SGE Signs First Gas Sales Deal, China

Sino Gas & Energy announced that PSC operator, Sino Gas & Energy (SGE), has signed its first gas sales agreement, allowing pilot production to commence as early as December 2013.

Commenting on the signing of the agreement, Robert Bearden said “The Linxing PSC gas sales agreement is a significant milestone in Sino Gas’ drive towards production on its Ordos Basin projects . The agreement not only establishes the commerciality of the Linxing PSC, but also confirms the current marketing structure in place by providing a path to market through existing pipeline infrastructure. The initial gas sales will provide a growing revenue stream and long term production data that will be essential input s in to full field development planning and design.”

The sales agreement is with China United Coalbed Methane (CUCBM), who holds a 30% interest in the Linxing PSC. Gas supplied under the agreement will be sold to the industrial gas market in Shanxi Province through existing pipeline infrastructure.

During the first year, the contract calls for all parties to use their best efforts to supply and take a maximum quantity of gas from the pilot program. Initially seven wells are planned to be connected to a central gathering station located on the western portion of Linxing. Additional wells are expected to be put online as wells are drilled and gathering facilities are expanded.

After the first year, sales volumes can increase up to 1,000,000m 3 /day (35MMscf /day) under the contract. Any incremental volumes beyond this amount are dependent upon well performance and further negotiations.

An initial price of approximately US $7 /Mscf (thousand standard cubic feet ) will apply during the first year, and will be adjusted on an annual basis by reference to Shanxi Province market prices and applicable government policies.

Subject to the approval of Chinese Reserve Report, Overall Development Plan and other licensing requirements for the gas production, the gas sales contract is valid over the life of the Linxing PSC.

“This first gas sales contract is another cornerstone event for our Ordos Basin gas projects. Sino Gas would like to express their appreciation for the continuing cooperation and support of CUCBM and we look forward to continuing our strong working relationship as the Linxing project is further developed. I would also like to thank the SGE operations team for all their hard work in achieving this milestone on schedule,” Bearden said .

“With a gas sales agreement now in place, the Operations team will continue pilot program design, sourcing, and construction to build the gathering systems and compressor stations in preparation for first gas sales. In the meantime , our accelerated work programs continue to drill exploration and appraisal wells, interpret seismic data, perform flow testing and prepare the Chinese Reserve Report,” Bearden added .