arrow lessons learnt

Below article is interesting in relation to NHC comments on what their intended purpose for their stake in Arrow was and how they were overtaken by events. It is really quite interesting to consider that the big companies dont always get it right and can sometimes underestimate or overestimate potential in a company before the intended purpose for the strategic acquisition changes beyond their control.

I am in the 'perfect storm' brewing club for ESG. It might not result in an aggressive takeover, but the foundations for a sustainable business with some excellent growth opportunities are being laid down.

And one last comment. If you have a look at the CSG sector and correlation between corporate activity in the sector and the positive collateral effect it has on other stock prices, action on Arrow in the next 2-3 months and the long awaited 'industry consolidation' could also be some postive price catalysts in the near future for ESG on the back of reserves achievment. Sentiment is naturally Strong BUY.

SF

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Arrow stake up for saleADELE FERGUSON
November 26, 2009
A STRATEGIC stake in the last of the independent coal seam gas plays, Arrow Energy, is for sale at the right price, according to a key investor.

The 17 per cent stake, owned by New Hope Coal, is worth almost $500 million and if sold would bolster New Hope's cash pile to almost $2 billion.

With a market cap of $3.5 billion, if it issued scrip, it could make a significant acquisition in the energy sector.

Robert Millner, chairman of Washington H. Soul Pattinson, told BusinessDay that the coal seam gas business was capital intensive and a game for the ''big boys'' such as Royal Dutch Shell, British Gas, BP and Exxon.

He said when his company, through a 61 per cent controlling stake in New Hope Corporation, first bought into Arrow in July 2006 the expectation was to do a full takeover.

''We bought a 19.9 per cent stake in Arrow at 58¢ a share because we thought it would be an attractive investment and would create a new arm of business for New Hope,'' he said. ''We thought we could get the thing for a dollar.

''No sooner had we got our share of Arrow than there was a steady upstream of these companies, such as Eastern Star Gas and Sunshine Gas, with announcements.''

Demand for liquefied gas and the move by overseas petroleum companies to invest billions of dollars in projects in Gladstone have made New Hope's investment in Arrow no longer long term.

At the same time, Arrow's share price has risen to $4. Mr Millner confirmed the company had reduced its stake to 17 per cent.

"We are not in control of the company but it would be difficult to do something without talking to us," he said.

But the clock is ticking. Arrow is in the process of developing a funding strategy for its international operations. The company plans to drill in four countries next year. This will cost money and require a patient shareholder.

''There is no way we can ever compete with the Shells and British Gases around here. Arrow's natural home is with one of the big boys. The set up at Gladstone, we are talking billions of dollars. BP is out here apparently, and Exxon,'' Mr Millner said.

For any of the existing coal seam gas to LNG proponents operating in Queensland, Arrow would be a quick and easy way to expand their reserves and underpin any LNG plant expansion plans, according to analysts.

The takeover rumours have suggested a possible move on Arrow by Royal Dutch Shell, which bought a 30 per cent interest in Arrow's Australian tenements in the middle of last year.

Shell has proposed developing its own coal seam gas-fed LNG plant at Gladstone.

Mr Millner said New Hope was put together in the mid-1990s when coal prices were depressed. It was listed as a separate entity a few years ago and as coal prices jumped, so too did the share price.

He said the company was not working on any deals but could act quickly if something came up.