CSG

Arrow aiming at distant targets

ARROW Energy's domestic expansion drive – including a new production project, a takeover of Pure ...

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Arrow has signed several agreements with major energy players in China, India and Indonesia, and is now undertaking exploration drilling in Vietnam.

The company claims it is on track to become the first truly global CSG firm.

ConocoPhillips - as major coal bed methane operator in the United States - could argue it has beaten Arrow to the punch by virtue of its LNG-driven deal that gives it a 50% stake in Origin Energy's CSG operations.

But Conoco will simply have North American and Australian operations, and in Australia it will be relying on Origin's local knowledge.

But Arrow could well become the first player to use in-house expertise to develop major production projects in several different countries.

The company's internationalisation strategy dates back to the early days of managing director Nick Davies' tenure.

Davies was promoted from Arrow's chief operating officer to chief executive in late 2004.

Before joining Arrow, he had been president of BP's Asia Pacific Gas and Power business headquartered in Tokyo, and before that he was president of Atlantic Richfield Company (ARCO) SE Asia based in Singapore.

Using his Asian knowledge and contacts, Davies formed an alliance with Indian major GAIL in early 2006. Other deals with various organisations in other Asian countries followed.

In mid-2007, Arrow announced that Davies would be concentrating mostly on international business, spending more time in Arrow's new regional office in Singapore and target countries.

Today, Davies retains the titles of managing director Arrow energy and CEO Arrow International, but Shaun Scott is chief executive officer - Australia.

India

In August 2006, Arrow was awarded three license blocks in India with Indian government-estimated coal seam resources in excess of 10,000 petajoules (PJ).

Its partners in these blocks include GAIL and Energy Infrastructure Group of Sweden (both in all three blocks) and Indian electricity company Tata Power (in two blocks).

In May last year, Arrow drilled its first overseas well in this acreage as part of a 39-well program to be completed over 12 months (with eight exploration wells and five pilot wells to be drilled on each block). Drilling is continuing.

Early this year, Arrow signed a memorandum of understanding with another Indian major - Oil and Natural Gas Corporation (ONGC).

China

Arrow International has been working in China for several years developing business relationships and identifying prospective areas.

In this country, the company has developed agreements for conventional CSG - including new exploration projects and farm-ins to existing operations - and for coal mine methane.

CMM has huge potential in China, which is notorious for gas explosions and high fatality rates at its coal mines.

Arrow has signed letters of intent and other agreements with various organisations on a variety of projects.

These include arrangements such as: equity shares in return for Arrow conducting technical studies and preparing reports; exploration partnership arrangements with Chinese majors; degassing services ahead of mining operations; and a cooperation agreement with a regional government.

Under its deal with Binchang Mining Group, Arrow will start a pilot well drilling program to assess the potential for surface mine degassing and CSG production which will have dual benefits of gas production together with improved mine safety.

Binchang will cover the costs of the program and Arrow will design and operate the program.

If commercial volumes of gas are produced from the pilot program, the parties will enter into a formal joint venture to develop CSG over the entire area.

Arrow anticipates the Binchang pilot program will be completed in mid-2009 and says the area in question has an estimated CSG in-place resource of more than 1 trillion cubic feet.

Arrow also received a business licence from the Xinjiang provincial government for its joint venture with the Urumqi Geological Exploration Development Company of Xinjiang Geological Survey.

Xinjiang covers one-sixth of China's total land area. It has more than 20 million people and more than 40% of the country's coal resources.

According to Arrow, the region's potential for CSG development could surpass that of Australia.

Arrow and Urumqi are currently identifying CSG targets over several key coal mining areas with the intent of forming cooperation agreements with coal miners for mine degassing and CBM production to both improve mine safety and enhance gas recovery and use.

Arrow plans to start appraisal activity early this year.

Indonesia

Arrow and Perth-based Clough have teamed up in Indonesia.

In November, Arrow signed a business cooperation agreement with leading Indonesian mining services, engineering and construction company, PT Petrosea Tbk, an 82%-owned subsidiary of Clough.

The two companies plan to establish local capability for supporting CSG drilling activities, infrastructure works and project development services.

Arrow is also moving to farm-in to Indonesian company Ephindo Group's 1300-square kilometre Sangatta CSG block in East Kalimantan, Borneo.

The two companies have also agreed to discuss other opportunities for cooperation in Indonesian CSG.

"The combination of Arrow's expertise with Ephindo's local capabilities will set a strong foundation for development in Indonesia," Arrow said.

"The opportunity to start near-term drilling operations on a quality block in Indonesia, in close proximity to the Bontang LNG plant, is a major advantage."

Vietnam

Exploration drilling has started in Arrow Vietnamese permit, a production sharing contract held in partnership with PetroVietnam (Arrow 70%).

The first well in an initial eight-well program on the block is being drilled to about 600m.

The 2600sq.km block is about 100km from Hanoi and surrounds the town of Thai Binh in the Red River Basin.

Drilling is targeting a thick, Miocene-age coal-bearing sequence above an existing conventional gas target.

Coal thickness is estimated to be 15-30m. Drilling of the eight-well program is expected to take about six months.

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