Weekly Update: Arrow adds new string to its CBM bow

Mark Young
Evaluate Energy

Arrow Energy has made a bid for Queensland-based Bow Energy in what was by far the biggest deal of another quiet week of oil and gas deals. Arrow, a 50/50 joint venture between Royal Dutch Shell and PetroChina, aims to add Bow to its portfolio for a total of around US$658 million, based on shares outstanding as of June 30. 

Bow’s assets are coal bed methane (CBM) fields in Queensland, a resource that Arrow has great technical experience in, so development will likely be accelerated. The new gas resources and Bow’s plans to increase reserves will complement Arrow’s existing CBM tenements and will also help Arrow increase the size of its LNG trains planned for its new terminal in Gladstone.

The current share price premium on this deal is relatively high at 68%, and this has been a common theme since the beginning of Q3 2011. In all corporate deals this quarter, the average premium is around 56%, excluding CNOOC’s acquisition of debt-ridden oilsands company OPTI Canada, where shareholders only received $34 million of the $2.1 billion outlay. The high average is doubtless due to the acquiring companies not lowering their valuations of the target companies as much as the market is. This high average is in stark contrast to Q2 2011, before the markets began to fall, where the average premium in corporate deals was only around 15%.

BHP Billiton’s huge $15.1 billion acquisition of Petrohawk Energy Corp. closed this week, another deal that adds to this high average premium, with the offer premium being 62% here. The deal has given BHP more access to US shale acreage following its Fayetteville acquisition from Chesapeake earlier in the year. The Australian company has bolstered its portfolio by acquiring a position in the biggest producing play in the country, the Haynesville, and the liquids-rich Eagle Ford play. The deal also includes conventional liquids-rich acreage in the Permian basin. The liquids-rich acreage, and the considerably higher realizations that oil brings over gas, will make BHP’s entry to the US shale market a far less risky move.

San Leon Energy provided the other big E&P deal to be announced this week, with its $196 million cash and stock based acquisition of Realm Energy International Corp. It is another Q3 deal with a high premium, 46%. The combined entity will have a strong foothold across European shale, with Realm adding four Polish and one German license to the portfolio that San Leon has amassed over the past few years. San Leon is also hopeful over success in 20 new shale gas license applications covering over four million gross acres that Realm has made in Spain and France, although this probably should be tempered by France’s ban on hydraulic fracturing. 

In contrast to these deals, Archer Limited completed its acquisition of Great White Energy Services this week at a lower value than originally agreed due to the turmoil in the financial markets. The deal closed early this week and the final consideration was around 15% lower than the originally announced price, the final value coming it at $630 million. Great White is an oil-services company focused on unconventional oil, and the acquisition provides Archer with a strong platform to become a leading player in this market across the US, as the spread of Great White’s activities is vast.

Away from corporate deals, Encore Energy Partners was also busy this week with one announced asset acquisition in the Permian basin and a completed asset acquisition in Wyoming. The deals cost the company $14.8 million and $28.5 million respectively. Both deals display metrics that can be considered to be industry standard. The Wyoming acquisition is gas-weighted and comes in at $6.83 per boe of 1P reserves, whilst the oil-weighted Permian basin acquisition is a higher $14.37. These deals conclude a busy August for Encore; the acquisition of some other Permian properties with its general partner interest holder Vanguard Natural Resources completed at the beginning of the month for a net amount of $40.7 million.

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