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Arrow’s Davies hits target with sweetened Shell bid


Fayen Wong
Mon Mar 22, 2010 9:27am EDT

(Reuters) – When Nicholas Davies joined Brisbane-based Arrow Energy Ltd as chief executive in 2004, he was charged with growing the then junior explorer into one of Australia’s top coal seam gas producers by 2010.

Six years on, Arrow holds the largest coal seam gas acreage in Australia with plans to roll out the world’s first liquefied natural gas (LNG) plant using the unconventional gas resource, drawing energy giants Royal Dutch Shell and PetroChina to launch a friendly takeover offer.

Arrow agreed to an offer worth $3.1 billion on Monday, after Davies pressed the duo to improve their initial proposal by 6 percent.

“I can tell you, it was not an easy discussion,” Shell’s local chairman, Russell Caplan, told reporters.

Analysts who cover Arrow said the 51-year-old Davies was pivotal in the Shell-PetroChina negotiations and has played a leading hand in drawing Arrow out of the shadows to propel its market value some 80-fold since it listed a decade ago.

According to local media reports, the ex-BP executive owns 5.5 million shares in Arrow now worth $25.9 million based on the $4.70 a share cash offer.

In a sign of confidence in Davies, Shell/PetroChina said Arrow’s international assets, including exploration and coal-seam gas projects in China, Indonesia, Vietnam and India, would go into a new company, Dart Energy, under the existing board and management team.

Married with three children, Davies was the head of BP’s Asia Pacific gas and power business before he joined Arrow in 2004.

Davies, who holds an engineering and mathematics degree from the University of Nottingham in Britain, comes across as somewhat aloof and cautious, some analysts say, in contrast to the more charismatic, risk-taking leaders at Arrow’s larger rivals.

“He is very sharp and entrepreneurial. It’s obvious that his time at BP has made him very aware of global gas demand and the opportunities that are out there,” said John Young, an energy analyst at Wilson HTM.

Davies led Arrow to be the first firm to outline plans of converting cheap and abundant coal seam gas into the much higher-value LNG for export markets, a still untested technology.

The process involves extracting reserves of coal-bed methane from the coal seams through drilling, then piping the gas to the coast to be converted to LNG and shipped to users in Asia.

The other larger firms which have jumped onto the coal seam gas-to-LNG bandwagon include energy majors such as Britain’s BG Group, Malaysia’s Petronas and U.S. ConocoPhillips, which combined poured more than A$20 billion in acquisitions and projects in the burgeoning sector in 2008.

Arrow vaulted to prominence in 2008 after agreeing to sell 30 percent of its domestic assets and 10 percent of its international business to Shell for A$776 million.

The company’s staff describe Davies as a hands-on manager, who is focused and determined,

“When he first joined Arrow, there were only six people in the firm. So at times, he has had to wear the cap of a geologist or accountant,” said a staff member who declined to be identified.

“But he has a very hands-on approach in running the business and he easily takes on multiple roles.”

Davies’ ambition is not just confined to Australia.

He has also embarked on an aggressive campaign to grow Arrow’s overseas business, striking partnerships with India’s GAIL and Tata Power, PetroChina, PetroVietnam and Indonesia’s Pertamina to explore coal seam gas in those countries.

Arrow was planning to approve its Fisherman’s Landing LNG project, expected to cost about A$2.2 billion, in the middle of this year and start production in 2012 with an output of 1.5 million tonnes per year, before Shell and PetroChina made their offer.

The deal with PetroChina and Shell could ironically be the end of Fisherman’s Landing as Shell said it will use Arrow’s gas to supply its own, much bigger, Curtis Island LNG plant.

(Editing by Valerie Lee)


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