The total consideration for this stake is $13.3m with $6m of these funds being committed to the 2010 work program, which includes the drilling of horizontal pilot wells. Arrow has conditional options to increase its stake to 75% over time.

Fortune Liulin Gas’ sole asset is a 50% participating interest in the Luilin Coal Bed Methane (CBM) block that has been the subject of exploration activity since 1999 in China. The block has certified 3P reserves of 89 petajoules (PJ). Arrow’s net interest will be 15PJ of certified 3P reserves once the transaction is completed.

The Luilin block covers 198sqkm and is located 35km from Luliang (Lishi) and 500km south-west of Beijing within the south-east Ordos Basin in Shanxi Province. There are three target coal seams with high gas content and saturations. The block is immediately to the north of the Shilou block in which Shell, AEI’s 10% shareholder and partner in Australia, has an interest.

In February 2009, the Liulin block was designated a state special pilot project enabling the acceleration of the exploration and development program. Arrow, Fortune and CUCBM, the Chinese counter party to the Production Sharing Contract (PSC) covering the transaction, will be working collaboratively to achieve commercial gas production from the block within 12 to 18 months.

The project is expected to be the first of a series of co-operations in China that combine Arrow’s upstream expertise with Fortune’s gas distribution capabilities in China. This will include co-operation on coal mine degassing, a priority area for China in tackling coal mine safety and climate change.