Royal Dutch Shell and PetroChina convinced Arrow Energy to accept an increased A$3.4 billion bid, giving resource-hungry China its first bite of Australia's burgeoning coal-seam gas industry.
The offer, which needs approval from Australian regulators and Arrow shareholders, highlights the growing importance of coal seam gas (CSG) as a key source of energy in the United States and a major target for multinationals in Australia since 2008.
In addition to A$4.70 a share in cash, Arrow investors will retain ownership of some domestic and international assets which will be spun out into a new entity to be called Dart Energy.
The Shell-Petrochina joint venture will integrate Arrow's Australian assets with Shell's existing CSG assets and Shell's site for a planned Liquefied Natural Gas (LNG) plant on Curtis Island, Queensland, the companies said today.
Shell and PetroChina will each own 50 per cent of the gas produced by the LNG plant and the Anglo-Dutch oil major said it was likely to sell its gas to China.
Analysts said it made strategic sense for Shell to boost its Australian coal seam gas assets, as it has said such assets are key to its growth plans.
However, with Shell declining to say how much each side was contributing to the bid, or what valuation would be attached to Shell's assets, analysts said it was unclear exactly how good a deal it was for Europe's largest oil company by market value.
Arrow's agreement followed two weeks of talks after Shell and PetroChina made an initial offer that investors considered too low. "I can tell you, it was not an easy discussion," Shell's local chairman, Russell Caplan, told reporters.
Shell's London-listed "A" shares traded down 0.9 per cent at 0936 GMT, while the sector was down 1.3 per cent.
The deal needs approval from Australia's Foreign Investment Review Board, which is likely to scrutinise it closely after regulators said they wanted to cap state-owned companies' stakes in Australia's top resource firms to 15 per cent.
Arrow Energy shares fell 3.6 per cent, their biggest daily fall in month.
Reuters