OREANDA-NEWS. September 05, 2012. Australian-listed Sino Gas and Energy said that the first wells in the 2012 work program at the Linxing coalbed methane block in China's Shanxi province have been drilled.

The company said drilling rigs have been mobilized to Linxing and the LXSG-05 and LXSG-09 wells have been spudded. Each well is expected to take about 45 days to complete and core. There is also an ongoing seismic work program which is "well advanced," it added.

The work program this year involves a total 11 wells, Sino Gas said July 10 in a corporate presentation.

Sino Gas and its strategic joint venture partner Hong Kong-listed MIE Holdings operate the Linxing block with a 64.75% stake, with state-owned China United Coal Bed Methane holding 30% and CBM Energy Associates 5.25%.

MIE acquired a 51% stake in Sino Gas' Chinese subsidiary in June for USD100 million, giving it an interest in Linxing as well as the adjacent Sanjiaobei production sharing contract. MIE, producer of crude onshore China, was brought in to help fund both projects as well as take the joint venture through the Chinese regulatory approval system, Sino Gas said.

The two companies aim to work with China United Coal Bed Methane for 2013 to generate reserve reports for the block, Sino Gas added in its update on Monday. Sino Gas hopes to submit an overall development plan for approval to the government by the end of 2013 or early 2014, the company said last month.

Linxing and Sanjiao span nearly 3,000 sq km and energy consultant RISC in January estimated them to hold contingent gas resources of 1.8 Bcf, with the bulk located in Linxing.

The partners expect to ramp up production within three years to a combined 450,000 Mcf/day from both blocks, with the wellhead gas sales price estimated at USD7.64/Mcf. They plan to sell production from the pilot phase to domestic users and the transport sector as CNG and LNG.