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Takeover Target Arrow Halts Shares



FRIDAY MARCH 19, 2010, 2:00 A.M. ET

SYDNEY—Arrow Energy Ltd. has yet to strike an agreement with Royal Dutch Shell PLC and PetroChina Co. on a takeover offer, people familiar with the matter said Friday amid mounting speculation of a sweetened offer from the pair.

“There is no agreement at this point,” one person said.

It has been nearly two weeks since Royal Dutch Shell and PetroChina offered 3.3 billion Australian dollars (US$3.0 billion) for Arrow’s Australian operations. The continuation of talks may cool speculation that an Arrow-endorsed deal is imminent.

Another person said it is “unlikely” a deal will be struck by the end of the day, but that anything is possible. Negotiations at this point involve “all aspects of the initial proposal”, the person said, without dismissing the possibility that a higher bid for the Australian assets could emerge.

Arrow said in a statement Friday that its shares will be halted from trading until Tuesday, or until it makes its next announcement on the offer.

All three parties have been locked in discussions for almost two weeks and a person familiar with the matter said Wednesday they’re “working really hard to see if there’s a deal here.”

Previously, a person involved with the talks said the separation of the domestic and international operations was a sticking point in negotiations. The original proposal would leave Arrow’s international operations in the hands of its existing shareholders.

Nik Burns, an energy analyst at RBS, said he is “very confident” of an improved bid and raised his target price on Arrow’s shares to A$5.45 from A$5.00.

Arrow hasn’t yet publicly responded to a A$4.45-a-share cash equal joint bid from Shell and PetroChina for its Australian assets, although most analysts agree the bid undervalues the assets.

“Arrow has been in active discussions with Shell and PetroChina over the past few days, probably thrashing out a revised offer,” Mr. Burns said in a note to clients. “With too much to lose on both sides if this deal falls over, we are very confident of an improved bid.”

Mr. Burns said Arrow needs a deal because more than 80% of its acreage is currently unexplored and the A$2.2 billion Fisherman’s Landing liquefied-natural-gas project in Queensland state was looking like a big ask from a funding perspective. “With no other bidder expected, maximizing the sale price should be Arrow’s primary objective,” Mr. Burns said.

Shell needs Arrow because it doesn’t have enough assets to back its claims that Australia is a key growth region with huge potential and PetroChina needs to secure long-term energy supplies, Mr. Burns said.

A spokesman for Arrow wasn’t immediately available for comment and a spokesman for Shell said the parties are still in talks.

PetroChina spokesman Mao Zefeng declined to comment specifically on the joint bid, saying the company would issue an appropriate press release if needed.

Merrill Lynch analyst Mark Hume said on Thursday that expected aggressive growth in Chinese demand for gas makes a sweetened bid for Arrow more likely.

—Aries Poon in Hong Kong contributed to this article.

Write to Ross Kelly at [email protected]

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