The price received by Far East for its gas will be 1.55Rmb per cubic meter, including enacted and recently announced Chinese government subsidies, which equates to approximately $6.55 per Mcf at current exchange rates.
The GSA is a 20-year agreement that provides that SPG is required to purchase all gas produced from the Shouyang Block up to 300,000 cubic meters (10,584,000 cubic feet) per day of CBM gas on a take-or-pay basis with any quantities above such amount to be negotiated pursuant to a separate agreement.
This provision gives Far East and CUCBM the opportunity to negotiate a new contract for volumes above 10.584 million cubic feet per day at a time when a second pipeline may have been built to the area, and/or when gas prices may have risen further.
The GSA does not have any minimum delivery obligations, but does commit all production from the Shouyang Block up to 300,000 cubic meters per day to SPG.
Gas sales are expected to commence upon completion of Far East’s in-field gathering system, which will interconnect with SPG’s 18-inch diameter line in Shanxi Province that is currently under construction and is scheduled to be completed by September or October 2010.
As is the practice in China, the GSA was signed by and between CUCBM (Far East’s Chinese partner), as seller, and SPG, as purchaser, with Far East being an express beneficiary thereto.
