China: Dart Energy Provides Liulin Gas Project Update

Dart Energy provided the following operational update in relation to the Liulin gas project in China.

INITIAL PRODUCTION

• In 2011, Dart International designed and provided technical supervision for the drilling of three multilateral horizontal wells to access the 3/4/5 seams at Liulin.
• These wells, H3, H4 and H6, were successfully drilled by Fortune Liulin Gas (FLG, in which Dart is a 50% shareholder) with an average of 4600m of connected coal.
• All three of these wells are undergoing production testing. The wells are now through the desorption phase and gas production rates are increasing on a daily basis, as dewatering and Bottom Hole Pressure (BHP) reduction continues.
• Current BHP of the wells is around 2 megapascals (MPa), with a target to reduce the BHP to around 0.2 MPa. Gas production levels typically increase as bottom-hole pressure is reduced, and thus significant production increases are expected.
• Total field production from FLG horizontal wells now exceeds 500 Mscf/d with the most successful well to-date (H3) now producing over 250 Mscf/d, a rate which exceeds all previous wells drilled by FLG.

EARLY COMMERCIALISATION

• Subsequent to the three wells drilled during the 2011 campaign, FLG has completed drilling two new wells (H5 and H13) this year. During May production testing and dewatering began on H13; H5 is scheduled to commence in the near future.
• The 5 wells in aggregate are expected to provide sufficient production volumes to meet requirements of the existing Gas Sales Agreement (GSA), which is for up to 1.75 MMscf/d (net to FLG).
• Pricing under this GSA, based on current USD:RMB exchange rates, is approximately US$7.10 per Mscf, or approximately US$4.1m per annum in potential revenue, net to FLG.
• Initial gas sales from the Liulin field will be via a Compressed Natural Gas plant (currently under construction; owned and operated by Shaanxi-CUCBM, the off-taker of Liulin gas), which is under construction and expected to be ready for commissioning in the second half of 2012.
• In parallel, FLG has completed the engineering design of a field gathering system and an Engineering Procurement Construction (EPC) contract is in place. The construction of the gathering system and associated equipment is expected to take between six to nine months and will commence immediately upon receipt of relevant approvals.
• Initial pilot-to-gas sales from Liulin are expected to commence during the first half of 2013.

FULL FIELD COMMERCIALISATION

• In parallel with initial pilot gas commercialisation, a full field Overall Development Plan (ODP) is being prepared for submission prior to the end of 2012.
• The ODP submission will include all of the technical work, engineering designs and environmental studies required to allow for full scale development of the field, thus facilitating substantial increases in gas sales.

Dart International Chief Executive Officer, John McGoldrick, said:

“The Liulin block is one of Dart International’s most advanced CBM project. It is encouraging to see that our multilateral wells are confirming the production capability of the field. We are making steady progress towards initial cashflow and full field development. Dart will continue to apply its technical and operational knowledge to achieving success at Liulin. We also continue to actively seek additional shale and CBM projects in China”.

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LNG World News Staff, June 14, 2012; Image: Dart Energy