Shell, PetroChina bid for Australian coal gas producer as Asia seeks energy resources

PetroChina joined with Royal Dutch Shell in a bid for Australian coal-seam gas producer Arrow Energy as Asian countries scramble for a stake in the vast energy resources at their doorstep in Australia.

The initial bid of A$3.3 billion (US$3 billion) valued Arrow’s shares at $4.45, a 28% premium on last week’s close of $3.48. But investors quickly bid up the shares even higher in anticipation of a sweetened bid.

Australia has vast reserves of coal-bed methane and has attracted some A$20 billion (US$18 billion) in foreign investment over the past two years to develop this resource. Malaysia’s national oil company Petronas as well as oil majors like ConcoPhillips have acquired stakes in the industry.

Exploitation of coal-seam gas in Australia is part of the global hunt for unconventional reserves of gas and oil that high energy prices and new technologies make economically feasible for the first time. Shale oil and gas in the U.S. and oil sand reserves in Canada are other examples of reserves that are attracting billions of dollars in investment.

Coal-bed methane, previously viewed simply as a hazard in coal mining, has also become a major unconventional source of natural gas.

The Shell-PetroChina bid for Arrow will involve the two companies in delivering the gas production to China and other Asian importers via liquefied natural gas shipments. Shell already has plans to build an LNG plant at the port of Gladstone in Australia’s Queensland.

Shell and PetroChina recently agreed to work together to develop shale gas projects in China. Their joint bid for the Australian producer might make it more palatable for Australian authorities. Chinese companies have learned from experience, such as Chinalco’s failed attempt last year to acquire a stake in Rio Tinto for nearly US$20 billion, that they will encounter resistance if they act alone.

In trying to lock up global energy resources for its rapidly growing economy, China has been forced to focus on these more expensive new plays for oil and gas, either in the form of unconventional reserves or emerging markets like Africa.

Shell already owns a 30% stake in Arrow’s domestic assets, acquired two years ago. While analysts had expected Shell to bid for full ownership of Arrow, the teaming up with PetroChina took the market by surprise. In any case, the two oil giants will have the capital resources that Arrow will need to develop its coal-gas reserves, analysts said.

By. Darrell Delamaide