The agreement was struck by state-owned China United Coal Bed Methane, on behalf of the Liulin gas project, and Shaanxi CUCBM, a company mainly responsible for marketing and selling gas for local power generation in Shaanxi province.
The deal covers the supply of around 1.3 Bcf/year of gas from the initial Liulin pilot wells on a take-or-pay basis over a period of 15 years, Dart Energy said. First gas is to be delivered by July 1, 2011, with the take-or-pay obligations to start July 1, 2012.
The agreed gas price is Yuan 1.58 (23 cents)/cubic meter, comprising a Yuan 1.38/cu m base price, subject to annual review, plus Yuan 0.20/cu m in government subsidy. The price equates to around A$6.90 ($6.30)/gigajoule, according to Dart Energy.
The Australian coalbed methane company currently has an underlying 17.5% stake in Liulin, through its 35% interest in Fortune Liulin Gas, holder of 50% of the project. The remaining 50% is held by CUCBM.
Dart Energy has options to increase its share in FLG to 50% and then 75%, which would give it an underlying interest of up to 37.5% in the gas project. Liulin covers 183 sq km and is located 500 km southwest of Beijing, in the southeast Ordos Basin.
The project currently has certified 3P reserves of 86 Bcf and is designated a State Special Pilot Project, enabling the acceleration of exploration and development.
Dart Energy was spun off in July from Australian coalbed methane producer Arrow Energy, which was acquired for A$3.4 billion by Shell and PetroChina. Dart took with it Arrow's 90% stake in its international coalbed methane assets in China, India, Vietnam and Indonesia, as well as growth prospects in Australia, Europe and Africa.
The deal at Liulin has placed Dart well on track to meet one of its key commercial targets of achieving first gas sales in China by 2012, said Chief Executive Simon Potter.
"Although volumes are modest, first gas sales are always a significant step towards demonstrating the commerciality of any project," he added. "This gas sales agreement commercializes Liulin's initial pilot gas, and provides a solid base on which to develop the rest of the project."
Potter said the price achieved was a strong starting point, especially since no significant infrastructure investment was required from Dart.
"This validates our market view of China and we expect prices only to rise over time," he added. "This is also an important milestone in the co-operation between CUCBM and Dart.
China Chemical Weekly: http://news.chemnet.com/en/detail-1411716.html
