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Shell’s 30 per cent stake in restless Arrow Enegy

Soul Pattinson pushes asset for sale

John Durie
From: The Australian
November 26, 2009 1:03PM

EVER since the land-rush for Queensland coal-seam assets erupted in the middle of last year, the folk at Arrow Energy have wondered when its turn would come.

But its partner, Shell, has acquired a stake in the coal tenements rather than Arrow.

An attempt was made earlier this year to get Shell to bid but its $4.20 a share bid price was rejected.

It seems the Arrow camp is getting decidedly restless, which has been the talk of the market and which is now confirmed.

In this context, 17 per cent shareholder Washington Soul Pattinson’s somewhat blatant advertising its stake is for sale is an attempt to get some action on the share register from either Shell or another party.

The problem is, why would someone else come in if Shell has 30 per cent of the tenements and a small stake in Arrow itself? Further, Shell has had half a dozen people in the Arrow offices for the last year, so it presumably knows the company back to front.

A more fundamental issue is the so called “goldmine” that coal seam was said to represent in the middle of last year, an idea that is being reassessed by the big corporates and investors alike.

It is one thing to own the right to mine the gas, but it is a different issue to actually get it to the market and, as far as Arrow’s gas, it would seem Shell is in the ideal position to dictate terms, given it is the logical party to commercialise the project.

Put another way – if you were Shell, why would you hand over value to someone else?

Even if you believe the blue-sky potential, it all takes time, years, and this is longer than the time horizon of even patient investors like Robert Millner at Soul Patts.

The proposed Gladstone processing facilities are already looking crowded, what with BG, Petronas, Origin, Shell, Conoco et al already staking claims; the costs are rising and the Queensland government is making life more difficult by requiring better water treatment.

In all, the concerns expressed by competitor Don Voelte at Woodside are being taken seriously and progress is continuing, but cautiously.

None of which makes life easier if, like Millner, you are impatient to get some cash and run.

Millner made his mark through New Hope with the New Saraji coal project when he picked up exploration land abandoned by BHP in 2002 and then sold it to the same company for $2.5 billion last year.

At one stage, Arrow looked like generating similar returns, but now realism has emerged.

This explains why Millner is walking up and down Martin Place with a placard saying, “gas for sale”.

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