As the world's second largest energy consumer, China is seeking to partner with experienced operators like Arrow Energy to commercialise its vast coal seam gas reserves. Initial estimates are that the country has a coal seam gas resource 10 times the size of Australia's North-West Shelf.
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Arrow Energy is currently negotiating firm title on five preliminary agreements with a number of major China energy players including PetroChina, Bin County Coal, Shenyang Gas Company, Liaohe Petroleum and Shaanxi Binchang Mining. Agreements cover new exploration, mine de-gassing and farm-in to existing production sharing contracts.
Arrow and its partner Binchang Mining Group (Binchang) have completed drilling the first well of its two well pilot drilling program. Well DFS-01-V was successfully completed in June 2009. The well has been equipped and is on pump with the first lateral going through gas desorption. This drilling is part of a Heads of Agreement (HOA) signed with Binchang aimed at developing coal seam gas in an area covering 360km2 of Binchang coal mining licenses in Shaanxi Province, 100km North West of Xi’an, the provincial capital. The area has an excellent coal resource data base and has been explored with close spaced core holes defining a coal resource of 6,000 billion tonnes of coal and an estimated gas in-place coal seam gas resource of greater than 1,000 petajoules (PJ).
The current pilot program drilling is to assess the potential for the degassing of the underground mine from the surface and for coal seam gas production - which will have dual benefits of gas production together with improved mine safety. Binchang is funding the program and Arrow has designed and is operating the program using technology it has developed in Australia. Under the terms of the HOA, if commercial volumes of gas are produced from the pilot program, the parties will enter into a formal joint venture to develop coal seam gas over the entire area.
Arrow and Petrochina have concluded negotiations for a Production Sharing Contract (PSC) award over the Dajing Block in Xinjiang Province in the north-west of China covering around 4,000 km2. It is envisaged that PSC signing will occur before the end of the year. The company has already commenced full scale planning for exploration operations consisting of 14 wells in the first phase that will start as soon as possible after PSC award.
In March 2008, Arrow announced the execution of an agreement with the Government of the Xinjiang Autonomous Region in China which has 40 percent of the country's coal resources.
