BG Group Bids for Pure Energy, Beating Arrow’s Offer

By Angela Macdonald-Smith

Feb. 9 (Bloomberg) -- BG Group Plc, the U.K. company seeking to develop a natural gas export project in northeastern Australia, offered to buy Pure Energy Resources Ltd. for A$796 million ($536 million), topping an offer from Arrow Energy Ltd.

The cash offer of A$6.40 a share is 19 percent higher than the value of Brisbane-based Arrow’s cash and stock bid, based on the last closing price, Reading, England-based BG said today in a statement. Arrow jumped 12 percent to A$2.48 and Metgasco Ltd. rose 13 percent to 38 cents in Sydney as investors bet other coal-seam gas stocks may attract bids.

BG and Arrow, Royal Dutch Shell Plc’s Australian partner in coal-seam gas, are among companies seeking more reserves to feed planned liquefied natural gas projects. Australia’s industry to extract gas from coal seams attracted more than A$17 billion in investment last year as companies such as ConocoPhillips tapped into ventures that could meet demand in Asia for cleaner fuels.

“This underlines that even in this period of doom and gloom there’s still strong interest in the energy sector, particularly in the LNG space,” said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney. “You wouldn’t rule out that Arrow might come back with a higher bid. I’m sure they’ll talk to Shell about it.”

BG, which bought about 10 percent of Pure Energy’s shares from investors during the weekend, said it doesn’t plan to sell into Arrow’s offer because it doesn’t intend to own Arrow shares. That means the rival bidder can’t get full control of the target.

Seeking Expansion

BG has no intention to raise the offer price should Arrow come back with a higher bid, yet reserves the right to do so, David Maxwell, senior vice president of BG’s QGC unit, said in a telephone interview. The Reading, England-based company will continue to seek expansion opportunities in Australia, he said.

“We continually look at opportunities to add value to the existing business that we’ve got and we’ll continue to build here in Australia,” Maxwell said.

Pure Energy closed on Feb. 6 at A$5.28 and was halted today from trading in Sydney. The latest offer is more than double the price Pure was trading at before Arrow’s bid was announced in December.

Arrow has a 19.9 percent stake in Pure, while Shell owns about 10 percent. Pure’s independent directors had earlier recommended shareholders accept Arrow’s offer subject to there being no higher bid, as had two shareholders that own a total of about 8 percent.

Stock Offer

Pure will release a statement today with a response to the offer, said Geoff Hewett, company secretary. Arrow said in a statement it will discuss the latest bid with Pure’s directors and said it believes the stock part of its offer is “attractive” to Pure shareholders.

Shell said separately it will announce its intentions for its stake “in due course” and noted that BG’s all-cash offer “does not give Pure Energy shareholders the opportunity for continued exposure to growth in the coal-seam gas sector which is available from the share component of the Arrow Energy offer.”

BG is being advised by Gresham Advisory Partners, while Goldman Sachs JBWere Pty is advising Pure and Wilson HTM Corporate Finance is advising Arrow.

Pure Energy is targeting a 41 percent boost to proven, probable and possible reserves this quarter. BG in October bid for Queensland Gas Co., its partner in a proposed LNG project in Gladstone, renaming it QGC. Some of QGC’s license areas lie adjacent to those owned by Pure Energy.

Appetite Remains

“Given the overall state of the financial markets and the fall in oil prices there doesn’t seem to be any diminution in the appetite of big international players for Queensland coal- seam gas,” said Graeme Bethune, chief executive of Adelaide- based consultant EnergyQuest. “Pure has a very extensive acreage footprint.”

BG’s offer is subject to acceptances of at least 50.1 percent, compared with 90 percent for Arrow’s offer. It also requires approval from the Foreign Investment Review Board.

LNG is natural gas chilled to liquid form for transportation by tanker to destinations not connected by pipeline. Coal-seam gas, mostly comprising methane, lies on the surface of coal and can be extracted when pressure on the coal seam is reduced, usually by removing water.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net