The state-government-owned CS Energy will exercise its option to fund 80% of the development of Kogan North in exchange for a total 50% stake in the project.

CS Energy's contribution will help fund the development of 30 to 35 wells at Kogan North, to be operated by Arrow Energy.

Arrow Energy CEO Nick Davies said the Kogan pilot had been flowing gas for nearly two years, with gas rates up to 550,000 cubic feet per day, and the partners were ready to take the next steps in developing the project.

Under the agreement, CS Energy will have access to 60 petajoules of gas over 15 years, or about 4PJ per year. This would be delivered from around September to the company’s 385 megawatt Swanbank East power station at Ipswich in southeast Queensland.

“This funding agreement represents a watershed in Arrow’s growth as it transitions from being a gas explorer into a producer," Davies said.

“The Kogan North development is extremely important to us as it is our first project and will be a model for the design of our other Surat Basin projects including the large field which we are developing at Tipton West.”

The cost of establishing the Kogan North field would be around A$13.5 million, according to Davies. Arrow would fund its share through existing cash reserves.

“Arrow has current cash reserves of over A$7 million, so we are cashed up and ready to take this important step,” he said.

“For Arrow, this project provides a quick payback on development costs and a very bright future.”

Arrow would start drilling production wells early in the New Year, he said.