SYDNEY: Jade Gas Holdings Limited (ASX:JGH) has signed a non-binding term sheet for a major gas production partnership with China based Yan’an Drilling Wellking Energy Technology Service Company Limited (DWK) to develop Jade’s Red Lake gas resource.

Jade Gas recently appointed DWK as its integrated services contractor as the Company moves directly to resource development as a part of its focus on fast tracking the pathway to gas production. During the Red Lake well design and planning phase with DWK for the initial 4 production wells, it was evident that DWK not only understood the technical requirements, but also shared Jade’s view on the commercial value of the resource at the Red Lake gas field.

An opportunity to broaden the engagement evolved which will see the Partnership aim to move quickly to develop the next 20 production wells at Red Lake, subject to the successful drilling of the initial 4 production wells, due to commence shortly and regulator approval. The deal will essentially see DWK commit to funding the capital required to drill and commission the next 20 production wells at Red Lake, in return for a share of gas revenue from the 20 wells.

Given DWK’s experience in coal bed methane production wells in the Qinshui Basin, the Company sees close similarities between the rapid development at Qinshui in recent years and Jade’s Red Lake project. This is a key catalyst driving DWK’s confidence to replicate the success at Red Lake.

The Partnership covers only a small portion of the initial phase of development drilling of a plan for 175 wells at Red Lake (subsequent phases of development drilling subject to approval by MRPAM).

The non-binding terms provide that the revenue sharing arrangement and term of the Partnership will be agreed under a binding service and revenue sharing agreement which the parties intend to negotiate and enter before 1 December 2024.

The planning of the additional 171 production wells will need to be approved as part of the Company’s upgrade to its Detailed Environmental Impact Assessment (EIA) which was last approved in 2021.

The DWK Partnership provides a cost effective and low capital dilutive option to develop the Red Lake gas resource. Importantly the 20 production wells offer the ability to achieve first meaningful revenues that could assist to fund future development in the Red Lake area.

Commenting on the Partnership with DWK, Executive Chairman, Dennis Morton, said: “This is a significant milestone for the Company that has the potential to fundamentally change the pathway for Jade to achieve meaningful production and revenues from Red Lake.

The structure of the Partnership provides a unique way for Jade to transition to a major gas producer in quick time with only a small number of production wells, offering a way to effectively develop the Red Lake area. It is also a partnership model that is well utilisied in China and importantly supported the accelerated development of the Qinshui Basin.

In recent months, we have validated customer demand for gas in the South Gobi region. Now, this partnership with DWK offers Jade the ability to quickly move to develop the Red Lake gas resource to capitalise on this strong market demand.”

In addition Elton Dong, CEO of DWK said, “In light of our detailed review of the coal seams and development potential at the TTCBM Project and the similarities we found to our own experience in the Qinshui Basin, DWK felt it was appropriate to establish a long term partnership with Jade that would develop the resource in the fastest and most efficient way.

There are significant cost and efficiency advantages for both parties to be achieved in a longer term campaign, and our entire team is looking forward to kicking off the production partnership shortly, and looking to get gas to the customers as soon as possible”.

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