Analysts said the joint venture bid valued at A$3bn (£1.8bn) or A$4.45 per share was below the current trading price of A$5.11 a share.
Arrow’s shareholders are also unlikely to sell at a price that has failed to take into account the potential growth of the company. This may be worth up to A$50bn over the next twenty years, analysts added.
“The market is expecting them to raise their offer,” said analyst Ivor Pether at Royal London Asset Management. “It’s a good deal for Shell at this price.”
Shell has twice tried to buy Arrow and currently has a 30 per cent stake in the firm.
Upping its stake would give the British oil giant access to Australia’s coal seam gas sector and in particular the lucrative liquefied natural (LNG) gas fields.
Shell and PetroChina are likely to share a 50 per cent stake, with the Chinese state-owned oil producer taking the LNG produced.
Australian regulators are likely to scrutinise the joint venture as they prefer state-owned companies to keep their stakes in Australia's resource firms to no more than 15 per cent.