28/06/2012
[28 June 2012, Hong Kong] MIE Holdings Corporation (“MIE” or the “Company”, together with the subsidiaries, the “Group”; Stock Code: 1555), an independent upstream oil company engaged in the exploration, development and production of crude oil and natural gas in China, Kazakhstan and USA, is delighted to announce a strategic partnership with Sino Gas & Energy Holdings Limited (“Sino Gas”), a company incorporated in Australia and listed on the Australian Securities Exchange (“ASX”), to develop the Sanjiaobei and Linxing Production Sharing Contracts (“PSCs”) in Shanxi Province, China. The partnership through MIE’s investment in Sino Gas’ subsidiary, Sino Gas & Energy Limited (“SGE”), will combine MIE’s financial strength, on-ground operational capability and its experience in the oil and gas industry in China with Sino Gas’ gas projects and technical expertise.
Under the terms of Definitive Agreements, MIE will acquire US$10 million of existing shares in SGE and invest US$90 million over the next few years to fund its current and future work programs and to achieve commercial production in the coming years. The US$90 million that MIE is investing in SGE over the next few years will be sufficient to fund the Sanjiaobei and Linxing PSCs through Chinese reserve reports (“CRR”) and overall development plan (“ODP”). Immediately after closing, MIE will hold a 51% interest in SGE and SGE will become a subsidiary of MIE.
The principal business activity of SGE is the exploration of unconventional gas assets in China as a foreign contractor pursuant to two PSCs, namely Linxing PSC and Sanjiaobei PSC, both of which are located on the eastern flank of the Ordos Basin. The contracted area is approximately 1,874 square kilometres for Linxing PSC and 1,124 square kilometres for Sanjiaobei PSC. SGE is the sole operator under both PSCs.
SGE’s PSC gas assets, Sanjiaobei and Linxing blocks, are located in the resource rich Ordos basin and cover approximately 3,000 square kilometres with existing gas discovery and significant exploration upside. The assets are located close to Changqing oil field, China’s second largest on-shore oil and gas field. Some nearby fields are:
• Changbei gas field operated by Shell under a PSC between PetroChina and Shell, producing 300 mmscf per day;
• Sulige gas field under a PSC between PetroChina and Total; and
• SinoPec’s Tabamiao project.
Sanjiaobei and Linxing blocks are in an area where MIE believes there is great potential for significant commercial unconventional gas production.
In the past, marketing gas in China has often been difficult. However, Sanjiaobei and Linxing blocks are located in a gas pipeline hub in central China with three existing major natural gas trunk lines transporting gas from west to east. The current natural gas wellhead price in the Changqing field is priced between US$4.26—6.35/Mscf which is very attractive when compared to many other areas in the world.
SGE has drilled 13 vertical wells all discovering gas, with an average well depth of around 2,100 meters, The well TB-07 drilled by SGE in 2010 flowed during test at 1.86 mmscf per day (equivalent to 300 BOE per day) before fracturing, marking a successful milestone for the project. In the past, approximately US$63.7 million has been expended on the PSCs building up a substantial resource base.
All the wells drilled by SGE are vertical wells, although there exists the potential to improve production performance through use of horizontal and multi-zone completion techniques. MIE has successfully drilled horizontal wells and performed multi-zone completion in its USA and China oilfield.
A past public presentation by SGE indicates un-risked gas 2C contingent resources of 1.799 Tcf and midpoint prospective resources of 1.861 Tcf for 100% interest in these two PSCs at the beginning of 2012 (see Figure 1 below). MIE estimates the risked contingent resources (2C, 100%) is around 0.97 Tcf.
Source: RISC January 2012 & NSAI 2008.
Figure 1 Sino Gas' Independent Reserve and Resources Estimate
Sanjiaobei and Linxing PSCs have been independently assessed to contain some 3.7 Tcf of Reserves, Contingent and Prospective Resources.
REASONS FOR AND BENEFITS OF THE ACQUISITION
The Chinese natural gas market is growing rapidly, overtaking Japan in 2009 to become the biggest natural gas market in Asia. Total gas demand is expected to rise over 10 Tcf per annum by 2030. The following is a chart setting out the projection of China natural gas production and consumption from 2008 to 2035. Gas supply in China is serviced by domestic production and supplemented by increasingly substantial imports of Liquefied Natural Gas (LNG) from Australia, Indonesia, Qatar and pipeline gas from Central Asia. In an effort to reduce its reliance on coal, oil and imported LNG, Chinese government plans to invest heavily in unconventional natural gas within the domestic market.
Figure 2 China Natural Gas Productions and Consumption Projection
Source: U.S. Energy Information Administration
Other reasons for the acquisitions considered by the company are as follows:
• Extensive exploration and appraisal work carried out by SGE with an investment of more than US$ 63 million
• Extensive flow testing on wells with significant commercial gas flows
• A clear path to production with planned pilot production expect to start in the near terms
• High-growth Chinese unconventional gas industry
• Economic value of the significant unconventional gas resources within the contracted area under the two PSCs.
Based on the consideration of US$ 100 million for the 51% interest in SGE, which holds an asset of 741,316 acreage, the deal is valued at approximately US$265 per acre. Compared to other unconventional basins in North America, MIE paid far less than for the acreage.
The acquisition represents an outstanding opportunity to gain access to the developing Chinese gas market at an attractive entry point capitalizing on the combination of a large scale project and strong management team.
About MIE Holdings Corporation
MIE is an independent oil and gas company engaged in the exploration and production of crude oil and natural gas in China, Kazakhstan and USA. The Group operates the Daan, Moliqing and Miao 3 oilfields in the Songliao Basin under three separate production sharing contracts with PetroChina, the largest oil company in China. The Group also holds an exploration contract and three production contracts that allow the Group to conduct exploration and production activities in the Mangistau province in the southwestern region of Kazakhstan. In addition, the Group pursues other development and production opportunities in China, and exploration, development and production opportunities internationally, both independently and in partnership with other major and independent oil companies.
MIE is listed on the main board on HKEx with stock code 1555.
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Issued by Porda Havas International Finance Communications Group for and on behalf ofMIE Holdings Corporation. For further information, please contact:
Porda Havas International Finance Communications Group
Mr. Terence Wong +852 3150 6773 terence.wong@pordahavas.com
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Ms. Yuly Chen +852 3150 6746 yuly.chen@pordahavas.com
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