Sino Oil and Gas, a partner of PetroChina in a project to extract natural gas trapped inside coal seams in Shanxi province, plans to spend US$30 million this year on well drilling, pipeline construction and the expansion of a gas processing plant.
The company's chairman, Dai Xiaobing, speaking after Sino Oil's annual meeting, said he expects Beijing to give final approval to the project by the end of the year. PetroChina is barred from funding a project with a non-mainland partner before the development plan is approved.
Sino Oil, which is based in Hong Kong, plans to drill 10 wells this year, after drilling 70 last year. It had originally planned to drill 170 wells by the end of 2012, having assumed that Beijing would give its approval much earlier.
The project is 70 per cent owned by Sino Oil and 30 per cent by PetroChina.
Sino Oil's vice-president, Volen He Hongbing, said the company plans to spend US$15 million on drilling this year, and US$15 million to link its wells by pipelines and double the daily capacity of its facilities to compress natural gas, to 300,000 cubic metres. The compressed gas is stored in tanks and trucked to users in Shanxi.
The National Energy Administration accepted the firm's gas reserve development plan in Sanjiao, Shanxi, in August. This allowed Sino Oil to begin trial production and sales.
It sold 6.15 million cubic metres of gas last year. Dai declined to provide sales targets for this year and next, saying unstable daily output hindered the signing of long-term sales deals.
"We still have a sales target of 500 million cubic metres in 2016," Dai said. "If this can be reached, it will be very profitable."
Sino Oil booked a net loss of HK$113.4 million last year, after a loss of HK$96.2 million in 2011. Some HK$66.9 million of last year's loss resulted from HK$69.25 million of asset write-downs at two oil fields in Shaanxi province. A lack of investment meant lower future output from the mature fields. Its coal seam gas operation recorded a loss of HK$9 million last year.
The New Zealand-born businessman Richard Chandler's Mandolin Fund cut its stake in the firm from 13.4 per cent last July to less than 5 per cent in January.
Sino Oil closed yesterday at 18.1 HK cents.