Sino Gas & Energy Gets Busy in Coal Seam Gas Drilling in China

Sino Gas & Energy (ASX: SEH) is progressing coal seam gas exploration drilling and seismic acquisition at its Linxing Production Sharing Contract in the Ordos Basin, China, with three rigs now on location.

Two wells have spudded so far with a third scheduled to spud on or around 9 September. A fourth rig is currently en-route and is expected to drill a fourth well in late September.

These wells are part of an eight well program at Linxing East along with an additional deep exploration well to be drilled following the analysis of seismic results. Over 40% of the 170 kilometre seismic acquisition program has been completed to date.

Each well is anticipated to take approximately 45 days to complete an extensive drilling and coring program. After dewatering, each well will be flow tested for approximately 12 weeks.

Seismic data gathered during the work program, along with drilling data and flow test results, will be used as inputs for a Chinese Reserve Report, which the first step in a two-step regulatory process to develop coal seam gas assets into producing fields.

This will require an overall development plan approval for the PSC.

Sino, which holds 31.7% of Linxing, is also proposing to drill and test two deep wells at Linxing West and is progressing its planned liquefied natural gas pilot program on Linxing West with a market update expected by the end of September.

Linxing is one of two projects covered by a US$100 million alliance with Hong Kong listed MIE Holdings Corporation (HKG: 1555).

MIE, which has a market cap. of HK$5.32 billion (A$673.3 million) will progressively invest US$90 million in Sino Gas' subsidiary Sino Gas & Energy Limited (SGE) to acquire 51% in SGE, which holds both Linxing and Sanjiaobei in Shanxi Province.

It also acquired US$10 million worth of shares in Sino.

Both projects are located in an area with extensive pipeline coverage as well as attractive Provincial gas prices that are expected to be maintained if not increased over time.

The two projects have a current resource of 3.7 trillion cubic feet of gas, which is based on assessment of over just 40% of the more than 3500 square kilometre area, leaving room for more potential upside.