"Arrow will take a half share in the estimated $545 million power station to be located approximately 40km southwest of Dalby in southern Queensland," the company said.
"It will be adjacent to the Braemar 1 power station which was managed by ERM Power from conception through to successful construction, operation and trading."
In its half-yearly report, Arrow also reported solid earnings growth and a pre-tax profit of $A14.2 million for the six months ended December 31, as well as robust reserves and production growth over that period.
A 40% ramp-up of the company's Surat Basin fields over the past six months had seen net gas production jump to 7.5 petajoules in the half year.
Meanwhile, electricity sales increased from 18,880MW hours in the previous six-month period to 172,270MWh.
Continued strong production trends in the field during the half year resulted in a 2P reserves upgrade in January to 791PJ. Undertaking an extensive exploration and appraisal program, Arrow is targeting an increase of 2P reserves to 1550PJ by the end of the financial year and then to 2200PJ by the end of 2008.
The company's half-year earnings before interest, tax, depreciation and amortisation (EBITDA) were $21.2 million.
Managing director Nick Davies said Arrow had started the current financial year strongly on the back of its high margin strategy and sustained low operational costs.
"Arrow has achieved an operational EBITDA margin of $1.25 per gigajoule (GJ) up from $1/GJ a year ago while average field development costs remain at around $0.50/GJ despite high oil prices causing pressure on goods and services," Davies said.
Davies said he expected Arrow's operational EBITDA margin to double by this time next year as the company's push to increase margins on its gas sales via downstream investments gained traction.
"The Braemar 2 Partnership brings our total net generation capacity to 370MW of gas-fired generation, thus increasing our exposure to a buoyant electricity market as well as the emerging carbon credit market," Davies said.
The Braemar 2 project is scheduled for financial close in the first half of this year and the agreement contains conditions precedent which require ERM to achieve the majority of the remaining components necessary for project financial close.
Arrow will fund its share of the investment from existing cash resources and debt facilities currently being arranged.
As part of this transaction Arrow has signed a gas sales agreement with the Braemar 2 Partnership to supply 11.5 petajoules of gas per year over a 12-year period at a price aligned to the underlying electricity revenues.
This gas will be supplied from Arrow's Daandine and Stratheden gas fields, which are close to the proposed power station. Development work at Stratheden will start immediately.
Preparatory siteworks have commenced and construction of the power station will take about 18 months, with first electricity sales due in the second half of 2009. Bilfinger-Berger will be the major contractor for the power station construction. Siemens is supplying the power station and is responsible for its successful commissioning.
ERM has carried several significant power projects to financial close over the last four years including Braemar 1 (450MW), Kwinana (320MW), Neerabup (335MW) and Uranquinty (640MW)
