Shell flexes muscle behind Arrow Clancy YeatesFebruary 13, 2009...

Shell flexes muscle behind Arrow
Clancy Yeates
February 13, 2009
THE oil company Shell is not about to slink away from the coal-seam gas industry in Queensland if confirmation that it has secured a site for a liquefied natural gas project on Curtis Island is any indicator.

While the near-$1 billion bidding war for Pure Energy heated up yesterday, Shell said it would be joining Curtis Island, where three multibillion-dollar LNG plants involving global oil giants are already planned.

The timing of the news was telling. It came a day after Shell's joint-venture partner, Arrow Energy, had increased its bid for the junior explorer Pure to $890 million following a hostile bid of $796 million from Britain's BG Group on Monday.

Until now Shell, the owner of an 11 per cent stake in Pure, had remained silent.

Arrow and Shell plan to build the region's smallest LNG project at the nearby Fisherman's Landing, but news of the Curtis Island site confirms the partners have joined forces for a much bigger play.

Arrow, which owns 20 per cent of Pure, is bidding for it independently of its much larger joint-venture partner.

An analyst at Citigroup, Di Brookman, said Shell's statement was a clear show of solidarity against BG's bid. "You could say it's like big Shell walking up to Arrow and putting their arm around them."

In the game of bluff that infiltrates a takeover battle, Ms Brookman said Shell's move was the equivalent to saying: "You take on Arrow, you take on me."

Shell this week closed a deal to acquire 30 per cent of Arrow's domestic gas reserves, but it has not yet revealed its intentions with regard to its shares in Pure.

Many in the market expect a bidding war between BG and Shell over Pure, as Arrow's bid is still well below the per gigajoule price BG paid for Queensland Gas in a $5.5 billion takeover last year.

An analyst at JP Morgan, Mark Greenwood, said Pure's acreage was immature but there were early signs it was very productive and had a strong gas flow.

"The current reserves are a fraction of what they are likely to extract from the acreage and it's well placed; it's a good address. Our anticipation would be that BG comes back and ups its bid."

Shares in the takeover target Pure rose 9 per cent to $7.35 as investors bet BG Group would trump Arrow's revised offer of $3 cash and 1.57 Arrow shares for every Pure share, worth $7.16 a share.

BG said yesterday it would reveal a decision on whether it would raise its bid of $6.40 by the start of trading next Wednesday, and told Pure shareholders to take no action in the mean time.

Arrow's managing director, Nicholas Davies, played down Shell's role in the battle. "This is an offer from Arrow Energy for Pure Energy and as such Shell doesn't have any involvement."