Fortune Oil announces a major strategic alliance signed today with Arrow Energy International, a leading Asia-Pacific coal bed methane ('CBM') company, including a staged investment in Fortune Liulin Gas ('FLG') which operates the Liulin CBM project.
Highlights
The strategic alliance with Arrow will strengthen Fortune Oil's integrated gas business, combining Arrow's upstream CBM expertise with Fortune Oil's gas distribution capabilities and extensive operating experience in China.
The alliance will extend beyond CBM to the recovery of gas from coal mines, which is a priority area for China in tackling coal mine safety and climate change.
Today Arrow has made an initial investment of US$8 million (£5.0 million) in relation to the Liulin project. This amount increases to a total of US$13.3 million (£8.2 million) (of which US$6 million will be invested in FLG and US$7.3 million will be paid to Fortune Green Energy Limited ('FGE')) for a 35 per cent interest in FLG, following the extension of the Liulin Production Sharing Contract ('PSC').
Arrow has been granted the right to invest up to a further US$12.7 million (£7.9 million) in FLG (plus a bonus payment dependent on the level of probable reserves) for a further 15 per cent interest in the enlarged share capital of FLG.
Arrow has been granted a further option to acquire from FGE a 25 per cent interest in FLG for US$40 million (£24.8 million), one condition for which is that Arrow and Fortune Oil must have co-invested in at least two other CBM PSCs.
Shell, which owns 10 per cent of Arrow Energy International, will have back-in rights for investment in Liulin and other CBM projects developed by Fortune Oil with Arrow.
Qian Benyuan, Chairman of Fortune Oil, said:
'The strategic alliance and investment by Arrow represents a transformational step for our gas business and a major advance for China in the safe and efficient extraction of coal seam gas. The combination of Fortune Oil's gas distribution capabilities and China experience along with Arrow's CBM expertise is a unique and powerful platform. Arrow's skills in lateral drilling and field optimisation will be drawn upon at a critical stage in the development of the Liulin block. Our Chinese partner CUCBM has welcomed our invitation for Arrow to invest in the Liulin project and we expect this to be the first of a series of joint investments in CBM and coal mine degassing projects'.