First there was Queensland Gas, then Origin Energy, Santos and now Arrow.
It’s a virtual beauty parade of Queensland coal seam gas producers or wannabees finding international oil and gas groups throwing money at them.
Queensland Gas was romanced and won by BG Group, which tried a bear hug on Origin but was rebuffed after Santos revealed a $2.6 billion deal with Petronas of Malaysia, the world’s third largest LNG group.
Yesterday Royal Dutch Shell and Arrow Energy revealed a $776 million alliance to exploit Arrow’s Queensland coal seam gas reserves with an LNG plant.
It only seemed a short while ago that Santos was trying to take over Queensland Gas, which rejected the advance and brought AGL Energy on board as a big shareholding friend, and then abandoned AGL for BG group and a commitment to put in upwards of $900 million into QGC’s gas extraction and LNG plant plans.
The Arrow deal, while impressive, does mean the attractiveness of Origin is that much higher now that it has spurned BG Group. Origin has by far the largest reserves and even though drilling and collecting coal sea methane will be expensive and a bit tricky, the Arrow deal does add lustre to the Queensland coal gas industry.
Instead of making town gas from coal, as the likes of AGL did decades ago, coal seam methane is an entirely different product because it is heading for the liquefying plants and the export markets of Asia where gas prices are rising rapidly.
Shell is returning to the Queensland coal industry but by a different route. For years it was a major exporter and explorer but abandoned coal for gas and Woodside. Now it’s going to acquire 30% of Arrow’s upstream tenements for an initial payment of $435 million, with a further $209 million payable upon a final investment decision and production from an LNG plant.
Arrow like Santos, Petronas and BG Group and QGC, wants to build an LNG plant at Gladstone on the central Queensland coast.
Like BG Group with QGC, Shell will also acquire a 10% interest in Arrow through buying the stake in Arrow International, the company that holds all of Arrow’s international assets, for $132 million.
Arrow shares jumped to a record high of $4.11 yesterday before easing to $3.79, up 14%.
Arrow was a strong performer last month, advancing more than 40%.
The deal was announced yesterday morning after Arrow went into a trading halt Friday amid speculation that it was close to a deal with Shell.
Arrow has an agreement with a company called LNG International Pty Ltd to supply 55 petajoules of gas a year to a planned facility for a 12-year period starting in late 2010.
LNG International is 20% owned by Bermuda-incorporated shipping company Golar, the world’s largest independent owner of LNG shipping transportation.
Arrow said Shell will have the right to offtake the LNG utilised from the tenements it has bought into under the agreement.
