UPDATE: Arrow Energy More Than Doubles Gas Reserves

Arrow Energy Ltd. (AOE.AU) Friday substantially upgraded its coal seam gas reserves, supporting its plans to feed two LNG plants and cementing its status as the next heavy hitter in Australia's energy sector.

Arrow has said previously that it will have enough gas to fully support a small-scale LNG plant being built by Liquified Natural Gas Ltd. (LNG.AU) at Fisherman's Landing near Gladstone in Queensland state.

But the substantial reserves upgrade increases its chances of playing a more important role in Royal Dutch Shell's (RDSB.LN) far larger plant at Gladstone.

Brisbane-based Arrow, which last year sold 30% of its coal seam gas, or CSG, acreage to Shell, said that by June 30 it had 2,581 proven and probable, or 2P, petajoules of gas, more than double 1,177 PJ at Dec. 31.

Proven, probable and possible reserves now stand at 5,412 PJ, Arrow said.

The first LNG processing train at Shell's Gladstone plant will use 200 petajoules a year for the initial 20 years, while the LNG Ltd. plant, due to ship first gas by late 2012, will need 90 petajoules a year, Arrow said earlier in July.

Further reserves certification work is currently in progress and should allow for another reserves upgrade by the second half of the year, Arrow said.

"This is a huge reserves increase but there is much more to come - we have barely scratched the surface and we have much more to do," Arrow Chief Executive Nick Davies told reporters.

The big upgrade helped boost Arrow's shares 6% at A$4.41 by 0345 GMT after they touched a new record high of A$4.43. Shares in LNG Ltd. soared 16.5% to 92 cents on increasing investor confidence that its smaller-scale plant will actually get built.

That project's partners, which include Arrow, still aim to make a final investment decision by the 2010 first quarter, Arrow said.

Shell, meanwhile, hasn't said when it will make a final investment decision on its project, but it wants to ship first gas by 2014 or 2015.

Arrow's Australian chief executive, Shaun Scott, said July 2 that it's possible that its gas could fully underpin Shell's plant even if it goes to the maximum planned four production trains.

Scott said Arrow would have to prove up about 20 trillion cubic feet of its estimated 70 tcf gross resource to underpin the four trains and also supply gas to the other LNG plant.

UBS energy analyst Gordon Ramsay late Thursday reiterated its Buy recommendation on Arrow shares, partly in anticipation of a reserves upgrade.

"Overall, Shell's plans for...LNG are very positive for Arrow, whose joint tenements with Shell have potential to be a key supplier of CSG to the Shell LNG plant," Ramsay said.

-By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957; [e-mail]

(Alex Wilson in Melbourne contributed to this article)