UPDATE 2-Queensland Gas to buy Sunshine Gas for $722 mln

(Adds QGC confirmation, analyst comment)

By Fayen Wong

PERTH, Aug 20 (Reuters) - Queensland Gas Company Ltd QGC.AX (QGC), an Australian coal-seam gas producer, agreed on Wednesday to buy smaller rival Sunshine Gas Ltd SHG.AX for around A$830 million ($722 million) as it looks to expand its gas reserves.

Brisbane-based QGC said in a statement it would give five of its shares for every eight Sunshine shares, and would offer a cash and scrip alternative of A$1.65 in cash per Sunshine share and two QGC shares for every seven Sunshine shares.

QGC said it also entered a pre-bid acceptance agreement with Sunshine's largest shareholder for 15 percent of Sunshine's issued shares.

"QGC's interest in Sunshine Gas is very logical because Sunshine Gas' key fields are in the region which QGC are already involved in," said Andrew Pedler, an oil and gas analyst at Wilson HTM in Melbourne.

"It would also be very attractive to Sunshine Gas shareholders because it gives them the exposure to be part of a larger project. It also gives them the opportunity to realise the upside of their own CSG acreage."

QGC said Sunshine Gas would add 1,097 petajoules to its largest estimate of CSG reserves, also known as proved, probable and possible (3P) reserves. QGC's 3P reserves would increase to almost 7,000 petajoules following the deal.

QGC Managing Director Richard Cottee told a teleconference that the additional gas reserves would allow it to pursue domestic gas opportunities, including the development of gas-fired power stations in New South Wales and Queensland.