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Shell to Spend $742 Million For Stake in Arrow Gas Assets

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Shell to Spend $742 Million For Stake in Arrow Gas Assets

June 3, 2008

MELBOURNE, Australia — Royal Dutch Shell PLC said it will pay A$776 million (US$742 million) for a partial stake in key assets belonging to Arrow Energy Ltd., marking the latest deal in Australia’s booming coal-bed-gas sector and giving the Brisbane firm marketing power.

Under the deal, which will help Arrow fund its overseas expansion, Shell will pay A$644 million for a 30% stake in all of Arrow’s Australian coal-bed-gas tenements, paying A$435 million upfront and the rest as progress is made on a planned liquefied-natural-gas development in Gladstone in the state of Queensland.

Shell will also pay as much as A$132 million for a 10% stake in Arrow’s international assets and has an option to raise that to 50%.

Alongside large tenement holdings in Australia, Arrow has pegged coal-bed ground in India, Vietnam, China and Indonesia, hoping to get a first-mover advantage in countries where energy demand is on the rise.

Arrow said it has long believed the market is undervaluing its offshore projects and had been planning to spin the assets off into a separate listed vehicle.

But Arrow Chief Executive Nick Davies said there is now no need for a public offering, which would have been carried out to raise funds for project development and to create a valuation for the overseas business.

“We have done both of those things with this transaction, so the immediate need to do that spinning off has gone,” he told analysts.

Mr. Davies said the deal had strategic value for Arrow and was just the beginning of an alliance with Shell that would underpin Arrow’s growth ambitions.

“What we are really about with this transaction with Shell is creating the world’s first global [coal-bed-gas] company,” he said.

Shell Development Australia Chief Operating Officer Chris Gunner said the alliance would bring together Shell’s marketing, financial and research capabilities with Arrow’s proven coal-bed-gas expertise and extensive positions.

Analysts said the price paid was lower than that offered last week by Malaysia’s Petroliam Nasional Bhd. in its deal with Santos Ltd. Petronas will pay US$2.51 billion for a 40% stake in Santos’s liquefied-natural-gas development in Gladstone.

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