UPDATE: Arrow Energy Has Talks On Possible Takeover

Arrow Energy Ltd. (AOE.AU) said Thursday it has talked to parties about a possible takeover of the company, stoking speculation it could be the next takeover target in Australia's burgeoning coal seam gas sector.

Amid mounting talk of a deal, and in response to a share price query from the Australian Securities Exchange, Arrow said it hasn't received a takeover offer and isn't aware if one will emerge.

Still, at 0230 GMT Arrow shares were up 8.2% at A$4.48 in anticipation of a deal, adding to a 6.7% gain Wednesday, giving it a market value of A$3.21 billion.

Five separate liquefied natural gas terminals to be fed with coal seam gas are slated for startup at the port town of Gladstone in Queensland state and Brisbane-based Arrow recently doubled the size of its certified coal seam gas resource.

It sold 30% of its Australian CSG assets to Royal Dutch Shell (RDSB.LN) last year and the Anglo-Dutch major has long been touted is an obvious suitor for Arrow, given its plans to build one of the five planned LNG terminals at Gladstone.

Arrow and Shell have both said previously that they've held talks about Arrow selling more gas to Shell. It would hardly be surprising if a potential takeover transaction came up in conversation.

Possibly of more interest to the market is Arrow's suggestion that it's been talking to more than one potential suitor.

"The company continues to have discussions with parties with respect to the potential monetization options for its considerable coal seam gas resources," Arrow said.

"These discussions have included discussions with respect to potential change of control transactions however the company is unaware as to whether any change of control proposal will be forthcoming."

Recent unsourced media reports have aired rumors that Shell and PetroChina (PTR) could be planning a joint bid for Arrow, or that a bidding war could erupt for the company between Shell and BP PLC (BP).

Arrow addressed one of the rumors Thursday, saying that it's not aware of any Chinese interest in company.

A Shell spokesman said the company won't comment on market speculation.

Citigroup noted the bid speculation Wednesday.

"There is a strategic rationale for many of the mooted buyers and we continue to view Arrow as a potential target," it said.

Arrow has also agreed to supply coal seam gas to a smaller-scale LNG plant at Gladstone being built by Liquefied Natural Gas Ltd. (LNG.AU).

LNG Ltd. said Wednesday it's still expects to make a final investment decision on the project in December, keeping it on track to be the world's first operational CSG-LNG facility.

Arrow also said Thursday that it expects its full year profit before tax to be about A$540 million, higher than previous guidance for A$440 million due to the sale of its interest in rival Pure Energy Resources Ltd. (PES.AU), which was bought in a bidding war between Arrow and BG Group PLC (BG.LN).

ConocoPhillips (COP) and Malaysia's Petroliam Nasional Berhard (PET.YY) formed CSG-LNG joint ventures with Origin Energy Ltd. (ORG.AU) and Santos Ltd. (STO.AU) last year.

-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; [e-mail]