Through its wholly-owned subsidiary Orion Energy International Inc. (“Orion”), the Group entered into a production sharing contract (“PSC”) with China National Petroleum Corporation (“PetroChina”), its partner in the PRC, for exploration, exploitation and production at a CBM field in the Sanjiao block, located in the Ordos Basin in Shanxi and Shaanxi provinces. The Group has a 70% interest in the PSC. The PSC covers a block across the Ordos Basin in Shanxi and Shaanxi provinces, with a total area of 383 km2. According to the updated reserve report of Sanjiao CBM Project provided by Reserve Estimate Professional, Netherland, Sewell & Associates, INC. ("NSAI") at the end of 2015, the net gas reserve (proved + portable) is approximately 8.301 billion m3 and its NPV is approximately HK$11.5 billion. Sanjiao- Qikou CBM Project was listed as one of the National and Shanxi Province key development projects in 2014 and 2015 respectively. The ODP of Shanxi Sanjiao CBM Project has received the official approval from NDRC in Nov 2015. The Approval signifies that the Sanjiao CBM project, in accordance with the ODP, commences the sizable development and production with a target annual capacity of 500 million m3.
In July 2017, Sanjiao CBM Project was granted a mining permit by the Ministry of Land and Resources of the PRC with an approved CBM production capacity of 500 million cubic meters per annum. The mining permit shall be valid for 25 years from July 2017 to July 2042. At this point, all necessary administrative approvals under the current PRC laws and regulations have been obtained for exploration, development, exploitation and production phases of Sanjiao CBM Project.
Sanjiao coalbed methane block is located in the north-western part of China between Shanxi and Shaanxi Provinces, along the eastern edge of the Ordos Basin. Ordos Basin is located in central and western regions which is the second largest sedimentary basin in China. Its proved reserves of natural gas, coal bed methane and coal are all ranked the first in the country.
Eastern edge of Ordos Basin is the classic medium rank coal area in the country. With high permeability and fact gas desorption, medium rank coal is widely recognized in many countries as the most common ‘gas producing coal’. Also, it is the most favourable coal for CBM development.