Arrow to Take Stake in Indonesian CBM Project

Arrow Energy has reached an agreement with Sugico Graha, PT (Sugico), which provides Arrow with an option to farm-in to twelve of Sugico's tenements in South Sumatra, Indonesia to earn up to a 65% interest in each.

Sugico's projects consist of twelve coal KPs (Kuasa Pertambangan = Mining Authorization) in the South Sumatra Basin covering approximately 140,000 hectares. Sugico's KPs are close to existing gas pipeline infrastructure and growing energy markets. The Government of Indonesia is currently preparing regulations to govern the exploration and development of Coal Bed Methane (CBM) in Indonesia with the regulations expected to be released in the first quarter of 2007. These regulations are expected to give first right of refusal for CBM tenements to the existing and overlapping tenement holders for Coal and Petroleum.

The Farm-in Agreement Option with Sugico provides Arrow with the opportunity to farm-in to earn 65% interest in all of the twelve KPs.

Sugico is a privately held Indonesian company with diversified interests in Mining (Coal, Mineral Sands, Gold, Lime Stones and Iron Ores), Oil & Gas exploration and production, Equipment Supply and Plant Maintenance Services, Coal Mine Mouth Power Generation and Crude Palm Oil.

The government of Indonesia is moving quickly to settle the regulations and terms for CBM production, as the demand for clean energy in Indonesia is enormous. A study in a Society of Petroleum Engineers' paper (Scott H Stevens, Hadiyanto: - Indonesia Coalbed Methane Indicators and Basin Evaluation - Paper SPE 88630) has estimated that the potential Coal Seam Gas resource in South Sumatra alone is 183 TCF.

Pipeline infrastructure connecting South Sumatra and the heavily populated island of Java is currently under construction.

This farm-in option represents a strategic first mover advantage for Arrow in Indonesia and follows Arrow's recent strategy document outlining a plan to follow up the successful award of exploration blocks in India with a selection procedure for prospective blocks and local partners in Indonesia and China