Sino Gas and Energy - Sanjiaobei Pilot Gas Sales Allocation Agreement Reached
Sino Gas & Energy Holdings (ASX:SEH) has reached agreement with PetroChina CBM for gas sales allocation from Sanjiaobei PSC. The sales will be attributable based on PSC levels up to 2.8 BCF, which is not expected to be reached prior to ODP. The Agreement willallow for the resumption of production from the Sanjiaobei CGS in the next few months.
- Agreement with PetroChina CBM reached on the allocation of pilot gas sold from the Sanjiaobei PSC
- Sino Gas to receive revenue allocation as prescribed in the PSC for pilot gas proceeds up to a threshold volume prior to Overall Development Plan approval
- Joint Venture's allocation after Overall Development Plan approval unchanged, in line with PSC
- PetroChina commits to support SGE obtaining key regulatory approvals for CRR and ODP in a timely fashion
- ~US$2 million expected to be received in the third quarter of 2016 by the Joint Venture for gross gas sold from the Sanjiaobei PSC to date
- Sanjiaobei CGS to be brought back on-stream and ramped up to full capacity of ~8 MMscf/d over the second half of 2016
Sino Gas & Energy Holdings Limited (ASX: SEH, "Sino Gas" or the "Company") is pleased to announce that the joint venture company, Sino Gas & Energy Limited (“SGE”, “Joint Venture Company”) and its PSC partner, PetroChina CBM ("PCCBM") (collectively “the Partners”) have reached an agreement on the allocation of the outstanding and future pilot gas sales proceeds sourced from the Sanjiaobei PSC. Key principles have been agreed and documented by the Partners with supporting formal agreements and documentation currently being finalised for execution.
Under the terms of the key principles agreed, gas sold from the Sanjiaobei PSC during the pilot production phase, up until Overall Development Plan (“ODP”) approval, is to be allocated in accordance with the PSC terms up to a production threshold of 3 billion cubic feet.
This agreement applies only to production volumes from the Sanjiaobei PSC and does not affect the pilot gas production from the Linxing PSC processed through the Sanjiaobei Central Gathering Station ("CGS"). The majority of wells currently tied into the Sanjiaobei CGS and resulting production is from the Linxing PSC. Given the flexibility to produce from both PSCs via the Sanjiaobei CGS, Sino Gas believes it unlikely the threshold volume for the Sanjiaobei PSC will be exceeded prior to ODP approval.
However, there are no restrictions on the ramp-up of Sanjiaobei production during the pilot phase and if cumulative production from the Sanjiaobei PSC prior to ODP approval is greater than this threshold, the gas volumes in excess of the threshold will be allocated 30% to the Joint Venture company and 70% to PCCBM.
The Joint Venture's share of Sanjiaobei revenue and cost recovery pools after ODP remain unchanged by this agreement.
Processing of the outstanding pilot gas sales proceeds payment will be completed upon finalisation of the formal agreements, following which, Sino Gas expects ~US$2 million equivalent to be received by SGE (~US$1 million net to Sino Gas) in the third quarter of 2016.
Preparation works for restarting the Sanjiaobei CGS are well underway to allow for the safe resumption of production. Production is expected to be brought on-stream and ramped up towards installed capacity of 8 million standard cubic feet per day (MMscf/d) over the second half of 2016. This production ramp-up contributes to the Company's stated objective of a 2016 gross production exit rate of 25 MMscf/d. Operations are currently on-track to achieve this objective.
Commenting on the agreement with PCCBM, Sino Gas Managing Director Mr Glenn Corrie said: "This is a good outcome for Sino Gas as the agreement to allocate pilot gas sales revenues adheres to the principles of the PSC up to the threshold volume. In addition, PCCBM will support SGE in obtaining Chinese Reserve Reports (CRR) and ODP approvals in an accelerated manner. We appreciate PCCBM’s support to resolve the pilot gas sales allocation matter and ongoing commitment to work together to realise the full value of the Sanjiaobei field. We are looking forward to the imminent receipt of gas sales proceeds and the restart of production from the Sanjiaobei CGS. Resolution of this matter provides us a clear path forward to our stated objective of exiting 2016 with production of 25 MMscf/d and the continued ramp-up of production in future years."