ASX Announcement | 27 June 2012
- MIE to invest US$100 million to acquire 51% of Sino Gas’ subsidiary that holds the Sanjiaobei and Linxing PSCs in Shanxi Province, People’s Republic of China
- MIE is one of the leading independent onshore upstream oil companies in China. In 2011, MIE produced over 10,000 barrels of oil per day and drilled over 450 wells in its China operation
- MIE has extensive experience in delivering Sino-Foreign PSCs through regulatory approval toProduction
- Sino Gas and MIE execute Mutual Co-operation Agreement for future co-operation targeting newProjects
Sino Gas & Energy Holdings Limited (Sino Gas) and MIE Holdings Corporation (MIE) are delighted to announce a strategic partnership to develop the Sanjiaobei and Linxing PSCs in Shanxi Province, China. The partnership will combine MIE’s financial strength, on-ground operational capability and Chinese regulatory experience with Sino Gas’ gas projects and technical expertise.
Under the terms of Definitive Agreements, MIE will progressively invest US$90 million in Sino Gas’ subsidiary Sino Gas & Energy Limited (SGE) that holds the Sanjiaobei and Linxing PSCs. It will also acquire US$10 million of existing shares in SGE from Sino Gas at closing which is expected to occur on or before 6 July 2012. The combined investment will result in MIE holding a 51% interest in SGE.
Sino Gas believes that the US$90 million that MIE is investing in SGE will be sufficient to fund the Sanjiaobei and Linxing PSCs through Chinese Reserve Reports (CRR) and Overall Development Plan (ODP). MIE is listed on the Stock Exchange of Hong Kong (Stock Code: 1555 HK). It is one of the leading independent upstream oil companies onshore China where it operates three Sino-Foreign PSCs Daan/Moliqing/Miao 3 in north east China. MIE also holds oil and gas production interests in Kazakhstan and is advancing unconventional (tight light oil and shale gas) projects in the USA.
One of the key attractions of MIE is its proven ability to successfully deliver Sino-Foreign PSCs through the Chinese regulatory approval system including CRR and ODP and then operate the projects in a highly efficient manner. In 2011, MIE drilled 467 wells on PSCs in China with a net production of over 10,000 barrels of oil per day. MIE achieved an average realised oil price of US$110 per barrel at a lifting cost of only $7 per barrel in 2011 for its PSCs in China.
Sanjiaobei and Linxing PSCs have been independently assessed to contain some 3.7 TCF of Reserves, Contingent and Prospective Resources (100%, Mid Case)1 with 60% of the acreage still to be explored.
Provincial gas prices are attractive and with recent changes to Chinese gas prices, this is expected to be maintained, if not improved. The projects are located in a region with extensive pipeline coverage. Sino Gas’ independent expert has estimated that lifting costs (opex and capex) will be circa US$2.00 per mcf against a prevailing gas price (including incentives) in excess of US$7 per mcf.
Commenting on the transaction, Sino Gas’ Executive Chairman, Mr Gavin Harper said:
“We are delighted to have secured this landmark agreement with MIE, which represents an outstanding outcome for Sino Gas shareholders. After an exhaustive process to identify a financier to assist in the advancement of our Sanjiaobei and Linxing PSCs, we could not have wished for a better partner. Not only do we get MIE’s financial strength but also their proven ability to deliver Sino-Foreign PSCs through CRR and ODP and critically ability to operate in a highly profitable manner in China. What MIE has achieved in China is a credit to Chairman Zhang Ruilin and his committed team. I would like to acknowledge the efforts of Argonaut for arranging and negotiating this transaction and Allen & Overy for its legal input.
The focus of Sino Gas is now on the development and bringing Sanjiaobei and Linxing Projects to maturation, plus continue to explore and evaluate the remaining 60% unexplored acreage in the PSCs.”
MIE Chairman, Mr Zhang, said:
“The Ordos Basin is a resource rich basin in China with low well costs and large resource recoverability. Gas projects in the Ordos Basin are held by Shell, Total and CNPC. MIE identified Sanjiaobei and Linxing PSCs as being premier undeveloped gas projects in the Ordos Basin and capable of containing multiple TCFs of recoverable hydrocarbon gas.
China’s CBM 12th Five Year Plan provided for a dramatic boost for the development and exploitation of coal bed methane in the eastern fringe of the Ordos Basin (which includes the Sanjiaobei and Linxing PSCs). We also appreciate the technical expertise Sino Gas offers with its team. Sino Gas’ Executive Chairman, Mr Gavin Harper, and the company’s Chief Executive Officer, Mr Robert Bearden, are high quality industry professionals that we are happy to be in partnership with. SGE intends to retain the operational team lead by Mr Frank Fu.
MIE has now secured gas projects that complement and add synergy to our existing operation in north east China.”
Sino Gas and MIE have also executed a Mutual Co-operation Agreement (MCA) to pursue further oil and gas interests worldwide. Although the MCA is non-binding, it illustrates the positive relationship forming between
MIE and Sino Gas.