Royal Dutch Shell and PetroChina jointly bid more than $3 billion for Australia’s Arrow Energy, marking a Chinese firm’s first foray in the country’s burgeoning coal-seam gas sector and sending Arrow’s shares soaring by nearly half.
Arrow said that the bid from a company jointly owned by Shell and PetroChina would give shareholders A$4.45 in cash per share, plus a share in a new entity comprising Arrow’s international business.
Shell confirmed it was in discussions to acquire Arrow’s domestic business, but declined to say more. PetroChina said the bid was at an early stage and there was no timetable.
Coal-seam gas is natural gas trapped in seams of coal. Arrow has reserves of 6,150 petajoules of coal-seam gas, the largest in Australia.
“The teamup between Shell and PetroChina was a surprise. PetroChina may have realised that it’d be difficult to do a deal on its own given the regulatory sensitivities and that fact Shell already has a 30 per cent stake in Arrow’s domestic assets,” said Nik Burns, an analyst at RBS Morgans.
“For Shell, a partnership would give them the obvious path to selling the LNG output and potentially circumvent a rival bid. So it kills two birds with one stone.”
The deal could also help Shell build its presence in China, on dealer said. Western oil majors are eager to establish refineries in China, one of the fastest growing energy markets in the world, but the government restricts foreign investment.
The deal could come under scrutiny as Australia has had an uneasy relationship with Chinese investments after Rio Tinto scrapped a $19.5 billion deal with Chinalco last year, and regulators said they preferred state-owned companies to keep their stakes in Australia’s top resource firms to no more than 15 per cent.
The relationship was further strained after China arrested four Rio Tinto staff last year on charges of bribery and stealing business secrets. This is not the first collaboration of PetroChina and Shell. The two started joint exploration of a shale-gas block in China last year.
