smh article just out

Pure Energy bidding war 'to continue'Rebecca Le May
February 12, 2009 - 1:54PM
British energy giant BG Group Plc should outdo Arrow Energy Ltd's sweetened takeover offer for coal seam gas (CSG) producer Pure Energy Ltd with an improved bid of its own that could surpass $1 billion, analysts say.

BG is currently mulling its plans for Pure Energy, having had its conditional $796 million bid, launched on Tuesday, trumped by Arrow's $890 million unconditional bid the following day.

"BG Group is considering its position," the UK-based company said in a statement on Thursday.

"BG Group recommends that shareholders and directors of Pure take no action in relation to the Arrow offer before then."

It said it would advise the market of its decision on Wednesday, February 18.

Pure Energy's board has accepted Arrow's offer, which represents a 12 per cent premium to BG's bid, saying its directors intend to accept the offer in respect of their personal shareholdings.

DJ Carmichael research assistant Peter Kopetz told AAP that Pure Energy would be hotly contested because it was a quality target.

Mr Kopetz said the bidding war soon should see the target valued at $1 billion.

He said Pure Energy was strategically ideal to both predators, with its landholdings in Queensland adjacent to theirs.

"Arrow and BG are looking to shore up more reserves and resources, and the quickest way to do that would be to acquire another player who has already got that behind them.

"They want as much resources as they can to underpin expansion into liquefied natural gas ... to export to Asia.

"Obviously Arrow wants Pure Energy quite desperately, which is why they have trumped BG.

"But I think BG will come back with another bid."

Mr Kopetz said Arrow may not be as well funded as BG, but this could be addressed if it teamed up with its joint venture partner, Shell, in a fresh bid for Pure Energy.

Arrow is Pure Energy's largest shareholder with a 19.98 per cent stake, followed by Shell with a 14.88 per cent stake.

A Shell spokeswoman said the company would comment later on Thursday on whether it would accept Arrow's improved offer.

Arrow and Shell's alliance was sealed on Wednesday with the closing of a $1 billion deal whereby the energy giant acquired a 30 per cent interest in Arrow's CSG acreage in Queensland plus a ten per cent stake in Arrow's international CSG arm.

The pair also announced they had signed with the Gladstone Port Corporation an exclusive right to investigate a site on Curtis Island for a possible LNG plant, to be supplied with gas from Shell and Arrow's CSG projects.

"Shell needs to step in to help Arrow or make a play itself," Mr Kopetz said.

"They are watertight partners and are going to look after each other."

A third suitor could emerge, Mr Kopetz said.

And if Arrow's bid failed, it could use the funds from the sale of its stake in Pure Energy to prove up more CSG resources and reserves on its own acreage "and simply grow organically", he said.

Another small CSG company that could become a takeover target is NSW-focused Metgasco Ltd, which was up 8.89 per cent to 49 cents at 1327 AEDT as speculation intensified on the sector's consolidation.

"Arrow might seek another smaller CSG player that has resources ... but Queensland is a better proposition for them," Mr Kopetz said.

Shares in Pure Energy had jumped 69 cents, or 10.27 per cent, to $7.41 at 1327 AEDT - surpassing the $7.16 per share valuation of Arrow's offer when it was launched on Wednesday, implying that the market believes there is room for a higher bid.

Arrow's shares had fallen seven cents, or 2.64 per cent, to $2.58.