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Arrow to Buy Beach Gas Asset for Up to A$400 Million

By Angela Macdonald-Smith and John Viljoen

April 3 (Bloomberg) — Arrow Energy Ltd., the Australian coal-seam gas producer, agreed to buy Beach Petroleum Ltd.’s stake in a gas venture for as much as A$400 million ($287 million) after failing in a bid for Pure Energy Resources Ltd.

Arrow will pay A$260 million in cash and A$70 million in shares to Beach on completion of the purchase of the 40 percent interest in the Tipton West project in Queensland, the Brisbane- based company said today in a statement to the Australian Stock Exchange. Subsequent payments of as much as A$70 million depend on progress in reserves certification and gas production.

Beach Petroleum Managing Director Reg Nelson said in February that initial bids for the Tipton West stake, which it secured for A$35 million, were within a range that should result in a sale. Arrow, outbid for Pure by BG Group Plc last month, is seeking gas reserves to help supply planned liquefied natural gas projects in the central Queensland coastal city of Gladstone.

Arrow rose as much as 5.6 percent to A$3.03 in Sydney trading, and was at A$2.94 at 12:34 p.m. Adelaide-based Beach dropped 2.8 percent to 88.5 Australian cents after earlier advancing as much as 6 percent, suggesting some investors believe the sale price is too low.

The acquisition will boost Arrow’s proven and possible reserves by 40 percent and simplifies the structure of the Tipton West venture in which Arrow already has a stake, the company said. Royal Dutch Shell Plc, Arrow’s partner in Australian coal-seam gas, has the right to buy 12 percent of the assets under a pre-emptive agreement, it said.

‘Met Expectations’

While the drop in Beach Petroleum’s stock may reflect disappointment among some investors at the sale price for the Tipton West asset, Nelson told reporters on a conference call today the deal “met our expectations.” The company had five or six “serious” proposals for the stake.

Beach Petroleum “won’t sit on the cash” raised by the transaction, Nelson said on the call. There are “lots of opportunities” in Australia for production, development and “small” corporate acquisitions, he said.

The global financial crisis has increased the number of potential purchase targets, Nelson said. A year ago Beach Petroleum was presented with about 12 opportunities a month, and this had now increased to as much as 50, he said.

The West Tipton sale gives Beach Petroleum about A$80 million in cash, which it can use along with income from other operations, particularly its share of oil production from fields in Egypt, for potential investments, he said. Nelson doesn’t favor borrowing for any purchases, intending to retain Beach’s “low gearing” and “strong balance sheet.”

Editors: Ang Bee Lin.

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

Last Updated: April 2, 2009 22:20 EDT 

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