Pacific Asia Petroleum Kicks Off Drilling at Zijinshan Gas Asset

Pacific Asia Petroleum has commenced drilling operations on its 100% owned Zijinshan gas asset located in the Shanxi Province of China. This is the first well in a multi-well program planned on the Zijinshan Asset.

The 100% owned and operated Zijinshan Asset was awarded to Pacific Asia in 2008 pursuant to a Production Sharing Contract that was approved by the Chinese Ministry of Commerce.

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 early commercialization.

Commenting on this start of drilling, Frank C. Ingriselli, President and CEO of Pacific Asia, noted, "The commencement of drilling within this calendar year delivers on our business plan with respect to this exciting asset. It is a milestone on our path to bringing early gas from Zijinshan. Our production timetable is in line with the rapid development of the Chinese CBM industry, which has been driven by favorable government support and current market forces. The commencement of drilling represents a great opportunity as we anticipate the Chinese CBM sector to transform into $1-billion industry in 5 years."

According to the U.S. Energy Information Agency, natural gas consumption is growing by 5.2% a year in China. The Chinese government has targeted to increase the clean burning natural gas’ share in the country’s total energy consumption from 3% in 2006 to 10% in 2020.

The Zijinshan Asset is estimated by the China United Coal Bed Methane Company ("CUCBM") to have potential gross gas resources in excess of 3.8 TCF. It 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. Pursuant to the current Chinese economic stimulus initiative, another new pipeline dedicated to CBM is under construction in the Ordos Basin, again in close proximity to the Zijinshan Asset.