Royal Dutch Shell has secured a slice of Australia’s burgeoning coal-seam gas sector, signing a preliminary A$776 million (£375 million) deal today with the fourth-largest producer.

Europe’s biggest oil company is to make staggered investments in Arrow Energy, taking a 30 per cent stake in the company’s Australian coal-seam gas tenements – the largest in the sector – and a 10 per cent interest in its international assets.

Shell is the latest big international player to enter the sector as exploration costs soar for offshore gas, joining BG Group, the third-biggest buyer of liquefied natural gas (LNG), and Petronas, Malaysia’s national oil company.

On Friday Origin Energy, the leading player in the sector, rejected an improved A$13.6 billion takeover offer from BG on the basis that its coal-seam gas reserves alone were worth A$15 billion.

The Anglo-Dutch company, through its Shell Exploration subsidiary, will have the right to buy LNG produced from gas out of tenements in Australia, China, Indonesia, Vietnam and India that it has bought into through the deal.

The agreement also gives Shell a five-year option to acquire up to 50 per cent of individual international projects, which includes activities in China. Last December Shell took a 55 per cent stake in a coal-seam gas project in China’s Shanxi province and described the potential for the resource in the country as vast.

John Hirjee, an energy analyst at Deutsche Bank in Sydney, said Arrow’s international assets suggested that Shell was approaching the deal from a regional perspective.

“I think you’ve got major LNG players making sure they’ve got a strategic position in coal-seam gas in Australia. This could be a new resource they’re all looking at so I think Shell is trying to make sure it has a place at the table,” he said.

Arrow, which has 90,000sq km of acreage, is the fourth-largest producer of coal-seam gas in Australia after Origin, Santos and Queensland Gas Company (QGC). Only Origin remains now without an international partner.

It intends to use proceeds from the sale of its upstream Australian assets to fund a proposed 1.3 million-tonne LNG development at Gladstone in the north-eastern state of Queensland, one of four projects planned for the region. Its shares closed up 14 per cent.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4048081.ece