Sino Gas & Energy Holdings Limited (Sino Gas, the Company), reported Thursday that RISC Operations Pty Ltd. (RISC), an Australian based, internationally recognized independent petroleum advisory, evaluation and valuation group, has completed an assessment of the Reserves and Resources for Sino Gas’ Production Sharing Contracts (PSCs) in the Ordos Basin, China as at Dec. 31, 2015.
Twenty Two Percent Increase in 2P Reserves including First Reserves Booking at Linxing (East)
Total project Proved plus Probable (2P) Reserves have increased 22 percent to 1,962 billion cubic feet (Bcf) with Sino Gas share increased 23 percent to 552 Bcf. The increase in Reserves is driven by a positive revision in Reserves on Linxing (West) and Sanjiaobei and new Reserves bookings in Linxing (East).
Reserves on Linxing (West) and Sanjiaobei have been revised up after incorporating the results of the 20 wells drilled in 2015, 25 well tests across 20 wells and results of the pilot production to date. Gross 2P Reserves on Linxing (West) and Sanjiaobei have been revised up 16 percent due to an increase in the estimated recovery factor offset by a reduction in estimated Gas Initially In Place (GIIP) of ~6 percent.
Based on the discovery of gas pay and successful demonstration of commercial flow rates in multiple zones in the Linxing (East) prospective area, the first Reserves and Contingent Resources have been assigned to this area. The Discovered Area on Linxing (East) is now 15.4 square miles (40 square kilometers), of which 13.9 square miles (36 square kilometers) is classified as Reserves. A further 113.5 square miles (294 square kilometers) is classified as Prospective Resources. Gross 2P Reserves are 103 Bcf on Linxing (East) (Sino Gas' share 32 Bcf) with an additional 80 Bcf gross 2C Contingent Resources and 982 Bcf P50 Prospective Resources (Sino Gas' share 25 Bcf and 290 Bcf respectively).
Developed Producing Reserves
The commencement of the Linxing CGS has expanded the portion of Reserves classified as Developed and Producing to 52 Bcf gross from 24 Bcf at year end 2014 (Sino Gas share 16 Bcf). Total production over the year from the two central gathering stations totalled 1.5 Bcf.
Contingent and Prospective Resources
Total project 2C Contingent Resources increased 11 percent to 2,831 Bcf (Sino Gas share increased 10 percent to 814 Bcf). Total project P50 Prospective Resources increased 15 percent to 2,954 Bcf1 (Sino Gas share increased 13 percent to 733 Bcf). Contingent and Prospective Resources have increased as a result of the model refinements to estimates of recovery factor and GIIP discussed above, partially offset by the maturation of Prospective Resources into Reserves and Contingent Resources in Linxing (East).
Prospective resources are the estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons. The probability of development of the contingent area is estimated to be 90 percent, with the additional probability of geological success assigned to prospective resources estimated to be 75 percent. Refer to Resources Statement for additional disclosure.
Combined, total unrisked P50 Resources have increased 15 percent over year end 2015 to 7.7 Trillion cubic feet (Tcf) gross comprised of 2.0 Tcf 2P Reserves, 2.8 Tcf 2C Resources and 3.0 Tcf P50 Prospective Resources1 (c.1.3 bn barrels of oil equivalent at 6:1 mcf:boe conversion) (refer above for Sino Gas’ share breakdown).
RISC’s independent economic valuation of Sino Gas’ share of the project’s Expected Monetary Value (EMV) has decreased 16 percent compared to the year end 2014 estimate to $2.6 billion due to a 27 percent decrease in gas price. The estimated EMV of our share of the project has increased 14 percent in the two years since year end 2013 and 65 percent in the three years since year end 2012 despite well head gas price assumptions decreasing c.16-19 percent and oil prices falling over 60 percent during that period. RISC's estimate of the net present value (NPV) of Sino Gas' 2P Reserves is $1.3 billion or $13.97/2P barrel of oil equivalent.
2016 Work Program
Subject to Shareholder approval, the Joint Venture company plans to execute a $60 million budget ($45 million capex / $15 million opex). Sino Gas’ share of the budget is 49 percent. The program is designed to progress Chinese Reserve Report (CRR) and Overall Development Plan (ODP) approvals and maximize production from the two existing central gathering stations in order to fully utilize the installed capacity of 25 million standard cubic feet (MMscf) per day.
The agreed work program will be put forward to the respective PSC Partners' Joint Management Committees (JMC) for approval.
Commenting on the outcomes of the Company’s updated Reserves and Resources assessment for 2015, Sino Gas’ Managing Director, Glenn Corrie commented, “This is our fifth annual consecutive Reserves upgrade since we first booked Reserves in 2010 and continues to reflect the large scale, high quality nature of our assets. This increase in Reserves was driven in part by our continuing refinement of our sub-surface model and in part by our successful exploration program in Linxing (East).
The Company has made significant progress in realizing the value of our Reserves with the commencement of pilot production from both PSCs and the recent receipt of payments. RISC's economic evaluation continues to demonstrate the highly commercial nature of our assets, even in a lower oil price environment with an estimated NPV/2P barrel of oil equivalent (boe) of approximate $10.4 (AUD 14)/2P boe, substantially in excess of our market capitalization.
Our pilot program is designed to derisk both subsurface and commercial risks ahead full field development after ODP approval, currently anticipated in 2017. The Company's focus is now on continuing to commercialize our significant Reserves, increase production and cash flow and prepare for full field development."
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