Arrow Energy Limited says that its subsidiary, Arrow Energy (Dajing) Pte Ltd (Arrow Dajing) has signed a 30 year Production Sharing Contract (PSC) for the Dajing block in China. The PSC arrangements relate to Arrow Dajing and PetroChina establishing a partnership for the purposes of exploring the Dajing block for unconventional gas. Under the PSC, Arrow Dajing will act as operator.

The Dajing block is an exploration block with an area of 3,969 km2 located in the East Junggar Basin in the Xinjiang Autonomous Region ('XAR') in China's far-west. It is supported by extensive infrastructure including the west-east pipeline (located approximately 150km to the south).

The PSC signed between the two parties requires regulatory approval in China and PetroChina will submit the PSC for required approvals following completion of the Arrow Demerger Scheme and Acquisition Scheme and the issue of a usual performance guarantee by Arrow. The Dajing block will be a key asset in China for the demerged Dart Energy Ltd.

• The XAR has about 30% of China's oil reserves and 35% of its gas reserves. It is a major energy and chemicals base. Most cities have access to piped gas and there is a growing demand from local chemical and industrial users. Exports of gas to eastern China's major population centres are via the West East pipelines I and II, with a WEP III planned for 2012-15. There is estimated to be over 500 Tcf of CSG resources in XAR accounting for about 25% of the Chinese national total. • Large parts of the East Junggar basin, including significant portions of the Dajing block, are known to have extensive coal resource at less than 650m depth, and coal seams of up to 70m thickness are known to occur.

Arrow's first year work program at Dajing involves the drilling of 14 exploration wells specifically aimed at determining key gas reservoir characteristics, and an assessment of the long-term commercial viability of the Dajing block.

The estimated cost of the planned preliminary work program in this period is US$4.0 million. Arrow's current plans suggest commencement of a full commercial development from 2014 onwards, with expected gas sales building to approximately 20 Bcf per annum.

Commenting after the signing ceremony in Beijing Simon Potter, CEO of Dart Energy said, 'This is an extremely important development for our business in China - we have been working towards the Dajing PSC for over 3 years now, and are delighted to have reached this milestone. We now look forward to a long and productive working relationship with our partner, PetroChina, and to embarking on our initial exploration drilling campaign. The Dajing block has the potential to become a marquee CSG project not just in China, but globally.'

Tags: Arrow Energy Ltd