UPDATE 1-Arrow Energy upgrades coal seam gas reserves

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SYDNEY, Jan 16 (Reuters) - Australian coal seam gas producer Arrow Energy Ltd (AOE.AX) said on Wednesday it has increased gas reserves and production at its Tipton field in the northeastern state of Queensland.

Arrow Energy said in a statement that proved reserves at Tipton have increased by 560 percent to 167 petajoules (PJ), while proved and probable (2P) reserves have risen 68 percent to 293 PJ, bringing total 2P reserves for all its fields to 791 PJ.

Arrow Energy said total production from its Surat basin projects in Queensland, which includes the Tipton field, has increased by about 10 percent in the last two months.

"All our Surat fields are now approaching or surpassing field production expectations ... Other Surat reserves increases are expected in the coming months," Arrow Energy said in a statement.

Arrow Energy is the operator of the Tipton field and has a 60 percent interest, while Beach Petroleum Ltd (BPT.AX) holds the remaining 40 percent.

Arrow Energy has signed a 12-year agreement to supply Australian energy firm Liquefied Natural Gas Ltd (LNG.AX) with about 60 PJ of gas a year to power Liquefied's proposed 1.3 million tonne-a-year LNG plant at Gladstone in Queensland.

The LNG plant is expected to begin operations by 2010.

Shares in Arrow Energy, which has a market value of about A$1.6 billion ($1.4 billion), closed 1.3 percent higher at A$2.37 on Tuesday. ($1=A$1.13) (Reporting by Fayen Wong)