UPDATE: Beach Sells CSG Assets To Arrow For Up To A$400 Million

Beach Petroleum Ltd. (BPT.AU) Friday cashed in on Australia's coal seam gas rush, selling its 40% stake in the Tipton West project in Queensland state to Arrow Energy Ltd. (AOE.AU) for up to A$400 million.

Arrow and its joint venture partner Royal Dutch Shell (RDSB.LN) already own 60% of Tipton West, so the buyer's identity came as little surprise to the market. Arrow's move follows its failed tilt for CSG producer Pure Energy Resources Ltd. (PES.AU), which was eventually bought for A$1.03 billion by BG Group PLC (BG.LN).

The Tipton West acquisition gives Arrow and Shell more gas reserves to help support several planned liquefied natural gas projects at Gladstone in Queensland.

Beach, meanwhile, said the deal gives it cash to spend "in other business areas", including developing its existing assets, such as acreage in the Cooper and Eromanga Basins of South Australia and Queensland. Beach said it could also consider acquiring companies struggling to source capital.

Under the agreement announced Friday, Arrow will pay Beach A$260 million cash and A$70 million in Arrow shares upfront.

An additional A$40 million will be paid to Beach pending the booking of additional reserves, another A$15 million if Arrow supplies gas to any LNG project by the end of 2016, and another A$15 million if any of those projects produces at least one million tons of LNG per annum by the end of 2017. Arrow has previously agreed to provide coal seam gas to a smaller-scale LNG project targeting first gas by 2012.

On completion of the Tipton West deal, 12% of the asset will be made available under preemptive rights to Shell, which bought 30% of Arrow's local CSG assets last year.

Beach's chief executive, Reg Nelson, revealed to Dow Jones Newswires in September that the company had received informal expressions of interest in its CSG assets, which he said Beach would sell at the right price.

JPMorgan recently valued Beach's stake in Tipton West at about A$450 million and UBS valued it at A$212 million.

By 2327 GMT, Beach shares were up 2.8% at 93.5 cents compared to a 1.8% rise in the S&P/ASX 200 index. The deal was largely already priced into Beach's stock value. Investors may be a little disappointed Beach didn't get more, considering the multiples that have been dished out in previous CSG deals.

Pure Energy had about twice as many CSG reserves as Beach before BG bought it for A$1.03 billion.

Even higher multiples have been paid for CSG in larger deals between the likes of Origin Energy Ltd. (ORG.AU) and ConocoPhillips; and Santos Ltd. (STO.AU) and Malaysia's Petroliam Nasional Berhard (PTTY).

Beach's CSG assets, however, were never going to attract similar multiples, given the relatively small size of its reserves base and the shared ownership structure of Tipton West.

Still, the Adelaide-based company has made an impressive profit, having bought its Tipton West stake in 2005 for A$35 million.

By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957; [e-mail]