Arrow said Aug. 13 that talks with companies about its coal-seam gas assets included discussions of a possible takeover, but that it hadn't received an offer. Speculation of an offer contributed to a 55 percent rise in Arrow's shares last year.

Shell, which has a 30 percent stake in Arrow's coal-seam gas holdings in Queensland and a 10 percent interest in its international unit, made a A$3 billion offer for Arrow last year, with talks ending in stalemate, London's Sunday Telegraph reported in August.

Shell plans an LNG project on Curtis Island off the central Queensland coast that is expected to produce as much as 16 million metric tons of LNG a year and have four processing units, the company said in a document lodged last year with the state government. Arrow has said that its added reserves may help feed Shell's LNG venture.

BG Group
Today's offer values Arrow's proven and probable reserves at 88 Australian cents a gigajoule, Burns at RBS Morgans said. BG Group's Queensland Gas acquisition was valued at about A$2.00 a gigajoule, while Origin's sale of a stake in its Gladstone project to ConocoPhillips was worth about A$4 a gigajoule, said Burns, who predicted Feb. 12 that Shell may bid for Arrow.

Buying Arrow would give Shell gas to feed multiple LNG production units, Burns said. The possibility of Arrow selling a stake in Fisherman's Landing may have added to Shell's reasons for seeking a bid, he said.

Arrow said last month it's considering selling a stake and taking on debt or offering shares to help finance the Fisherman's Landing project.

"Arrow needs to raise significant funds, and that may require an equity sell-down, potentially introducing a third party that Shell may not have liked," Burns said.

Arrow's international unit is drilling in India, China, Indonesia and Vietnam, and Arrow aims to boost gas production tenfold by 2015. It may offer as much as 20 percent of that division in a share sale in the second half of 2010, Arrow said Feb. 17.

Queensland's government is expecting as much as A$50 billion of investment in the state's coal-seam gas resources as companies including U.K.-based BG Group and ConocoPhillips vie to export the fuel to Asia.

Eoin Treacy's view This attempted acquisition highlights the continued trend of diversification among the major oil companies. There are many reasons for this but chief among them is the fact that they are finding it increasingly difficult to gain access to the world's major new oil discoveries due to the continued trend towards resource nationalisation. The benefit of new natural gas discoveries is that many of them are in politically secure parts of the world, not least the USA and Australia. This has contributed to major investment in the development of LNG infrastructure globally, in tandem with increased activity in the coal bed / seam methane, offshore gas and shale gas sectors globally.

Natural gas prices remain under pressure having hit a near-term peak in the region of $6 in January. They need to find support in the region of the November low, above $4, if the medium-term bullish outlook is to remain intact.

Shale gas projects have been phenomenally successful in bringing new supply online and continued global investment in natural gas supply suggests that LNG is fast becoming the most viable alternative to comparatively expensive oil. The dominance of new supply is contributing to pressure on natural gas prices and may help to explain the somewhat lower offer for Arrow Energy compared to prices paid for shares in Queensland Gas and Origin Energy.

Coal bed methane companies have weakened in line with the natural gas price over the last two months but rallied today following the bid for Arrow Energy. Origin Energy, which has already sold part of its operation, has been trending gradually higher since January 2009 and would require a sustained move below A$16 to question scope for continued higher to lateral ranging.

Eastern Star Gas had a similar pattern to Arrow Energy prior to the bid. Today's rally broke the short-term progression of lower highs but it needs to hold above A80¢ to indicate that demand is regaining the upper hand. Bow Energy also rallied well today and the upside can probably be given the benefit of the doubt in the absence of a sustained move below A$1.

Victoria Petroleum, Icon Energy, Comet Ridge and Carbon Energy have all accelerated lower over the last two months and are overextended in the short term. While they rallied somewhat today, they need to sustain upward dynamics for more than a few days to indicate that demand is regaining the upper hand.

A search using 'methane' as the keyword will return a number of sections relating to this sector over the last few years. Here is an example from Comment of the Day on April 30th.