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BG ups bid for Pure Energy by 25 percent to trump rival

Reuters UK

Tue Feb 17, 2009 7:25am GMT

By Fayen Wong

PERTH (Reuters) – BG Group (BG.L) raised its bid for Australian coal seam gas firm Pure Energy (PES.AX) by 25 percent to nearly $650 million (458 million pounds), trumping a rival offer by Royal Dutch Shell’s (RDSa.L) Australian partner Arrow Energy (AOE.AX).

Shares in Pure jumped 12 percent, suggesting that some investors were expecting a higher offer to emerge.

Arrow, with Shell’s backing, is fighting against BG for Pure’s keenly sought coal seam gas reserves, which they would like to use to supply liquefied natural gas (LNG) export projects they plan in Australia’s eastern state of Queensland.

Global oil giants, including U.S. major ConocoPhillips (COP.N) and Malaysia’s Petronas PETR.UL, have poured about A$20 billion (9.16 billion pounds) into Australia’s coal seam gas companies since last year, and BG’s latest salvo is setting the scene for a possible showdown between BG and Shell.

“If Shell wants to stay in this coal seam gas space, they are going to have to pay up. And whether they decide to go for Pure Energy themselves or to do it through Arrow, we’ll have to see,” said Chris Brown, an oil and gas analyst at ABN AMRO.

BG, in its third acquisition foray into Australia, said the revised offer of A$8 per share was unconditional and was significantly superior to Arrow’s improved offer. This compares with Pure’s shares trading at A$8.36 at 3:26 a.m. British time.

Arrow last week sweetened its bid for Pure, first launched in December, after BG’s surprise rival offer. Arrow’s improved bid comprised A$3 cash and 1.57 Arrow shares for every Pure share, which has an implied value of A$7.23 based on latest trading prices.

BG has a 9.7 percent stake in Pure, which has said that its reserves could reach 1,750 petajoules this quarter on a proved, probable and possible (3P) basis. Arrow holds 19.9 percent in Pure and Shell owns 11.2 percent.

Arrow said in statement that it was considering its position following BG’s improved bid for Pure.

BG said Arrow’s cash-and-scrip offer was risky as it relies on a third party to commercialise its coal seam gas and that Arrow might not be able to commercialise its gas reserves should the proposed liquefied natural gas (LNG) project not proceed or was delayed.

Arrow, which holds the largest coal seam gas acreage in eastern Australia, has an agreement to supply gas to Liquefied Natural Gas’s (LNG.AX) proposed 1.5 million-tonnes-per-year LNG project at the port town of Gladstone in Queensland.

Under a deal inked last June, Shell has a 30 percent stake in Arrow’s Australian tenement and a 10 percent interest in the firm’s international assets.

SHELL EYED

With Anglo-Dutch oil major Shell (RDSa.L) having announced last week that it was also considering building an LNG processing plant using coal seam gas on the east coast of Australia, analysts have said that Shell could enter the scene.

Shell’s spokeswoman in Australia could not immediately comment on BG’s improved offer. The company also declined to comment on any possible bid for Pure Energy when asked at an industry conference in London on Monday.

Analysts said BG’s latest offer implies a value of about A$0.40 per gigajoule of Pure’s gas, still less than A$0.72 a gigajoule it paid for Queensland Gas Co in October.

“The prices are are still within the range of previous acquisitions and it could afford to go higher,” Brown said.

Global energy majors are targeting coal seam gas, which is found in underground coal deposits, as a new feedstock for LNG plants, which freeze the gas to liquid for export in ships.

Demand for LNG is forecast to more than double by 2020 amid an increase in energy consumption and demand for cleaner burning fuels.

BG is being advised by Gresham Advisory Partners, while Goldman Sachs JBWere Pty is advising Pure and Wilson HTM Corporate Finance is advising Arrow.

($1=1.540 Australian Dollar)

(Editing by Jean Yoon)

 

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