BG Lifts Bid for Pure to A$995 Million, Topping Arrow

Feb. 17 (Bloomberg) -- BG Group Plc raised its hostile offer for Pure Energy Resources Ltd. to A$995 million ($646 million), topping a bid by Arrow Energy Ltd., as it seeks to add coal-seam gas reserves for an Australian export venture.

BG, the U.K.’s third-biggest gas producer, boosted its cash offer by 25 percent to A$8 a share, the company said today in a statement. That’s 11 percent higher than the cash and stock bid from Arrow, based on yesterday’s closing prices, and 7 percent more than Brisbane-based Pure’s close yesterday of A$7.48.

Arrow and BG are among companies building up gas reserves in northeastern Australia to feed planned liquefied natural gas projects that would tap a forecast shortfall in supply. Australia’s coal-seam gas industry attracted more than A$17 billion in investment last year as producers such as ConocoPhillips and Malaysia’s Petroliam Nasional Bhd. bought into ventures that may meet Asian demand for cleaner fuel.

BG’s latest bid “still looks as though it’s within the range of previous acquisitions, so it’s not overspending,” said Andrew Williams, an energy analyst at Credit Suisse Group in Melbourne. “It’s conjecture whether Arrow can come back or not with a higher offer.”

Pure Energy gained as much as 90 cents, or 12 percent, to A$8.38 on the Australian stock exchange, rising beyond BG’s increased offer. Arrow advanced as much as 6.3 percent to A$2.85.

Reading, England-based BG is being advised by Gresham Advisory Partners, while Goldman Sachs JBWere Pty is advising Pure and Wilson HTM Corporate Finance is advising Arrow.

‘Competitively Priced’

Nick Davies, managing director of Brisbane-based Arrow, said earlier today he believed Pure’s assets were “still competitively priced” at Arrow’s latest bid, worth A$7.21 a share at yesterday’s close.

“Of course that value equation will change at some level of bid,” he said in the document. Davies couldn’t be immediately reached for comment today.

Pure is exploring for coal-seam gas, which mostly comprises methane on the surface of coal. BG, Arrow’s coal-seam gas partner Royal Dutch Shell Plc, Petronas and ConocoPhillips are among the companies in five rival ventures planning to convert coal-seam gas into LNG for export to Asia, the biggest market for the fuel.

Coal-seam gas, which can be extracted when pressure on the coal seam is reduced, usually by removing water, hasn’t previously been used as a fuel for LNG export projects. BG’s latest bid is more than double the price Pure was trading at before Arrow made its initial A$5.40-a-share bid in December.

‘Frustrating’ Bid

BG probably needs Pure Energy more than Arrow does, Credit Suisse’s Williams said today in a report.

“We see BG with a stronger imperative for success in the Pure Energy bidding situation and certainly with more cash resources to be successful,” he said.

In terms of reserves, BG is bidding 40 Australian cents a gigajoule for Pure, still less than the 72 cents a gigajoule it paid for Queensland Gas Co. in October. BG’s A$5.2 billion purchase of the rest of Queensland Gas, its partner in its Australian LNG venture, followed a failed A$13.5 billion offer earlier in the year for Origin Energy Ltd., Australia’s biggest producer of gas from coal seams, which attracted an A$8 billion investment from ConocoPhillips.

BG’s bid for Pure may be designed “to frustrate Arrow Energy’s plans for LNG” at a rival LNG project Arrow plans with Liquefied Natural Gas Ltd. at Fisherman’s Landing near Gladstone, Citigroup Inc said in a Feb. 12 report.

Australia’s Foreign Investment Review Board has advised it has no objections to the bid from BG, which today said its offer is unconditional.

Arrow’s bid, of A$3 in cash and 1.57 shares for each Pure share, is also unconditional. Arrow is Pure’s biggest shareholder, with a stake of 19.9 percent. Shell owns about 11.2 percent and BG owns 9.7 percent.

LNG is natural gas chilled to liquid form for transport by tanker to destinations not connected by pipeline.