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Shell Partner Arrow Targets 10-Fold Gain by 2015

Source: Bloomberg 9/24/2009, Location: Asia

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Arrow Energy Ltd., Royal Dutch Shell Plc’s Australian coal-seam gas partner, will start drilling in Indonesia and may expand in Europe and Southern Africa as it pursues a 10-fold jump in production by 2015.

Arrow’s strategy “is to get as much quality acreage as quickly as we can, before it becomes of interest to everyone else,” Chief Executive Officer Nick Davies said in an interview. Arrow targets annual production of more than 200 petajoules, with about 25 percent of that from outside Australia, he said. Output now is about 20 petajoules, said spokesman Andrew Barber.

Brisbane-based Arrow has surged 65 percent in six months in Sydney trading, partly on optimism about increased demand for gas as a cleaner-burning fuel than coal. Arrow plans to supply two Queensland liquefied natural gas ventures targeting export markets in North Asia and wants to replicate its Australian business in China, India, Vietnam and Indonesia, Davies said by telephone from Singapore yesterday.

“The gas business is unpredictable, but they’ve got proven ability to deliver what they promise,” Hai Pham, an analyst at Bakers Investment Group in Brisbane, said by phone today. “I think they can progress well in Asian countries.”

Gas output of 200 petajoules is equivalent to about 34 million barrels of oil, according to conversions provided by Geoscience Australia.

Arrow has started projects in China, India and Vietnam and is set to begin drilling in Indonesia within a month, Davies said. The company estimates Australia may hold up to 350 trillion cubic feet of coal-seam gas resources, and Indonesia an estimated 450 trillion cubic feet of gas in Indonesia, he said.

‘Never Say Never’
Arrow’s gas is set to be used at two LNG ventures in Gladstone, central Queensland -- the Fisherman’s Landing project of Golar LNG Ltd. and Liquefied Natural Gas Ltd., and Shell’s Curtis Island venture. They are among five LNG plants proposed for Queensland targeting sales to Asia.

Arrow, Australia’s largest owner of coal-seam gas field acreage, would examine supplying gas to more of the Queensland LNG projects, Davies said. “Never say never. It depends on how much gas we’ve got and how quickly it comes forward.”

Coal-seam gas is mostly methane found on the surface of coal. The gas can be extracted when pressure on the seams is reduced, usually by removing water. LNG is gas chilled to liquid form for transportation by tanker to destinations not connected by pipeline.

Arrow traded 1.6 percent lower at A$4.31 at 2:28 p.m., valuing the company at about A$3.2 billion ($2.8 billion). Speculation of a takeover bid has helped fuel the stock’s advance this year. Shell, which owns a 30 percent stake in Arrow’s coal seam gas acreage in Queensland and a 10 percent interest in its international unit, made a A$3 billion offer for Arrow, with talks ending in stalemate, London’s Sunday Telegraph reported in August.

Arrow has held discussions with parties about a change of control, but hadn’t received an offer, the company said Aug. 13.

Davies declined to elaborate on a potential takeover bid.

“We’re very focused on delivering gas to the two LNG projects,” he said. “That’s 100 percent of what we’re focused on as a company. But we’re always checking for alternative value.”

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