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Deal reached over disputed Chinese CBM blocks

World Coal,

UK-listed Green Dragon Gas has reached an agreement with state-owned China United Coalbed Methane (CUCBM) to end a dispute over five onshore coalbed methane (CBM) production sharing contracts in China.

Green Dragon said both companies’ interests have aligned and that they would work together to maximise the value in the blocks.

CUCBM is majority owned by state-owned China National Offshore Oil Corp.

Green Dragon announced in October that roughly 1,500 CBM wells had been drilled at five of its blocks by state-owned companies, including CNOOC, while arbitration proceedings continued to decide the validity of the UK company's concessions.

Green Dragon had been awarded the five blocks by CUCBM between 1999 and 2003, giving it an operated stake of 60%, while CUCBM held the remaining 40%.

However, in March 2011, CUCBM announced it would no longer work with Green Dragon at the Shizhuang North and Qinyuan blocks in Shanxi province, Fencheng in Jiangxi province and Panxie in Anhui province. Green Dragon claimed it had completed all its work commitments and contractual obligations.

In July, Green Dragon's production sharing contracts covering the blocks, as well as that for the Shizhuang South producing block in Shanxi, were reinstated by the Chinese central government.

Drilling of the 1500 wells had occurred during the interim period when the UK company was in negotiations over the reissue of the licenses.

In its latest update, Green Dragon said various terms for each of the blocks -- Shizhuang South, Shizhuang North and Qinyuan in Shanxi province, Fencheng in Jiangxi province and Panxie East in Anhui province -- have now been agreed between the parties.

For example, CUCBM will continue to operate the roughly 1300 wells that it drilled in Shizhuang South, while Green Dragon will operate the rest. Green Dragon will also raise its equity in the block from 60% to 70%.

In Shizhuang North, however, CUCBM will pour more money into exploration and production, in exchange for taking an additional 10% stake in the block.

The Qinyuan block will be divided into two equal areas with each company responsible for exploration expenses in their respective areas.

Green Dragon said there are no changes to the terms of the Qinyuan and Panxie East PSCs.

Both companies will convene joint management committee meetings with for each PSC, to share all technical information and related overall development plans. There will then be a third-party audit with respect to certain cost recovery aspects of both companies' respective investments in the acreage, Green Dragon added.

"The agreement also allows the company to open a cooperative and positive chapter in relations with CNOOC and CUCBM," Green Dragon Chairman Randeep Grewal said in the statement. "We now have a well-capitalised, supportive partner committed to developing our vast acreage and producing the substantial multi-Tcf gas resource with us over the next 20 years."

Green Dragon said it now has between a 47% and 70% direct equity interest in over 1800 drilled wells in China.

In January, Green Dragon said its net production last year rose 11% year on year to 2.9 Billion f3, while gas production from wells drilled by third parties in its PSC acreage was over 4.4 billion ft3. Gas is either sold into existing pipelines or as compressed natural gas in the transport sector.

Edited from various sources by Sam Dodson

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