21 August 2011, Hong Kong - Oil and gas company Sino Oil and Gas Holdings Limited ("Sino Oil and Gas Holdings", the "Company", HKEx: 702) reported a turnover of HK$15,800,000 during the six months ended 30 June 2011 (2010 interim: HK$9,800,000), a year-on-year increase of 61%. The turnover was mainly generated from the oil fields in Shaanxi Province, namely, Liuluoyu, Yanjiawan and Jinzhuang. An operating loss of HK$15,600,000 (2010 interim: Loss of HK$33,100,000) was incurred during the period. The Group did not declare an interim dividend.
The Group's performance is expected to show significant improvement upon further development of the oil fields in Shaanxi and the commencement of operation of the Sanjiao coalbed methane (CBM) field.
The Group owns a 70% interest in the production sharing contract ("PSC") of the Sanjiao project through wholly-owned subsidiary Orion Energy International Inc. ("Orion"). Up to the end of June 2011, Orion had completed the drilling of a total of 33 multi-lateral horizontal wells and directional wells in the Sanjiao Block, with annual handling capacity of 195 million cubic meters of CBM.
In view of the smooth rollout of exploration and trial production works, the Group signed a sales collaboration agreement in May 2011 with the PRC partner of this project, PetroChina Coalbed Methane Gas Company ("PetroChina CBM") on the basis of the PSC. A sales and purchase agreement was subsequently signed in June 2011 for the sales of CBM to a Shanxi enterprise in the form of compressed natural gas (CNG). External sales of CBM from the Sanjiao Block have officially commenced since 12 August 2011 with daily sales of approximately 15,000 cubic meters. The average sales price is RMB1.51 per cubic meter. The pricing of CBM is determined with reference to the local prices as approved by the Development and Reform Commission of Shanxi Province, and also subject to adjustments in accordance with market conditions and national policy.
The Group is working with PetroChina CBM on the expansion of the head station for CNG. Upon scheduled completion in the fourth quarter of 2011, the head station will have a daily compression capacity upto 150,000 cubic meters. By the end of the year, the daily sales are expected to reach 100,000 cubic meters.
Sino Oil and Gas Holdings Chief Executive Officer Mr. King Hap Lee said: "We expect annual sales to reach a peak level of 1 billion cubic meters by 2015 or before. According to the proven reserve of CBM of 43.5 billion cubic meters of the Sanjiao Block, which has been reviewed and endorsed by the Expert Review Group of the State Reserve Committee of the PRC, the project can support exploitation activities in the next 20 years."
The Sanjiao Block is now supplying natural gas in the form of CNG, but active plans are under way for future delivery through the pipeline system which is under construction in the district. Construction works of a new pipeline invested by [a local state-owned enterprise in Shanxi Province] commenced in April 2011. It is expected to be completed in 2012. The new pipeline is situated between Linxian and Lishi in Lvliang Municipality, Shanxi Province, and will form part of Phase One of the "Linxian-Liulin-Linfen" gas pipeline project. The length of the gas pipeline is 130 kilometers with annual transportation capacity of 1.1 billion cubic meters. The pipeline will be located about 20 kilometers east of the Sanjiao Block. The Group expects the construction of local pipelines in Shanxi to drive the production scale expansion of the CBM project, and to bring further improvements in the project's revenues and profitability.
The oil fields in Liuluoyu, Yanjiawan and Jinzhuang, Erdos Basin, Shaanxi Province, have reported smooth progress with exploitation activities. Liuluoyu and Yanjiawan oil fields reported a production of approximately 3,300 tonnes of crude oil during the first half. The subcontracting agreement for Jinzhuang oil field has been extended for one year whilst negotiations are under way for the possible acquisition of the project. Jinzhuang is located in Erdos Basin, Shaanxi Province. During the period, crude oil output amounted to approximately 2,000 tonnes.
In second half of last year, there were respective initial discovery of gas reserve in the aforesaid oil fields in Shaanxi Province. Management remains cautiously optimistic about the feasibility of discovering gas reserves of industrial value in those blocks in Ordos Basin.
"As an emerging and nationally-supported energy source, CBM is receiving increasing attention from both domestic and overseas investors. Subsequent to receiving investments from a number of renowned investment funds in the previous year, Mandolin Fund Pte Limited, a subsidiary of the Richard Chandler Corporation has also become a substantial shareholder of the Company after acquiring shares representing approximately 14% of the total issued share capital of the Company in June 2011. Equipped with advanced drilling technology and a seasoned team of experts, the Group is confident that the CBM project is well positioned to deliver better investment returns to the shareholders," added Mr. King.
About Sino Oil and Gas Holdings
Sino Oil and Gas Holdings Limited (HKEx: 702) is an energy company with a key focus on oil, coalbed methane (CBM) and conventional natural gas. The Group is committed to building a portfolio of oil and gas assets and operations with the aim of developing into one of the leading independent oil and gas companies in Greater China. The Group currently operates oil and gas fields in Shaanxi and a CBM project in Sanjiao Block in Erdos Basin of China.