Shell- PetroChina's Arrow deal on target

PETROCHINA and Royal Dutch Shell's $3.44 billion bid for Arrow Energy  is likely to be waved through by the foreign investment regulator.

CHINA'S second-biggest investment in Australia -- PetroChina and Royal Dutch Shell's $3.44 billion bid for Arrow Energy -- is likely to be waved through by the foreign investment regulator after the target's board yesterday backed a revised offer.

The offer by state-owned PetroChina and oil and gas giant Shell will be closely scrutinised by the regulatory body, but China-focused lawyers last night doubted the deal would be blocked.

The Foreign Investment Review Board has previously given the go-ahead to Britain's BG Group's takeover of Queensland Gas, but China's state-owned entities have faced tough reviews and extensive conditions have been placed on deals involving Chinese interests.

The FIRB also gave the go-ahead to China's biggest deal yet, the $3.5bn takeover of Felix Resources by Yanzhou Coal last December.

One insider said because of the "rocky road" state-owned entities had faced, the prospect that the FIRB would place conditions on the deal could not be ruled out, though this proposal differed from the more contentious transactions such as Chinalco's ill-fated $US19.5bn rescue of Rio Tinto.

Lawyers said because the Arrow deal was a joint venture with Shell and the pricing of LNG was transparent, there were unlikely to be strong concerns about a major customer -- PetroChina -- buying an Australian company.

"There will not be as much heat in this type of transaction as we have seen in some of the others," one lawyer said. "In this case, the commercial drivers are quite persuasive for the government."

Arrow chief executive Nick Davies said there had been initial discussions with FIRB.

"I think we have a reasonable confidence things will move forward there," he said. "It is a good deal in terms of having the world's leading LNG company and one of the world's top LNG buyers to help develop Queensland resources . . . there are significant benefits to be had from that."

Shell's chairman in Australia, Russell Caplan, said there were several real benefits.

"This is the precursor to a multi-billion-dollar investment in a greenfields LNG plant," he said.

"It should be a pretty compelling story for the authorities."

Arrow yesterday recommended shareholders accept the revised offer from Shell and PetroChina.

Arrow shareholders will receive cash of $4.70 per share, plus one share in a new listed entity, Dart Energy, compared with the previous offer of $4.45 a share.

Shares in the company fell 3.6 per cent to $5.10 yesterday, but Mr Davies said he was reasonably confident that shareholders would support the deal.

New Hope, which has a 16.8 per cent stake in Arrow, is expected to make a statement on its plans today, but reports suggest the company is likely to support the transaction.

Through the deal, CS CSG, the 50/50 joint venture company owned by Shell and a subsidiary of PetroChina, will own Arrow's Queensland CSG assets and domestic power business, Shell's Queensland CSG assets and its site for a proposed LNG plant on Curtis Island at Gladstone.

The deal will give Shell reserves to feed the Curtis Island LNG project, one of more than a dozen planned LNG ventures. "The proposal is good for jobs, good for Queensland and good for the long-term future of the CSG industry in Australia," Mr Caplan said.

PetroChina's project manager Aiji Ge said the deal would boost Queensland's economy through the export of 7 to 8 million tonnes a year of LNG from the proposed Curtis Island LNG plant. "PetroChina sees this joint venture as a significant commitment to building an integrated CSG and LNG business while continuing to supply domestic gas in Queensland," he said.

Arrow said the cash component of the deal represented a 35 per cent premium to both the last closing price and one-month volume weighted average price prior to March 8, when the original bid was made. Arrow chairman John Reynolds said the offer created "value now and value ongoing".

Under the new deal, Dart Energy, which will be listed on the ASX, will hold on to $45 million in cash held by Arrow and house the company's interests in Apollo Gas, Bow Energy and Liquefied Natural Gas.

"Dart Energy, with its portfolio of assets, and strong funding position has the opportunity to become a leading global coal seam gas company," Mr Davies said.