By Angela Macdonald-Smith
Feb. 17 (Bloomberg) -- BG Group Plc raised its hostile bid for Pure Energy Resources Ltd., topping an offer by Royal Dutch Shell Plc’s Australian partner in coal-seam gas, as BG seeks to add reserves for an export venture.
The U.K.’s third-biggest gas producer boosted its cash offer by 25 percent to A$995 million ($646 million) or A$8 a share, the company said today in a statement. That’s 10 percent higher than a revised Feb. 11 cash and stock bid from Brisbane- based Arrow Energy Ltd., based on today’s closing price.
Arrow first bid for Pure in December to build reserves to feed a planned liquefied natural gas project. Australia’s coal- seam gas industry attracted more than A$17 billion in investment last year as producers tapped into ventures that may meet rising Asian demand for cleaner fuel. Pure today rose to A$8.36 in Sydney trading, indicating some investors expect a higher offer.
BG’s latest bid “still looks as though it’s within the range of previous acquisitions, so it’s not overspending,” said Andrew Williams, an energy analyst at Credit Suisse Group in Melbourne. “It’s conjecture whether Arrow can come back or not with a higher offer.”
Pure Energy gained 88 cents, or 12 percent, to a record close. BG’s latest bid is more than double the price Pure was trading at before Arrow made its initial A$5.40-a-share offer in December. Arrow advanced 1.9 percent to A$2.73 in Sydney trading.
Reading, England-based BG is being advised by Gresham Advisory Partners, while Goldman Sachs JBWere Pty is advising Pure and Wilson HTM Corporate Finance is advising Arrow.
‘Competitively Priced’
Arrow is “considering its position” and recommends Pure shareholders take no action on BG’s offer, the company said today in a statement to the exchange. The stock part of Arrow’s offer “provides significant upside for Pure shareholders,” Managing Director Nick Davies said.
Shell, which owns 30 percent of Arrow’s Australian acreage and 11.2 percent of Pure, is evaluating the offers and can’t comment further, Claire Wilkinson, a Perth-based spokeswoman, said in an e-mail. Shell had earlier supported Arrow’s original offer. The independent directors of Pure Energy, which had recommended Arrow’s offer, are reviewing BG’s bid, Pure said in a separate statement.
Davies said earlier today he believed Pure’s assets were “still competitively priced” at Arrow’s latest bid, worth A$7.21 a share at yesterday’s close.
“Of course that value equation will change at some level of bid,” he said in a briefing document sent to the exchange.
Pure is exploring for coal-seam gas, which mostly comprises methane on the surface of coal. BG, Shell, Malaysia’s Petroliam Nasional Bhd. and ConocoPhillips are among the companies in five rival ventures planning to convert coal-seam gas into LNG for export to Asia, the biggest market for the fuel.
ConocoPhillips, Petronas
BG said last week it’s seeking to bring forward approval of an investment of more than A$8 billion in its Australian LNG project as demand growth outstrips new capacity. Accelerating the plant would allow it to start production before rival ventures planned by Santos Ltd. with Petronas, and by ConocoPhillips with Origin Energy Ltd.
BG is relying on its planned Queensland Curtis LNG project in northeastern Australia to boost LNG supplies by almost 60 percent by 2015 to become the world’s third-biggest producer, Chief Executive Officer Frank Chapman said Feb. 6. Global demand for the fuel is set to more than double by 2020, he said.
Beating Arrow for Pure Energy may also block Arrow’s plans to develop a smaller LNG plant with Liquefied Natural Gas Ltd. that is scheduled to start production even earlier, Citigroup Inc. said in a Feb. 9 report.
Coal-seam gas, which can be extracted when pressure on the coal seams is reduced, usually by removing water, hasn’t previously been used as a fuel for LNG export projects.
BG’s ‘Imperative’
BG probably needs Pure Energy more than Arrow does, Credit Suisse’s Williams said today in a report.
“We see BG with a stronger imperative for success in the Pure Energy bidding situation and certainly with more cash resources to be successful,” he said. “Them that control the gas have the market power.”
In terms of reserves, BG is bidding 40 Australian cents a gigajoule for Pure, still less than the 72 cents a gigajoule it paid for Queensland Gas Co. in October. BG’s A$5.2 billion purchase of the rest of Queensland Gas, its partner in its Australian LNG venture, followed a failed A$13.5 billion offer earlier in the year for Origin Energy Ltd., Australia’s biggest producer of gas from coal seams, which attracted an A$8 billion investment from ConocoPhillips.
Australia’s Foreign Investment Review Board has advised it has no objections to the bid from BG, which today said its offer is unconditional.
Arrow’s bid, of A$3 in cash and 1.57 shares for each Pure share, is also unconditional. Arrow is Pure’s biggest shareholder, with a stake of 19.9 percent, while BG owns 9.7 percent.
LNG is natural gas chilled to liquid form for transport by tanker to destinations not connected by pipeline.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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