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Shell Partner Sees Australian Project Consolidation




By Angela Macdonald-Smith

Feb. 5 (Bloomberg) — Australia’s emerging coal-seam gas industry is headed for consolidation as rivals seek the most profitable way of developing ventures that liquefy the fuel for export, Royal Dutch Shell Plc’s local partner said.

Shell and Arrow Energy Ltd. expect to announce this quarter or next how they intend to participate in the reorganization of rival projects planned by companies including BG Group Plc and ConocoPhillips, said Shaun Scott, chief executive officer of Brisbane-based Arrow’s Australian unit.

Growth in non-conventional gas such as coal-seam methane and shale gas will help it overtake coal as the “dominant” fuel in the next few years, Schlumberger Ltd., the world’s largest oilfield services provider, said in October. Shell last year agreed to buy 30 percent of the Australian permit areas of Arrow, which has an accord to sell fuel for a small LNG project planned by Liquefied Natural Gas Ltd.

Corporate consolidation in the coal-seam gas industry is “broadly finished” and companies are now moving toward “a project consolidation phase,” Scott told reporters in Brisbane today. “Everyone sees that as an inevitable process.”

Arrow rose the most since Dec. 30 in Sydney trading today after saying the Shell transaction will boost first-half pretax profit by A$310 million ($200 million) and upgrading its proven gas reserves. The stock jumped 6.5 percent to A$2.31, compared with the 0.3 percent drop in the benchmark S&P/ASX 200 Index.

Reserves Upgrade

Both Arrow and Shell, Europe’s biggest oil company, may participate in the expected consolidation of three proposed large-scale LNG ventures in Queensland, Scott said in an interview last month.

BG, Malaysia’s Petroliam Nasional Bhd. and ConocoPhillips are among international companies that invested about A$17 billion ($11 billion) in Australian coal-seam gas last year with the aim of using the fuel for LNG-export projects.

Arrow today upgraded its net proven and probable reserves by 18 percent from end-June levels to 1,177 petajoules as of Dec. 31.

The completion of the acquisition of Pure Energy Resources Ltd., announced in December, will give the company more than enough reserves to cover the first 1.5 million metric tons a year of LNG capacity planned in its venture with Perth-based Liquefied Natural, Arrow said in a statement to the Australian stock exchange today.

The project by Liquefied Natural, which will have an initial capacity of 1.5 million metric tons a year, is “a good starting point” to prove the concept of producing LNG from gas extracted from coal seams, Scott said last month.

‘Strong Interest’

Arrow’s tenements, in which Shell holds a stake, hold enough resources to potentially feed between 10 million and 15 million tons a year, he said then.

The company has a “strong interest” in exercising a pre- emptive right to take Beach Petroleum Ltd.’s stake in the Tipton West coal seam gas venture, Scott said today. “We think it’s a good asset and certainly we’d be happy to do that,” he said.

BG, the U.K.’s third-biggest gas company, is planning an A$8 billion LNG project on Curtis Island near Gladstone, while Santos Ltd. and Petronas have a rival venture on a nearby site.

ConocoPhillips in September joined Origin Energy Ltd. for a third LNG project in the same region. LNG Ltd.’s project is set to be the first to start shipments, due in 2012, followed by Santos, BG and Origin, all in 2013 or 2014.

“As all the players involved are likely to be economically rational, especially when the going gets tough, some form of consolidation on Curtis Island, in particular, is expected,” Citigroup Inc. said in a Dec. 22 report.

Arrow today estimated a pre-tax profit for the six months ended Dec. 31 of A$345 million, boosted by the gain from the asset sale to Shell, it said in a separate statement to the exchange.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at[email protected]

Last Updated: February 5, 2009 03:28 EST

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