Gas agreement

Shell Exploration and Arrow Energy have signed a preliminary agreement to work together to extract natural gas from coal deposits in Australia, China, Indonesia, Vietnam and India.

Arrow has significant coal seam gas (CSG) production facilities in Queensland, Australia: it has four producing projects in Queensland, and supplies gas for industrial users such as power stations.

The memorandum of understanding calls for Shell to acquire a 30 per cent interest in Arrow’s CSG acreage in Queensland, Australia, as well as a 10 per cent stake in Arrow International - a wholly owned subsidiary of Arrow Energy, which holds Arrow’s international interests in CSG opportunities.

The agreement also gives Shell a five-year option to acquire up to 50 per cent of individual Arrow International projects, which includes activities in China. Under the deal, Shell would also acquire the right to negotiate an agreement to purchase any liquefied natural gas that may potentially be produced from the CSG operations. Shell and Arrow have also agreed to undertake further research and development in the area.

The total value of the agreement is expected to be up to $0.7bn. Completion of a definitive agreement is anticipated shortly.

'Shell has global gas marketing and financial strengths coupled with leading research capabilities. Arrow has proven CSG expertise, and extensive Australian and international CSG acreage positions. We look forward to working with Arrow and creating an alliance that should become a significant force in the development of CSG resources,' said Chris Gunner, chief operating officer for Shell Development (Australia).