Arrow, CH4 to merge The Courier-Mail

QUEENSLAND'S Arrow Energy and CH4 plan to merge, creating Australia's largest coal seam gas producer.
But consolidation in the sector suffered a setback yesterday with Queensland Gas announcing it had abandoned its controversial $100 million bid for Sydney Gas.
QGC has decided it would create more value for its shareholders by focusing on its existing assets.
Arrow and CH4's deal being a friendly merger, it has a greater chance of success. They hope it will give them greater clout and improve their standing with international customers. Arrow will control 52 per cent of the yet to be named merged entity and Macquarie Bank-backed CH4 the remaining 48 per cent.
The offer to shareholders is for 2.15 Arrow shares for every CH4 share and two Arrow options for every five CH4 shares.
CH4's major shareholders Macquarie Bank, Carnegie Wylie & Co and J Barlow Consultants will accept the bid in the absence of a superior proposal.
CH4's former CEO Louis Rozman resigned earlier this month.
The board will be chaired by former APN News & Media chief executive John Reynolds.
Arrow Energy chief executive officer Nick Davis, who will head the new company, said while smaller operators had done well in the burgeoning industry, "to move to the next level we needed the increased strength."
The merged company will have a market capitalisation of about $290 million and will hold sales agreements of more than 363 petajoules.
"We have through this merger a diversification of earnings . . . different customers and different geographical locations," Mr Davis said.
"We will have a critical mass for a Gladstone area export project.
"There's a large potential for a large resource in Queensland as gas to liquids, LNG (liquified natural gas) or natural gas.
"There's a growing interest for coal seam gas from other countries and Queensland is the only region with coal seam gas expertise and (customers) will be looking at the market leader."
Wilson HTM analyst Andrew Pedler said the merger would help create a stronger position when presenting to potential customers.
Arrow's main assets are in the Surat Basin in southern Queensland and include Kogan North, Tipton West and the Daandine Prospect while CH4's signature asset is the joint venture Moranbah Gas Project.
Moranbah supplies 1.2pj to Government-owned Ergon and Enertrade – both were recommended to be sold by the recent Boston Consulting Report into the Queensland electricity industry.
Mr Davis said he would meet with Enertrade in the next two weeks but the proposed sale would not hamper development activities.
Moranbah is the sole supplier of gas to Townsville and he said there was potential to expand to Gladstone once the State Government fast-tracked the Moranbah to Gladstone pipeline.
Consolidation activity in the gas sector has been strong since Santos bought Tipperary Corporation for $612 million last year.
Meanwhile, Qld Gas said it would allow its scrip offer to lapse on May 12 and rely on defeating conditions contained in the offer document to end the bid.
Qld Gas managing director Richard Cottee slammed Sydney Gas' alternate money raising plan, backed by Babcock & Brown, warning fee arrangements would hamper its cash position.
But Intersuisse research analyst Peter Arden said he was not surprised that Qld Gas had abandoned its bid.
"They had to really. They got stymied with B&B getting involved ... they were a bit naive," he said.
Mr Arden said the joining of Qld Gas and Sydney Gas would have made a lot of sense and been good value for both companies.
Qld Gas shares closed up 1¢ at 71¢ and Sydney Gas was steady at 35¢.