Maybe finding another bidder for Arrow is unlikely at present,...

Maybe finding another bidder for Arrow is unlikely at present, however I would consider the possibility of finding a buyer for NHCs stake a much better chance. This would achieve the same effect as staving off a low bid; as clearly NHCs stated intention to move house is a current liability.

Arrow connecting with BOW gives them a cheap and big asset in the current setting.

For example, if BOW was valued on a 1 arrow for 2 bow basis, that would equate BOW to a $2.50/s basis. MC comparitively that is BOW@$700m and [email protected]. This would be a 20% dillution to current AOE holders.

On a 3P reserves basis however, the value for Arrow would be clearer. Arrow net reserves on a 3P basis are ~5700PJ. It would only be appropriate to consider 3P here as BOW has nil 2P. BOW has 2318PJ 3P. This would represent an increment of 40% in reserves for Arrow with only a 20% dillution. The difference would be well offset by the other assets that Arrow has (power, size, infra, plans). AOE would also increase their cash reserves by ~$100m on acq of BOW.

Both companies still have considerable upside in exploring for reserves.

What would be the point? Well I would think the point is to prepare Arrow for something bigger in years to come and allow them to execute their current plans which will deliver far more value than the current cash backing that has been offered by Petro/Shell.

Remembering that the Chinese three have a clear track record of wanting to invest infrastructure upstream; is it that hard to consider that a Japanese interest would not also want to do the same?

The timing of the deal is significant in terms of what it says about what is important to Petro and Shell. Clearly they could have waited until after FID, however, you could deduce that the gas from Surat is valued highly and they want it feeding their consolidated entity. This gives Arrow something to work with here as it is both a need of Shells as well as a path to greater wealth for Arrows holders.

Things working against Arrow at the moment, is not just the lack of a competing bidder, but there is also considerable unassigned gas from Origin/Conoco which is sitting on the market; so the bid space imo is fairly limited.

A large detraction from looking at getting a mix of gas from competing operations is it introduces risks in planning and development execution as various 'suppliers' and partners have varying capital needs and development spans; hence, a clean wholly owned operation is something which carries a small premium.

Also working against Bow and Arrow is the timeframe for the development of the Bowen basin tenements, they are still a while off, which unfortunately peels back some of the value.

An Arrow takeover would hurt LNG Ltd, of which Arrow has a major stake in.

Of BOWS upgrade, I went and reviewed my expectations for the Comet upgrade last year. Maybe I should get a job with BOW management as I under estimated the size and quality of the resource at 400-700PJ with the possibility for somewhere as much as 900-1200PJ in reserves there. Considering the numbers came through at 3P of 871PJ and a probable additional contingent resource of 439PJ pitches the total resource around the 1310PJ mark. Not bad for a pluck if I dont say so :)

The upgrade is very exciting and BOW are doing a great job on executing for holders. I am interested to know if there have been any reported flow rates from the BW3/4 wells?

Also something which I am not sure I have asked before, but has anyone noticed that Arrow were running SIS wells in the Rangal Coals near BOWs tenements. I find this interesting as it is a very different well type to the vertical natural/stimulated wells drilled by BOW in BlackWater? Any comments would be appreciated.

Anyway, exciting things to come for this industry.

Cheers,

SF