ARROW Energy and CH4 plan to merge, creating Australia's largest coal seam gas producer.
But consolidation in the sector suffered a setback yesterday with Queensland Gas announcing it had abandoned its controversial $100 million bid for Sydney Gas.
QGC has decided it would create more value for its shareholders by focusing on its existing assets.
Arrow and CH4's deal being a friendly merger has a greater chance of success. They hope it will give them greater clout and improve their standing with international customers.
Arrow will control 52 per cent of the yet to be named merged entity and Macquarie Bank-backed CH4 the remaining 48 per cent.
The offer to shareholders is for 2.15 Arrow shares for every CH4 share and two Arrow options for every five CH4 shares. CH4's major shareholders Macquarie Bank, Carnegie Wylie & Co and J Barlow Consultants will accept the bid in the absence of a superior proposal.
Arrow's main assets are in the Surat Basin in southern Queensland and include Kogan North, Tipton West and the Daandine Prospect while CH4's signature asset is the joint venture Moranbah Gas Project.
Moranbah is the sole supplier of gas to Townsville.
Wilson HTM analyst Andrew Pedler said there was potential to expand to Gladstone once the State Government fast-tracked the Moranbah-to-Gladstone pipeline.
Consolidation activity in the gas sector has been strong since Santos bought Tipperary Corporation for $612 million last year.
QGC shares closed up 1c at 71 and Sydney Gas was steady at 35c. – with AGENCIES
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