Pacific Asia to Commence Operations at Zijinshan, Cancels 3 Chevron Deals
Pacific Asia Petroleum will commence operations on its 100% owned Zijinshan gas asset. The Zijinshan Asset was awarded to Pacific Asia in 2008 pursuant to a Production Sharing Contract and Pacific Asia was approved as Operator of the Zijinshan Asset by the Chinese Ministry of Commerce. Pacific Asia plans to immediately commence its operations under this newly approved work program.
The Zijinshan Asset covers an area of 175,000 acres and is located in the Ordos Basin in the Shanxi Province of China. The Ordos Basin is the second largest petroleum-bearing basin in China and contains one of the largest known reserves of gas in China. To the immediate west of the Zijinshan block are discovered and commercialized gas fields estimated by CUCBM to contain gas resources of approximately 50 trillion cubic feet of gas (50 TCF). Based on seismic studies and drilling previously done on the Zijinshan Asset, it is estimated by CUCBM that the Zijinshan Asset has potential gross gas resources in excess of 3.8 TCF. The Zijinshan block is also in close proximity to the major West-East gas pipeline and the Ordos-Beijing Pipeline, which link the gas reserves in China's western provinces to the markets of the Yangtze River Delta, including Shanghai and Beijing.
Pacific Asia is planning to carry out its operations in the most economically efficient manner so as to minimize cash outlays as it moves this asset to commercialization.
As part of its refocused strategy, on December 5, 2008, Pacific Asia terminated 3 of its pending asset transfer agreements with Chevron pertaining to the Linxing, San Jiao Bei and the Shenfu areas. Pursuant to these agreements, Pacific Asia was to pay in excess of $50 million when and if government approvals for the transfers were received. As a result of the termination of these agreements, Pacific Asia will not be required to consummate these asset transfers, is not subject to any penalties, break-up fees or related costs, and will receive back $2.4 million in prepaid deposits from Chevron.
Pacific Asia CEO Mr. Ingriselli said, "While we believe that these Chevron blocks offered our Company good potential several months ago, the terms requested by Chevron for extension of the these agreements pending ongoing delays in Chinese government approvals were not financially acceptable to our Company. The energy industry and world markets have significantly changed over the last several months and our Company believes that the changed terms could no longer provide accretive value to our shareholders, especially when compared to the Zijinshan Asset (which we believe has comparable value to the agreements terminated) and the other opportunities we have secured and are pursuing. Pacific Asia has no debt and has significant cash on its balance sheet, and is in a good financial position considering these challenging times in the financial community. With our solid financial position, we will seek to identify and take advantage of new opportunities that are presenting themselves in this new market environment in order to deliver upon our strategy of securing projects with early cash flow.''
Focus on Early Cash Flow Projects
Mr. Ingriselli continued, "In addition to our focused efforts under the Zijinshan work program, Pacific Asia also plans to concentrate on its existing onshore oil property and its recently announced preliminary agreement to acquire a minimum 25% interest in a field that contains discovered oil reserves as certified by the Chinese government. Twenty wells have already been drilled on this currently producing 8,400-acre oilfield, with 100 more wells scheduled over the next few years. An independent report issued by LCH (Asia-Pacific) for the major investor in this asset estimated the present value of the entire asset at US $460 million.
"These onshore oil ventures are projects presenting the opportunity for early cash flow, which are the types of opportunities which we originally created the Company to pursue. We believe that these projects can be secured, developed and operated at costs that will return healthy value to our shareholders, even at the current price of oil,'' Mr. Ingriselli said.
Pacific Asia also recently announced its pending acquisition of a 51% ownership stake of the Handan Changyuan Gas Co., Ltd (HCG). HCG delivers gas to more than 300,000 customers in the City of Handan. This acquisition has the immediate potential of generating real cash flow and real returns for Pacific Asia upon completion.
"These are the types of assets that the Company plans to focus on and attempt to acquire during these challenging financial markets, by taking advantage where possible of currently depressed prices in order to grow shareholder value and deliver real and early cash flow,'' stated Mr. Ingriselli. He continued, "We will continue to seek out low-risk, high-return projects with limited capital exposure and will strive to build and leverage our partnerships with strong, technologically experienced, cash-rich energy companies."