Royal Dutch Shell (NYSE:RDS-B) Expected to Raise Arrow Energy Offer

If Royal Dutch Shell (NYSE:RDS-B) or PetroChina want to successfully acquire Arrow Energy of Australia, they will probably have to increase the offer as high as 55 cents a share to land the company. That would bring the overall valuation of the company to $3.4 billion, according to an RBS Morgans analyst.

Nik Burns. and analyst for RBS based in Melbourne said in a note, “Shell and PetroChina may have to sweeten their offer for Arrow to as much as A$5 a share.” Burns added the price will probably have to be a minimum of A$4.80 to have a chance of going forward with the deal.

PetroChina and Shell both offered a price of A$4.45 a share for Arrow, which is an Australian coal-seam gas business. That would value the company at close to A$3.3 billion.

Although it's not known at this time, some think the same offer from Shell and PetroChina may indicate they're looking at going into a joint venture in relationship to Arrow, which of course is a definite possibility.

If Shell is going after Arrow on its own, it is expected they would also pursue AGL Energy Ltd.’s coal-seam gas assets in Queensland’s Bowen Basin. That would probably cost them about A$900 million in Burns' estimation. It is also expected to follow, if Shell indeed acquires Arrow, they could also land a 50 percent stake in the Moranbah field from AGL.

It's not clear if the same deal would go forward if PetroChina acquired Arrow, as there has been increasing resistance to Chinese incursion in the region; the reason we've been seeing China partner with a number of companies when making bids to make acquisitions recently.

Assuming there is a joint venture in the works between Shell and PetroChina, it also isn't clear if the other deals would be conducted, although the chances improve exponentially for PetroChina if Shell is their partner in it.