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Pure recommends sweetened $890m Arrow bid
By Fayen Wong and Tom Bergin of Reuters

SYDNEY/LONDON - Arrow Energy Ltd has raised its offer for Pure Energy Resources Ltd to $890 million, trumping a bid from Britain's BG Group Plc, but analysts say Royal Dutch Shell could also bid.

Arrow and BG are fighting for Pure's coal seam gas reserves, which both companies would like to use to supply liquefied natural gas (LNG) export projects they plan in Queensland.

Both companies already have reserves but some analysts have questioned whether Arrow's reserves are large enough to support an LNG project.

Arrow said on Wednesday its revised offer comprised $3 cash and 1.57 Arrow shares for every Pure share, and has an implied value of $7.16 a share, 21 per cent higher than its earlier bid and compared with BG's all-cash bid of $6.40.

The revised offer has been unanimously recommended by Pure's independent directors in the absence of a higher offer, Arrow said.

"Arrow's revised offer is clearly superior to BG's offer and is the only offer that provides on-going exposure to the burgeoning Australian coal seam gas sector," Arrow Managing Director Nick Davies said in a statement.

A spokeswoman for BG said the gas producer, one of the largest energy companies in Europe, was reviewing Arrow's announcement and would respond in due course.

Anglo-Dutch oil major Shell could also launch a rival bid for Pure, Citigroup said in a research note earlier this week, adding that Arrow itself could become a target.

Shell could launch a bid for Arrow, with whom it shares ownership of certain coal seam gas assets, some dealers said.

A Shell spokesman said "we continue to review the situation".

Before the announcement, which was made after market close, shares in Pure closed 0.6 per cent lower at $6.72 on Wednesday, while Arrow was down 0.8 per cent at $2.65.

BG's shares traded down 0.9 per cent at 1023 pence, underperforming a 0.4 per cent drop in the DJ Stoxx European oil and gas sector index at 2106 AEDT.

BG's $796 million cash bid for Pure sent Pure's shares soaring to a record on Tuesday as speculation grew that Shell could also move to secure a bigger stake in Queensland's massive coal seam gas reserves.

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 building a 9.7 per cent stake in Pure, while Arrow holds 19.9 per cent and Shell owns 11.2 per cent.