Sino Oil and Gas Holdings Limited Concludes S&P Agreement for Coalbed Methane Project in Shanxi and Shaanxi

USA - English

• USA - English

HONG KONG, July 21 /PRNewswire-Asia/ -- Oil and gas company Sino Oil and Gas Holdings Limited ("Sino Oil and Gas Holdings", formerly "Genesis Energy Holdings Limited", HKEx: 702) announces that an acquisition agreement was entered into on July 16, 2010 with an independent third party (the "Vendor") for the acquisition of the entire issued share capital of Orion Energy International Inc. ("Orion") at an aggregate price of HK$2.34 billion. Orion enjoys a 70% interest in the joint exploration, development and production of a coalbed methane ("CBM") field in Sanjiao Block located in Shanxi and Shaanxi Provinces in the PRC pursuant to a production sharing contract. The PRC partner of the project is currently PetroChina Company Limited ("PetroChina", HKEx: 857).

The consideration for the acquisition of HK$2.34 billion is to be satisfied (i) as to HK$780.0 million in cash; (ii) as to HK$780.0 million by the issue and allotment of 1.56 billion consideration shares at the issue price of HK$0.50; and (iii) as to HK$780.0 million by issue of convertible bonds to the Vendor. The convertible bonds have a maturity of three years, with a lock-up period of one year. The initial conversion price is HK$0.50.

Pursuant to the agreement, if the reserves of the CBM field is verified to be reaching a specified level of 663.8 billion cubic feet (bcf) in one year, or in other words, such aggregate reserves of the entire Sanjiao Block under the production sharing contract be not less than 1,013.8 bcf, then the consideration will be increased by HK$156 million, to be satisfied by the issue and allotment of 312 million new shares.

The issue price and conversion price of HK$0.50 is equivalent to the closing price of HK$0.50 as quoted on the Stock Exchange on the last trading day; and represents a premium of 2.04% over the average of the closing prices of HK$0.49 for the last five consecutive trading days, or a discount of 2.15% to the average of the closing prices of HK$0.511 for the last ten trading days.

Upon completion of the acquisition and the issue of consideration shares, the Vendor will hold 19.16% in the enlarged issued share capital in the Company.

Orion entered into a production sharing contract in 2006. Pursuant to the contract, Orion as a foreign partner was engaged to provide relevant technology and assign its competent experts to explore, develop, produce and sell CBM or CBM products extracted from the contract area. The PRC partner shall facilitate local approvals and liaison with local and government bodies. The profit sharing ratio between Orion and the PRC partner is 70:30.

Conditions precedent of the acquisition agreement include confirmation that the aggregate of proven and probable reserves of the CBM field attributable to Orion is not less than 200 bcf, and that the valuation of Orion is not less than HK$2.73 billion.

Beginning in 1999, a large number of exploration pilot wells were drilled in the Sanjiao Block to evaluate the CBM potential. Since the production sharing contract became effective in June 2006, seven additional multilateral directional wells were drilled by Orion to gather more reservoir data. Trial gas production from Orion's wells commenced in May 2009.

Gas pipeline construction close to the Sanjiao Block is underway and expected to be completed in early 2011. When the pipeline construction is completed, the pipeline will have a capacity of 96.7 million cubic feet per day. In addition to gas pipeline transportation, Orion is considering transporting and selling its CBM as compressed natural gas or liquefied natural gas.

Sino Oil and Gas Holdings Executive Director Dr. Dai Xiaobing said: "As the crude oil price in the international market shows a volatile upward trend recently, the directors believe that investment in the clean energy sector will bring significant returns to the Company. The acquisition will enable the Group to enter into the CBM supply market, being a clean energy source, which is supported by the PRC government with reference to the Eleventh Five-Year Plan adopted by the National Development and Reform Commission of the PRC in 2006."

Dr. Dai added: "Pursuant to the production sharing contract between Orion and PetroChina, the contract area covers a total of 461.74 sq km in the Ordos Basin of Shanxi and Shaanxi Provinces in the PRC. Ordos has coal and coke reserves aggregating to one-sixth and natural gas reserves one-third of the country's total. The basin has rich mineral resources and will be the focus of our future oil and gas business developments."

Sino Oil and Gas Holdings invests in and operates a number of oil and gas assets in China and the US, and continuously seeks suitable investment opportunities to expand its asset portfolio and revenue base. With the recent introduction of new strategic investors into the Company, it is seeking to join hands with them to further its oil and gas asset portfolio in Greater China.

The acquisition is subject to the approval of the shareholders at a special general meeting. An application has been made to the Stock Exchange for the resumption of trading in the Company's shares with effect from 9:30 am on July 21, 2010.

About Sino Oil and Gas Holdings

Sino Oil and Gas Holdings Limited (HKEx: 702) is an energy company with a key focus on oil and gas. The Group is committed to building a portfolio of oil and gas assets and operations with an aim to develop into one of the leading independent oil and gas companies in Greater China. The Group currently operates oil and gas fields in the PRC and the US.

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SOURCE Sino Oil and Gas Holdings Limited