Shell to buy Australian gas stake

By Miranda Maxwell

SYDNEY (Reuters) - Royal Dutch Shell (RDSa.L) said on Monday it will pay $739 million (374 million pounds) for an interest in Arrow Energy's (AOE.AX) coal seam gas projects, as competition heats up for Australia's vast coal seam gas assets, driving Arrow shares up by a fifth.

As exploration costs soar for offshore gas, energy firms struggling to secure access to conventional oil and gas projects are stepping up their search for new energy sources to feed roaring global demand.

Origin Energy (ORG.AX), Australia's largest coal seam gas producer, last week rejected a $13 billion bid from BG Group (BG.L), saying its coal seam gas reserves alone were worth over $15 billion.

Malaysian state oil company Petronas PETR.UL on Thursday paid up to $2.51 billion for a 40 percent stake in Australian energy firm Santos's (STO.AX) Gladstone liquefied natural gas (LNG) project.

"These transactions tell us there is a high degree of confidence from major LNG players that the gas from coal seams will work and will make lots of money," said an energy analyst who declined to be identified because he does not specifically cover Arrow.

"For a company like Arrow, this is a significant injection of cash to fund its growth. That's what they wanted," he said.

Shares in Arrow jumped 20 percent to a record on news that Arrow and Shell would jointly develop projects to extract clean-burning natural gas from coal deposits in Australia, China, Indonesia, Vietnam and India.

Origin CEO Grant King has argued that using the Petronas/Santos deal as a benchmark, Origin's coal seam gas reserves, now estimated at 10,000 petajoules, alone would be worth more than A$16 billion (7.7 billion pounds), well above BG's offer.