Arrow Energy is negotiating a Production Sharing Contract with Chinese government owned oil and gas company PetroChina covering natural gas, including coal bed methane, over the 4000sqkm Dajing block in the Junggar basin of Xinjiang Autonomous Region in China.

The Junggar basin is an area already producing conventional gas and supplying the major east-west pipeline to Beijing and Shanghai.

Arrow's chief executive officer Nick Davies says:"This is a very important step forward in Arrow's China strategy. We have carefully selected an area we consider to be very prospective for coal bed methane that is close to strong local markets including the provincial capital of Urumqi, a city of over 4 million people, and within 70km of the east-west pipeline."

The Dajing Block contains substantial coal resources estimated to be in excess of 250 billion tonnes with seams up to 70 metres thick. Preliminary data indicates that the rank of the coal is ideal for coal bed methane development. Based on preliminary geological data, the gas in-place exploration target could be as much as 35 trillion cubic feet.

Nick Davies says: "This could be an enormous resource. In comparison, the Powder River Basin, in the western USA, which has over 25,000 producing coal bed methane wells, has about 25 trillion cubic feet of gas in place."

Following completion of negotiation of the contract, Arrow plans to drill up to 20 exploration wells over the following 18 months to define the reservoir extent and refine the gas in-place estimates. Following successful exploration a number of pilots will be required to instigate flow and determine the best method of developing the coal bed methane resources of the Dajing block.