Partnership could unlock access to Chinese shale and CSG

WORLD-leading Australian coal bed methane company Dart Energy could have access to potentially multi-trillion cubic feet of gas from China after agreeing to establish potential CSG and shale gas foreign cooperation Production Sharing Contracts (PSCs).
Dart announced on March 1 that its international operating entity Dart Energy International had entered into a Letter of Intent (LOI) with Chinese state-owned Henan CBM (HCBM) and Hong Kong Prosperous Clean Energy Company (HPEC). The LOI relates to the establishment of up to four foreign cooperation PSCs for coal bed methane at various blocks in China’s Henan Province, and one for shale gas in Sichuan Province.
According to the announcement, the four CBM blocks and the shale block cover a total area of up to 2000km and 2038km respectively. Both the CBM blocks and the shale block are currently held by HCBM; the company was awarded the shale block licence in the first shale open-bidding round in China, which was open only to domestic Chinese entities. If the deal between the companies proceeds, it would make Dart one of the first foreign participants in China’s emerging shale gas industry.
At the same time as the LOI was signed, Dart and HPEC entered into a Memorandum of Understanding (MOU) setting out the key commercial terms for collaboration between the two companies in relation to the potential PSCs and associated downstream activities.
Under the key terms set out in the LOI and MOU, Dart will begin a technical evaluation of the various areas and subject to satisfactory technical evaluation and due diligence, the parties will seek foreign cooperation PSCs for the blocks within six months.
According to the announcement by Dart, the companies intend for the PSCs to be approved in the fourth quarter of 2012, so as to enable first phase exploration activities to begin before the end of 2012.
Dart will hold an 80 per cent stake in the PSCs and be the operator of the projects, while HPEC will hold the remaining 20 per cent. Under the terms, Dart may in due course seek to introduce further participants to the projects. Dart and HPEC have also agreed to establish a separate consortium to build, own and operate associated downstream assets that will provide a market for produced gas. HPEC will be the operator of these facilities with an 80 per cent stake, while Dart will hold 20 per cent.
Dart International chief executive officer John McGoldrick said that the LOI and MOU gave the company the opportunity to significantly expand its Chinese activities, through ground-floor entry into potentially high prospective licences.
“We believe that our global activity base and substantial specialist expertise, as well as the excellent work done and reputation built by our China team over the last several years has resulted in Dart International being the industry partner of choice for Henan CBM and Hong Kong Prosperous Clean Energy Company,” Mr McGoldrick said.
“We are honoured that these esteemed companies have selected Dart International for foreign cooperation, and we look forward to working closely with our new partners on unlocking the resource potential in these assets.”

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