Under the preliminary agreement, Shell will acquire 30% of Arrow's Australian upstream tenements for an initial payment of $435 million, with a further $209 million payable on a final investment decision and production from an LNG project in Queensland.

Shell will also fork out another $132 million to buy a 10% stake in Arrow International, which holds all of Arrow's international assets.

Shell will also have a five-year option to back into any Arrow International project for 50% of Arrow's interest by paying 50% of back costs. This excludes the three CSM licences in India.

The agreement also includes the secondment of Shell's senior management personnel at its own cost, a research and development program using Shell's research facilities and capabilities, as well as a right by Shell to offtake LNG produced using CSM sourced from Arrow and Shell's upstream tenements.

Arrow will remain the operator of the upstream assets. The deal excludes all of Arrow's downstream assets, such as its pipelines and electricity generation assets.

"This transaction will propel us through our steep growth curve of the next six years by providing funding, technical expertise and broad geographical experience and contacts across the breadth of our business plan," Arrow chief executive Nick Davies said.

"Shell's investment not only matures our LNG vision into reality but will fast-track the certification of additional reserves from our domestic land position which covers more than 80,000 square kilometers across the Bowen and Surat Basins."

Arrow said the agreement is subject to further definitive transaction documentation being entered into and that both companies are targeting execution of definitive agreements by the end of August.

The deal also means that Arrow no longer needs to proceed with a planned spin off of its overseas coal seam gas operations.

MarketWatch quoted Davies as saying an initial public offering for the offshore assets had initially been planned to raise funds for project development and to create a valuation for the business.

"We have done both of those things with this transaction so the immediate need to do that spinning off has gone," he told analysts.

Arrow Energy has an upstream interest in a CSM-LNG project, selling gas into the proposed 1.3 million tonne per annum LNG plant being developed by LNG technology junior Liquefied Natural Gas Limited.