CBM Asia Enters JOA for Sekayu Coalbed Methane

CBM Asia Development announced the signing of a Joint Operating Agreement ("JOA") between Jakarta-based operator PT Medco CBM Sekayu ("MedcoEnergi"), a wholly owned subsidiary of PT Medco Energi CBM Indonesia, and South Sumatra Energy Inc. ("SSE"), which is owned, directly and indirectly, by a consortium of companies including CBM Asia, for the Sekayu coalbed methane Production Sharing Contract ("Sekayu PSC") block, located in the South Sumatra Basin, Indonesia.

The Sekayu JOA is retroactive to May 27, 2008, the date the Sekayu PSC was granted by the Government of Indonesia, and establishes the respective rights and obligations of the operating and non-operating parties under the Sekayu PSC, including the joint exploration, appraisal, development and production of coalbed methane from the 58,349 hectare Sekayu block. MedcoEnergi has an established project management team which has considerable experience and can now be mobilized. Further, MedcoEnergi has completed almost all procurement of the services and equipment required to spud the next three exploration wells in the Sekayu block sequentially, which, together with other operational efficiencies, should result in cost savings for the parties.

MedcoEnergi and SSE each hold a 50 percent participating interest in the Sekayu PSC. At the time the Sekayu PSC was originally granted in 2008, MedcoEnergi posted a US$1,000,000 performance bond (the "Sekayu Bond") to the Government of Indonesia as a pre-condition to the granting of the Sekayu PSC. Prior to the signing of the Sekayu JOA, CBM Asia issued a standby letter of credit ("SBLC") to cover SSE's 50 percent share of the Sekayu Bond in the principal amount of US $500,000. This SBLC expires on October 7, 2010 and can be extended as required. Under the terms of the Sekayu PSC, the Sekayu Bond is releasable upon completion of the minimum work commitment whereby the value of the three year Sekayu Bond will be reduced annually (with minimum amount of US$ 1,000,000), by deducting the amount included in the Annual Work Program and Budget approved by BPMigas, the Government of Indonesia's Executive Agency for Upstream Oil and Natural Gas Activities.

Pursuant to the terms of the binding letter of intent (the "LOI") between certain of SSE's consortium members under which CBM Asia holds the right to acquire, indirectly, a 24% interest in SSE by making cash payments totaling US$1,080,000 (of which US$730,000 has been paid to date) and incurring US$3,243,500 in exploration expenditures under the Sekayu PSC, the sellers (the "Sellers") have transferred an additional 2% indirect interest in SSE (representing a 1% participating interest in the Sekayu PSC) to CBM Asia in consideration for CBM Asia posting SSE's 50 percent share of the Sekayu Bond.

In addition, CBM Asia is deemed to have paid in full the balance of the US$350,000 cash payment due to the Sellers on or before March 1, 2011 and earned an immediate 11% indirect interest in SSE (representing a 5.5% participating interest in the Sekayu PSC) based on its exploration expenditures to date. Accordingly, CBM Asia now holds, indirectly, a 13% interest in SSE (representing a 6.5% participating interest in the Sekayu PSC), with the right to increase such interest in SSE to 26% (or 13% participating interest in the Sekayu PSC) by completing an additional US$1,743,500 in exploration expenditures under the Sekayu PSC on or before December 31, 2012.