Arrow Energy Targets New Gas Products, New International Markets

Sydney, Aug 17, 2006 (ABN Newswire) - We now have the new company together; we have developed an integrated strategy with that company and the strategy we’ve come up with we believe is very exciting. The company has been formed from two major players in the coal seam gas market that were in the Queensland market. Combined they have a market capitalisation of $250 million so it’s a substantial company.

We have a very substantial technical resource base in the company and that together with improved financial strength, gives us a lot of encouragement for the future. We think we have a great outlook and the new strategy will outline what that outlook is.

The financial strength of the new merged company is exceptional. We have a market cap now of $250 million, we have 6000 shareholders including over 35 financial institutions on our register. We also have a major shareholder in New Hope Corporation which is 60 percent owned by Washington H. Soul Pattinson’s. This leaves us in a very strong financial position to pursue the projects we are looking at.

The combined strength of the new company in terms of the human resources of the company is very promising. We have a collection of people with experience deep in the coal seam gas industry, in particular we have three people who have served as chief executives of coal seam gas companies, within the management and board of the new company. In addition we have three people who are founder members of Arrow and CH4 so they have many years experience in the coal seam gas industry themselves. And we have technical and exploration people who have grown up with the coal seam gas industry in Australia and therefore know the techniques involved both in exploration, production and development of coal seam gas fields very well.

Given our new technical and commercial strength, our new financial strength, and our new geographic spread, that leads us to pursue a slightly different direction than previously – but it is really only a slight modification to what we have done before.

The difference is the emphasis going forward is going to be on margins. We have a number of foundation customers with foundation gas sales agreements in place and although they are good foundation customers, going forward the margins in the electricity industry are going to be squeezed because of an oversupply of electricity and relatively low domestic coal prices. We expect future margins to gas sales to electricity industry to be fairly tight.

We are going to concentrate on higher margins, in particular, we are going to look at different products from gas. Those products could be anything from compressed natural gas; small scale LNG; gas to liquids or environmentally advantaged power generation using environmental credits.

We currently have two producing projects in Queensland. The Moranbah Gas Project is one of the largest coal seam gas projects in Australia and the Kogan North Gas Project which is still in the process of ramping up but which will also be a significant contributor. In 2006 we will be supplying approximately 15 percent of Queensland’s gas needs as operator and in 2007 that should rise to over 25 percent. So we are making a very large contribution to Queensland’s energy demands at the moment. Besides those projects we have approximately 12 – 15 other projects in the appraisal leg and we have plans to bring all of those forward as quickly as we can and we anticipate as a company producing 50 petajoules per annum net in about three years from now.

The upcoming licensing results in India are due to be announced in the next couple of weeks. Indications are that we have done well. We bid for 7 blocks, we bid with a consortium consisting of the GAIL (Gas Authority of India); Tata Power who are a very big power corporation in India and Energy Infrastructure Group of Sweden. With that consortium, out of the 7 blocks that we put bids in for so far, indications are good that we will get at least a couple of those blocks.

We think we will look to fund our overseas activities in a number of different ways. One of the things we may do in the near future is investigate whether a dual listing of Arrow on an overseas stock exchange would be a sensible thing to do. We are doing that with a view to potentially in the future, taking our overseas assets and perhaps doing a partial IPO in an overseas market. We think that partial IPO in which Arrow would retain a majority shareholding would allow us to pull in some funds and allow us to do the exploration, appraisal and potentially development of those fields.