Arrow aim seams true with $673m Pure takeover bidMalcolm Maiden December 23, 2008 Page 1 of 2 Single page view
There's still gas in the Queensland takeover tank, despite oil gloom.
ARROW Energy's $673 million takeover offer for one of its neighbours, Pure Energy, suggests that the tumbling oil price has tempered Queensland's coal seam gas takeover boom rather than killing it.
Arrow already has its foot on 19.9 per cent of Pure, which owns coal seam reserves adjacent to Arrow's in Queensland.
Its $5.40 cash and share offer is 81 per cent above Pure's closing share price last Friday, and a stunning 147 per cent above Pure's weighted average price in the past month. Despite that, it actually only brings Pure's shares into the bottom of the valuation range for coal coal seam gas company acquisitions this year.
After allowing for cash on Pure's balance sheet, the bid values Pure's proven, probable and possible coal seam gas reserves at about 53 cents a gigajoule, and two coal seam deals this year have been significantly richer: Santos' $2.5 billion sale of 40 per cent of its Queensland coal seam gas assets to Malaysia's Petronas at an effective price of $1.65 a gigajoule, and Origin Energy's joint venture with Conoco Phillips, which values Origin's coal seam gas reserves at $1.88 a gigajoule.
Even allowing for the fact that Santos and Origin were sitting on large reserves that would have commanded a premium, those two deals are outlyers, however, and the value Arrow is placing on Pure is more in line with other coal seam gas acquisitions.
Arrow itself received one cent a gigajoule less than it is offering Pure in its sale of 30 per cent of its Australian coal seam gas tenements and 10 per cent of its overseas interests to Shell for $US737 million ($A1.08 billion).
Queensland Gas Company also bought Sunshine Gas for the equivalent of 74 cents a gigajoule in October, and is now being taken over by Origin's jilted suitor, BG of the UK, at a price that values the combined QGC-Sunshine reserves at about 60 cents a gigajoule. BG launched its QGC offer after unsuccessfully bidding for Origin at a price that valued Origin's reserves at between 50 cents and 70 cents a gigajoule.
Although it is pitched at the bottom end of the coal seam gas values implied by those deals, Arrow's offer will probably succeed. Pure Energy's board will tip in the 20 per cent of the company it controls if there is no higher counter-offer, and Arrow's partner, Shell, is also on the register after snapping up 14.9 per cent of Pure in October.
And while the consolidation of ownership of Queensland's coal seam is likely to continue as Origin-Conoco, BG-QGC, Arrow-Shell and Santos-Petronas develop plans to use Queensland coal seam gas as a feedstock for LNG export projects, there is less urgency about the plans now that the oil price has plunged from its July peak of $US145.29 a barrel to $US33.87 a barrel.
Oil is in over-supply as the global economic downturn worsens and demand shrinks, and the same forces are pulling down on other energy commodities, including LNG.
AOE Price at posting:
$1.99 Sentiment: LT Buy Disclosure: Held
