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Shell and Arrow Energy Ltd Plan Coal Seam Gas Alliance

Shell Exploration Company B.V. and Arrow Energy Ltd. (Arrow), have signed a preliminary agreement to jointly develop projects to extract natural gas from coal deposits in Australia, China, Indonesia, Vietnam and India.

The alliance with Australian company Arrow will boost Shell’s existing strategic positions in potential coal seam gas (CSG) areas including China, where Arrow’s international acreage is an excellent fit.

Arrow has significant CSG production facilities in Queensland, Australia, where it is the largest CSG acreage holder. 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% interest in Arrow’s CSG acreage in Queensland, Australia, as well as a 10% stake in Arrow International—a wholly owned subsidiary of Arrow Energy Ltd, which holds Arrow’s international interests in CSG opportunities. The agreement also gives Shell a five-year option to acquire up to 50% 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 this growing area of gas supply. Shell will also assign at least five personnel to work at Arrow’s operations. The total value of the agreement is expected to be up to US$0.7 billion. Completion of a definitive agreement is anticipated in the near term.

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