Arrow Signs CBM Deal with Medco

Arrow Global CBM Pty Ltd (AGCBM) and PT Medco E&P Indonesia have signed a Letter of Understanding (LOU) for broad-ranging cooperation in Coal Bed Methane (CBM) in South Sumatra, Indonesia.

Medco is Indonesia's leading independent Oil and Gas Company with daily production of more than 80,000 barrels of oil equivalent and a market capitalization of more than US$1.2 billion. Medco is also the owner of a number of oil and gas tenements in the South Sumatra Basin in an area that is also highly prospective for CBM. Medco, in conjunction with the government research organization Lemigas, is already conducting a CBM pilot in this area.

Under the terms of the LOU:

--An area of approximately 1,200 square kilometers in South Sumatra is defined for mutual cooperation;
--The companies will perform a joint commercial and technical due diligence study of the area;
--Pending the results of the study, Arrow and Medco will finalize a commercial arrangement between the two companies to monetize CBM resources in the target area; and
--It is intended to complete the studies and sign a Joint Venture arrangement by the end of April 2007.

Consultant studies have estimated that the coal resources of the South Sumatra Basin contain up to 120 Trillion Cubic Feet of CBM. Involvement in this basin is a key part of AGCBM's strategy. This agreement complements the agreement with PT Sugico Graha in the same basin, announced late last year.

It is planned that the AGCBM portfolio together with the existing Arrow India assets will form part of the proposed partial IPO of Arrow International later this year.

Arrow Energy N.L. recently acquired 50% of the issued capital of Arrow Global CBM Pty Ltd, and has a 2-year option to acquire the remaining 50% shareholding.