Arrow Energy Rises Amid Speculation It Will Drop Bid for Pure

By Angela Macdonald-Smith

March 4 (Bloomberg) -- Arrow Energy Ltd., Royal Dutch Shell Plc’s partner in coal-seam gas, gained the most in three weeks on speculation it will drop its bid for Pure Energy Resources Ltd. and follow Shell in accepting BG Group Plc’s rival offer.

The Brisbane-based company rose as much as 16 cents, or 6.6 percent, to A$2.59 in Sydney trading and was at A$2.52 at 2:05 p.m. local time.

Arrow may join Shell in accepting BG’s A$1.03 billion ($658 million) cash offer for Pure, the Australian Financial Review said today. Shell yesterday agreed to sell its 11.2 percent stake in Brisbane-based Pure to BG, the U.K.’s third-biggest natural gas company, in the absence of a higher bid. Arrow said today in a statement it’s still considering its position.

“Given that BG has now acquired a significant stake in Pure and that Shell will now be voting its shares in favor of the offer, I would have thought that doesn’t leave Arrow with much room to move,” said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management. “Potentially they could cash in their chips and walk away with a nice profit.”

Pure Energy gained 1 cent to A$8.18 at 2:09 p.m. local time. Pure has almost tripled since Arrow’s initial offer on Dec. 22 of A$673 million in cash and stock.

BG had 29.5 percent of Pure as of March 2 and Shell’s stake would raise its interest to 40.7 percent, while Arrow has 20.2 percent. Arrow’s stake is worth about A$207 million at BG’s latest offer price. Arrow spent A$1 million in September 2006 for a 14 percent stake in Pure when Pure carried out a A$5 million initial share offer.

BG is offering A$8.25 a share in cash for Pure should it reach 90 percent acceptances. Otherwise, shareholders will get A$8 a share in the U.K. company’s unconditional offer. Arrow’s latest bid is A$3 in cash and 1.57 shares for each Pure share, valuing the target at A$6.82 a share at yesterday’s closing price.

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