The funding will go towards the commercial development of Arrow's first CBM project at Kogan North in Queensland's Surat Basin, 300km north-west of Brisbane.

CS Energy will fund 95% (Arrow the remaining 5%) of the costs of the project appraisal, and can then earn up to a 50% interest in the project area by funding the development costs up to a further $10.8 million.

Arrow is aiming to supply CS Energy with gas from early 2005 although gas has been produced from the Kogan North Gas project pilot plant since February 2003.

The agreements encompass terms for the appraisal (including reserves certification) and development of the Kogan North Gas Project to initially produce 4 Petajoules of gas per annum for a period of 15 years.

Arrow will be the operator of the joint venture and will retain a 50% interest in the Kogan North Gas Project. CS Energy will also have rights to earn interests ranging between 25% and 50% in some of Arrow's other potential CSG projects in the Kogan area of the Surat Basin within ATP 676P, by contributing to the appraisal and feasibility of those project areas.

The agreements cover up to 1.45 trillion cubic feet of potentially recoverable gas resources and provides the potential for a number of additional separate production facilities.

Arrow also secured 2,200sq.km of CBM acreage in the Styx Basin in Queensland at the end of 2002.