Joint Venture Agreement on Georgian CBM Project

Source: 2/18/2013, Location: Asia

Red Emperor Resources NL announce that the Company, along with its joint venture partners, Strait Oil and Gas UK Limited ("Strait") and Range Resources Limited ("Range") (together " the Consortium") have executed a heads of agreement with the Georgian Industrial Group ("GIG") with respect to the joint development of the Coal Bed Methane project (CBM) and conventional gas potential around the Tkibuli-Shaori Coal Field ("Tkibuli Project") in the Republic of Georgia.

Terms of Agreement

GIG and the Consortium will jointly establish a Development Company on a 50:50 basis. The Development Company will be commencing feasibility and technical studies, followed by an initial three or four well pilot project. The appraisal / pilot production wells will be drilled first to clarify flow rates and other key parameters including optimum well construction / completion strategy, well spacing and water treatment and disposal requirements prior to full scale development. Based on a study by Advanced Resources International ("ARI") full development would involve 6 CBM wells per annum that are forecast to produce between 0.3-0.5 mmcf/d per well. It is anticipated that over the first 3 years, production will build to rates that will fund further expansion of the CBM project.

The initial pilot project will focus on appraising area already known to be venting methane, thus ensuring a higher chance of success. The work programme is anticipated to commence in the second half of 2013 and will be predominantly debt financed, resulting in limited capital commitments for Red Emperor moving forward. New wells will target horizons at depths between 500 and 2,000 metres and can be drilled within approximately 45 days. The fast-track program is designed for gas production and sales to begin within 18 months given the existing infrastructure and logistics. GIG have agreed a take or pay arrangement for all gas produced by the Development Company at a 5% discount to a regional indexed price less transportation, thus removing the monetization risk so often faced with prospective CBM projects in the region. Over the last few years regional prices have averaged between US$8 - US$10 / mcf.

It is the intention of the Consortium to ensure that the first well of the pilot program counts as the commitment well with respect to retaining Block VIb. Red Emperor will be free carried for the full costs of this first well.

Tkibuli Project Overview

Tkibuli has been estimated by ARI to contain Contingent Resources (mean) of approximately 400billion cubic feet ("bcf") of CBM gas. Sand horizons have also been identified around the coal beds, which could add additional, conventional hydrocarbon resources to those estimated for CBM at Tkibuli alone. Over 400 exploration and non-hydrocarbon wells have been drilled in the Tkibuli area, many encountering hydrocarbons and one producing gas for over 35 years.

CBM has become an increasingly important source of energy around the world and production is well established in the US, Australia and China. Access to market is key to commercialisation and, although major pipelines transect the country, Georgia remains almost entirely dependent on imports of foreign natural gas. CBM production from Tkibuli, therefore, could immediately be fed into the local energy market.

Georgia Industrial Group Partnership

The Georgian Industrial Group was established in 2006 and has extensively invested in the local economy and continues to support prospective businesses. GIG operates the 200MW gas-fired power station located in Gardabani, as well as importing 25% of gas currently used in Georgia. The power station currently does not use any gas sourced locally in Georgia.

GIG is the largest holding company within Georgia and embraces a number of subsidiary companies operating in the energy sector, acquiring and processing of natural resources, production of building materials, logistics service and real estate development. GIG's operations are concentrated on the acquiring and processing of the Country's resources, which in turn fosters the long-term development and success of Georgian industries.

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Related Categories: Coalbed Methane  General  Heavy Oil  Methane Clathrate  Oil Sands  Oil Shale  Shale Gas  Tight Gas  Tight Oil 

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