Sino G&E Commences Gas Sales from Pilot Production Program in Ordos Basin

Australia's Sino Gas & Energy Holdings Ltd. (Sino Gas, the Company) announced Monday that gas sales arrangements for the pilot testing program have been finalized and gas sales have commenced from the Sanjiaobei and Linxing blocks, in the Ordos Basin, Shanxi Province, China.

Gas production has commenced through the Sanjiaobei central gathering station from both Linxing and Sanjiaobei pilot wells. Initial constrained production has commenced at approximately around 5 million standard cubic feet per day (MMscf/d) from a pool of 16 pilot wells and is planned to be ramped up in a safe and efficient manner towards full plant capacity of 8 MMscf/d in 2015. Construction on the Linxing central gathering station continues to make good progress and the facility is on-track to be commissioned in mid-2015 with a capacity of around 17 MMscf/d, bringing the total pilot program capacity to around MMscf/d. Data from the pilot production will continue to improve the understanding of long-term reservoir performance for optimizing full field development and Overall Development Plan submissions.

Gas sales arrangements for the sale and purchase of gas from the Linxing and Sanjiaobei blocks have been signed with Lin County Jiahao New Energy Company Limited, a Shanxi industrial and commercial customer, for distribution via the Yulin-Jinan regional pipeline. Under the terms of the agreements, gas is to be sold from the Sanjiaobei central gathering station at initial prices of up to around $9.50 per thousand standard cubic feet, along with an annual price adjustment mechanism linked to market pricing and applicable government policies. This is a significant improvement from the around $7.00 per thousand standard cubic feet announced June 26, 2013, as higher national gas prices feed through to the realized wellhead price.

Commenting on the first gas sales Sino Gas CEO, Glenn Corrie said: “Achieving first gas from our Ordos Basin assets is a significant milestone and today represents a very positive inflection point in Sino’s future as we transition into a full-cycle E&P company, supplying low-cost gas to China’s rapidly growing domestic market. Our focus can now turn to maximizing production from the existing facilities and advancing the build-out of additional capacity. The gas sales arrangements that we now have in place are very attractively priced and further underpin the commerciality of our gas resource. I am very encouraged that the recent National Development and Reform Commission (NDRC) price increases have been applied to our contracts this quickly, highlighting the Government’s continued support in promoting the development of new domestic sources of gas supply.”

“I would like to acknowledge the effort and dedication of the SGE leadership and project team in achieving this landmark milestone. We sincerely value the ongoing support of our PSC partners, local governments and communities as well as our customers in making this project a success. This is significant step in unlocking Sino Gas’ large, cost competitive resource base and we look forward to continuing to play a role in meeting China’s growing energy demands with indigenous gas supply.”