The Directors of Arrow Energy N.L. announces the signing of a Letter of Intent (“LOI”) with major Chinese government owned oil and gas company, PetroChina. The LOI is to negotiate a Production Sharing Contract (“PSC”) covering natural gas including coal bed methane (“CBM”) over the 4,000 km2 Dajing block in the Junggar basin of Xinjiang Autonomous Region, NW China.

The Junggar basin is an area already producing conventional gas, supplying the major east-west pipeline connecting to Beijing and Shanghai.

In Beijing for the signing ceremony, Arrow’s Chief Executive Officer, Nick Davies said, “This is a very important step forward in Arrow’s China strategy. We have carefully selected an area that we consider to be very prospective for CBM that is close to strong local markets including the Provincial capital of Urumqi – a city of over 4 million people, and within 70 km of the East-West pipeline.”

The Dajing Block contains substantial coal resources estimated to be in excess of 250 billion tonnes with seams up to 70 metres thick. Preliminary data indicates that the rank of the coal is ideal for CBM development. Based on preliminary geological data, the gas in-place Exploration Target could be as much as 35 trillion cubic feet (TCF).

Mr Davies said “This could be an enormous resource. In comparison, the Powder River Basin, in the western USA, which has over 25,000 producing CBM wells, has about 25 TCF gas in place.”

Following completion of negotiation of the PSC, Arrow plans to drill up to 20 exploration wells over the following eighteen months to define the reservoir extent and refine the gas in-place estimates. Following successful exploration a number of pilots will be required to instigate flow and determine the best method of developing the CBM resources of the Dajing block.

Mr Davies said “Arrow is delighted to be working with a company of PetroChina’s experience and stature and we look forward to developing the area for China’s first long term gas supply agreements from CBM”