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ENERGY & OFFSHORE | Tony Chua, Hong Kong

China includes Sino Oil and Gas’ project in 12th Five-Year Plan

The company’s Sanjiao coal bed methane project is dubbed as a core project in the plan.

The National Development and Reform Commission (“NDRC”) of the People’s Republic of China released a policy paper on “12th Five-Year Plan for Development and Utilization of Coalbed Methane (the “Plan”) on 31 December 2011. This policy release reaffirmed the state’s focus on the development of two coalbed methane (“CBM”) commercial bases in Qinshui and the eastern fringe of Ordos Basins. By 2015 the productive capacity of CBM in the eastern fringe of Ordos Basin will reach 5 billion cubic meters. Oil and gas company Sino Oil and Gas Holdings Limited (“Sino Oil and Gas Holdings”), through its subsidiary Orion Energy International Inc., is operating the Sanjiao CBM project in Shanxi, which has been listed as a core project under the Plan.

Sino Oil and Gas Holdings Executive Director and Chief Executive Officer Mr. King Hap Lee said: “Aiming to accelerate the development of the CBM industry, the Plan mandates increased investments in CBM exploration, strengthened management of foreign cooperation, encouragement of participation of overseas and private-enterprise investors, continued implementation of tax and other incentive schemes, as well as the possible increase in CBM subsidies. The Sanjiao project’s official inclusion in the state plan will help us gain stronger support from Central and local government authorities, providing a better environment for the development, construction and operation of the project, as well as a further boost for the Sanjiao project’s profitability.”

Last month, Sino Oil and Gas Holdings received financing support from the China Development Bank through a RMB1-billion facility. The Sanjiao project, which commenced trial external sales in August 2011 in the form of compressed natural gas (“CNG”), is currently stepping into the commercial production phase. The project’s overall development program will soon be submitted for NDRC’s approval, with supplementary gas pipeline and liquefied natural gas (“LNG”) infrastructure currently under construction.”

Mr. Wei Pengyuan, Deputy Director of the National Energy Board, reinstated the country’s dedication to developing a market-driven CBM industry through policy support. Related ministries are in negotiation in respect of raising the exploitation subsidy from RMB0.3 to RMB0.4-0.5 per cubic meter. In addition, the state will designate an annual budget of RMB3 billion for the management of CBM development and to subsidize the import of CBM development equipment, according to a Sino Oil and Gas Holdings report.

Mr. King added: “The official release of the Plan marks an important direction and drive for the CBM industry. It has affirmed the state’s policy of encouraging foreign and private-enterprise investments in order to speed up the industry’s development. The release will help accelerate the approval process for the Sanjiao project, as well as the supplementary works. Management is confident of obtaining NDRC’s preliminary approval on the overall development program within the first quarter of 2012, and of commencing large-scale external pipelined and LNG sales by the third quarter.”

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