief Executive Officer Simon Potter said in a telephone interview.

“There was obviously strong support from existing shareholders of Arrow,” Potter said from Singapore, where Dart has its headquarters. “A lot of people have made a lot of money from the success of Arrow and are betting on hopefully the management team carrying on with that success at Dart.”

Arrow agreed in March to sell its Australian business to Royal Dutch Shell Plc and PetroChina Co. for A$3.5 billion. Arrow investors also received one share in the newly formed Dart for every two they held in Arrow. Dart, which holds exploration assets in China, Indonesia, India and Vietnam and stakes in Australian-listed companies Bow Energy Ltd., Liquefied Natural Gas Ltd. and Apollo Gas Ltd., expects first gas sales in 2012.

Dart is likely to trade below an estimated value of 90 cents a share in the “near term,” according to John Hirjee, an analyst at Deutsche Bank in Melbourne. Its coal-seam gas holdings offer “significant upside if the commercial viability of assets can be demonstrated,” he said in a July 21 report.

Risk Profile

Nik Burns, an analyst at RBS Morgans in Melbourne, forecasts Dart will climb to A$1 a share in the next 12 months. Dart will face “headwinds in the short-term,” he said.

The company will need to raise additional equity and “there is likely to be a level of churn in the registry as existing Arrow shareholders seek to exit Dart because of the change in the risk profile of the company,” he said by phone on July 20. “Arrow was certainly a lower-risk proposition for investors. Dart has minimal reserves and no production.”

Dart intends to start exploration drilling on the Dajing permit in China in October and to grow reserves in that country “pretty substantially in the near term,” Potter said.

New Hope Corp. and other shareholders in Arrow indicated they plan to keep their shares in Dart Energy or add to their holdings, said Potter, who traveled to Asia, Australia, Europe and the U.S. to pitch the company to investors. New Hope owned about 17 percent of Arrow, or 123 million shares, at the end of January, the Queensland-based shareholder said in March.

New Hope

“We’ve been there for the journey so far, and all I can say is that we’re in that space and we’d expect to continue to be in that space,” Robert Neale, New Hope’s chief executive officer, said in a phone interview today. New Hope also owns almost 20 percent of Australian coal-seam gas company WestSide Corp.

Dart’s next capital raising is at least 90 days away, and any sale of shares in 2011 to fund growth would depend on the success of the company’s exploration campaign, Potter said today. Dart Energy has about A$20 million in cash, he said.

Europe and southern Africa are areas being evaluated for potential expansion, he said. “There’s a thriving energy demand in southern Africa, with a coal-bed methane resource right on its doorstep,” he said. “The same in Europe, where there is considerable resource and extensive infrastructure.”

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