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Exploration Receives Final Approval for the ODP on the Chengzhuang CBM Block

Source: 10/3/2018, Location: Asia

G3 Exploration, an independent specialist in the exploration and development of coal bed methane gas ('CBM') with roots in China and a focus on international expansion, has announced that the China National Development and Reform Commission (NDRC) has issued its final approval for the Overall Development Plan (ODP) on the Chengzhuang Block (GCZ).

NDRC has approved the ODP, consistent with its policy to accelerate CBM development in China, boost green energy supply, and improve coal mine safety production and to reduce CO2 emissions. This final NDRC approval facilitates the permits for the Company and its partner to further develop the acreage.

The Company has a 47% participating interest in the GCZ Block with its 53% partner, China National Petroleum Corporation (CNPC).

GCZ ODP highlights
• The project is located in Shanxi Jincheng Qinshui county with a contract area of 67 km˛ of which ODP covers an area of 33 km˛
• The ODP area of 33 km˛ has 294 Bcf of gas in place with estimates of recoverable proved reserves of 176 Bcf
• 114 wells have been drilled on the acreage of which 85 wells are selling gas
• The development plan includes the drilling of an additional 147 production wells
• Acreage contains coal seam #3 & #15 gas bearing reservoirs
• Gross production capacity from the ODP is estimated to be 180 million cubic meters per year (6.35 Bcf per year)
• The development cost for GCZ is expected to be c. US$55 million over the next two years starting from fourth quarter 2018. Each party is expected to invest according to its participating interest in the Block
• GCZ is a commercial gas producing block which has been profitable since September 2015 and continues to be so
• The GCZ Block is jointly operated by CNPC and the Company through a joint management team based in Jincheng, Shanxi

In addition to the above, NDRC approval has emphasised on strengthening the health, safety and environment (HSE) management systems to fulfill the objective of no accidents and zero pollution to the environment. Regarding HSE, the Company has since inception, along with its Chinese partners, been committed to working to the highest standards of HSE in all of its operations. Our teams have diligently been committed to safety at all times with zero lost time incidents recorded year-on-year.

Randeep S. Grewal, Founder and Chairman of G3 Exploration: 'We are very pleased and honoured with the timely approval of the GCZ ODP Plan as submitted by our Joint Operating Team with CNPC. Such approval simplifies the continued expansion and development of the commercially producing area within the profitable block. As the teams have been preparing for such approval, the development programme is expected to be launched following the Golden Week holidays or mid-October 2018.

Both of our Green Dragon Gas commercially producing GCZ and GSS Blocks are specifically mentioned within China's 13th Five-Year Plan as being critical to domestic gas supply requirements. The current GCZ ODP approval is a precursor to our expectation of an expedited ODP approval for the GSS Zaoyuan ODP plan over 50km˛ which itself will be the first of several ODP plans within the 388sqkm GSS gas block. The Government's focus on increasing domestic gas supply is being demonstrated by its efficiency in approving the proven core production gas fields for an expedited clean energy supply.'

About the Chengzhuang Block (GCZ Block)
The GCZ Block is located in the Qinshui Basin with an area of 67 sq km, approx. 20 km south of the Greka Shizhuang South Main Block ('GSS Block'). Reservoir properties and geological settings are similar to those found in the GSS Block. There are two major laterally continuous shallow coal seams present throughout the GCZ Block, namely, coal seam #3 and #15. CBM in this area is imbedded in the coal formations at average depths, ranging from 300 m to 600 m. The Block has been in commercial production since 2010.

The Block is producing a stable cash flow, which is split in proportion to working interests between GDG (47%) and CNPC (53% - operator) since the completion of CNPC's cost recovery pool in August 2015.

As per the NSAI Reserve Report of 31 December 2017, GCZ Block has original gas in place of 275 Bcf. The Block has 14 Bcf in net 1P gas reserves, 31 Bcf in net 2P gas reserves and 56 Bcf in net 3P gas reserves with future NPV 10 of US$72 million in 1P, US$154 million in 2P and US$288 million in 3P.

* Exchange rate used in conversion of RMB-USD is 6.80.

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