ARROW Energy has received a sweetened offer from its suitors Royal Dutch Shell and PetroChina, gaining about 5 per cent more cash and an increase in the value of the international business that shareholders will continue to own.
The last major Australian independently operated coal seam gas company is expected to make an announcement approving the new offer as early as today, after entering a trading halt on Friday.
The deal was expected to be signed overnight after almost two weeks of talks between the would-be buyers and Arrow's board, advised by Citi and UBS.
On March 8, the company received an initial offer of $4.45 a share, or $3.3 billion, plus a one-for-one share in Arrow's offshore operations, Arrow International, generally valued at 50¢ a share.
Sources close to the deal said the revised offer would lift the initial cash offer by about 5 per cent - which represents about 22¢ a share or an additional $165 million.
Significantly, a condition of the new offer is believed to involve Shell relinquishing an option it gained over Arrow International's offshore exploration projects when it bought a stake in Arrow International in June 2008.
The option acted as a limit on Arrow shareholders' exposure to Arrow International's profitability.
Under the option, Shell was able to lift its stake in any Arrow International project outside India to 50 per cent by paying 50 per cent of the development costs to date.
This option meant Arrow Energy would foot the entire exploration bill, while Shell could choose to exercise its option on projects that had the most potential for profit.
Analysts' valuations of Arrow International range widely, between 50¢ and 74¢ a share, factoring in a discount because of Shell's option.
Removing the option clears uncertainty from Arrow International, which is proposed to be listed on the ASX.
Under the new owners, Arrow Energy would be unlikely to proceed with due diligence on a $2.8 billion Gladstone-based plant that converts coal seam gas to liquid natural gas (LNG).
The Fisherman's Landing project was promoted by LNG Ltd, but Arrow had not entered binding agreements when the offer was made by Shell and PetroChina.
Shell is understood to be in favour of transferring Arrow's coal seam gas to its own LNG plant at nearby Curtis Island.
Bankers say in the two weeks since the deal was announced, no rival suitors have emerged.
Arrow's largest shareholder with a 17 per cent stake, New Hope Coal, is understood to be in favour.
The deal requires Foreign Investment Review Board approval.
