Liulin PSC, Shanxi.

Liulin block

The Liulin block covers 183 km2 and is located in Shanxi province, approximately 500 kilometres southwest of Beijing.  The block is held by CUCBM, and has entered into a 30-year PSC with Fortune Liulin Gas Company ("FLG") to explore for CBM.  Under the PSC, FLG has 50% participating interest in the block and is the operator.

Dart Energy farmed in to the block in December 2009 by acquiring 35% equity interest in FLG with a series of options to increase its equity interest in FLG ultimately to 75%.  The first option was exercised in December 2010, which raised Dart’s raised equity interest to 45%.  The second option was exercised in December 2011 for another 5% interest bringing Dart’s effective interest in the Liulin block to 25%, with joint operatorship. Dart at present has primary responsibility for technical and operating issues.

The PSC exploration period for the block runs to 28 March 2012.  Since January 2010, FLG and CUCBM have engaged in an extensive pilot drilling and testing campaign ini Liulin.  In early 2010, the Liulin block was awarded Chinese reserve certification, which is a necessary precondition to the preparation of an Overall Development Plan (ODP) for the block.  FLG is currently working towards an ODP application for submission during 2012.  Upon approval of the ODP, the production period will last for 20 years.

In October 2010, an initial 15-year Gas Sales Agreement for the Liulin block was concluded for an annual volume of 1.4 Bcf, commencing 1 July 2011 with take-or-pay arrangements commencing 1 July 2012.  Initial prices for the gas under this agreement is RMB 1.38/m3 (approximately US$7.70/Mcf), subject to annual review and escalation.

As of 31 December 2011, MHA Consultants estimated 28.9 Bcf of 2P reserves, 48.9 Bcf of 3P reserves, 87 Bcf of 2C resources and 80 Bcf of prospective resources for the Liulin block.