Primeline, CNOOC Enter Framework Agreement for LS 36-1 Field

Primeline announced that CNOOC has signed a Framework Agreement for the sale and purchase of natural gas from the LS 36-1 gas field with Zhejiang Natural Gas Development.

Previously, CNOOC and Zhejiang Gas signed a Gas Sale Agreement In Principle which defined the general terms on which Zhejiang Gas agreed to purchase the future production of natural gas from the LS 36-1 gas field, including the quality of the gas, take-or-pay principles, base price, annual quantity and delivery schedule. During the past year, while Primeline and CNOOC were preparing the LS 36-1 Overall Development Program ("ODP"), Primeline, CNOOC and Zhejiang Gas continued their negotiations of the detailed terms of the gas sale for incorporation in a more formal Framework Agreement. Primeline has received notification that the Framework Agreement signed by Zhejiang Gas dated as of 7th July 2010 was received by CNOOC on July 15, 2010. The commercial terms are substantially the same as the Agreement in Principle but the Framework Agreement contains various detailed terms, including the delivery point, delivery planning and schedule, determination of final delivery gas price and payment terms, which had not previously been confirmed in the Agreement in Principle. The Framework Agreement is sufficient for the purposes of obtaining government approval and project financing for the development.

During the development of the production facility, when further supply and production details are confirmed, CNOOC and Primeline will negotiate further details of the gas sale and it is anticipated that the Framework Agreement will in due course be replaced by a final gas sale contract.

In signing the Framework Agreement, CNOOC acted on its own behalf and on behalf of Primeline and Primeline Petroleum ("PPC"). CNOOC has previously entered into a separate agreement with Primeline and PPC confirming that Primeline's and PPC's share of the gas (being 36.75% and 12.25% respectively) from the LS 36-1 gas field will be sold through CNOOC on the same terms as the Framework Agreement. As announced on 6th July, with the ratification of the Supplemental Development Agreement between Primeline and CNOOC by the Chinese central government, CNOOC has a 51% interest in and is the operator for the development and production of the LS 36-1 gas field. CNOOC, Primeline and PPC will pay their share of the development costs pro-rata to their participating interests in the LS 36-1 gas field development.

In the meantime, Primeline is continuing its post-well evaluation work following the completion of the LS 35-3-1 discovery well.