Royal Dutch Shell partner Arrow Energy in Australia says it will spend $251m on a coal-seam gas production project that will feed into Shell’s Curtis Island and Fisherman’s Landing LNG projects in Queensland.

Arrow Energy chief executive Nick Davies said the drilling work will take one and a half years to complete and will involve the extraction of gas from coal seams for conversion into liquid state and subsequent export to Asian markets.

New LNG trains are also being proposed as part of the project, which is expected to generate about 1.5 million tons of gas a year.

Liquefied Natural Gas will develop the facility.

Shell previously made a $2.5bn proposal for Arrow Energy, with negotiations resulting in a deadlock.

Arrow Energy said it had conducted negotiations with concerned parties on 13 August regarding its coal-seam gas assets, which involved talks about a change of management, without receiving an offer for acquisition.

Shell owns 10% of Arrow Energy’s global unit and 30% of the company’s Australian land.