G3 Exploration reports progress at GGZ Block in southwest China

2/27/2018

LONDON -- G3 Exploration Ltd., an independent specialist in the exploration and development of coal bed methane gas (CBM), with roots in China and a focus on international expansion, is pleased to provide a progress update of the exploration and development activities for its Baotian-Qingshan (GGZ)2 Block, situated in the Guizhou Province, China.

GGZ Block highlights as of year-end 2017:

  • Successfully drilled 45 CBM production wells (23 vertical, 19 directional and three LiFaBriC), de-risking 30 Bcf of gas with a P10 NPV of over $300 million
  • 15 wells were put on production and seven wells have shown initial commercial gas rates. Daily well performance is being monitored by the Company to assess long term production ranges
  • A total of 219,827 ft (67 km) of 2D seismic was acquired during the period
  • Obtained selected slim-hole data for 585 wells previously drilled by the Coal Bureaus, with the availability of significant coal seam and surface data
  • A highly reliable and credible geological subsurface model has now been created to determine future development plans and subsurface optimization over the 107-km² block
  • In addition to the current seven online production wells, the 45 drilled wells in 2017 will be stimulated and put online in H2 2018 to commence initial gas sales from the GGZ Block
  • Chinese Proved Reserves Report (CRR) submitted ahead of approval of the Overall Development Plan (ODP), which is anticipated to be compiled in H2 2018
  • The anticipated commerciality of the GGZ Block will create additional shareholder value, as the block follows GCZ and GSS from development into production

Block overview

G3E is the operator with a 60% interest in the GGZ Block that covers a total PSC area of 947 km2 in Guizhou Province. PetroChina is the working interest partner with the remaining 40% interest. The block is located within the Liupanshui coal field with coal bearing strata present in the Upper Permian Longtan formation. There are a total of 30 coal seams present in the block, of which seven are currently considered prospective for development. Total net coal thickness for the prospective seams in the areas tested is approximately 66 ft (20.1 m) with three of the seams (17, 19 and 29) showing coal thickness in excess of 16 ft (5 m) each. The average gas content across the seams is approximately 529 Scf/tone (15 m3/tone). The total gas-in-place is estimated to be 6.04 Tcf (171.1 Bcm). The Company has 30 Bcf of 2P reserves and 106 Bcf of 3P reserves as of year-end 2016.

2017 GGZ accomplishments

During 2017, G3E concluded advanced exploration in Guizhou by successfully drilling and completing 12 CBM production wells. These production wells were drilled in three major coal seams; namely coal seam no. 17, 19 and 29. A total of 33,151 ft (10,104 m) was successfully drilled in these 12 wells. The wells were drilled by Greka Drilling Ltd., with the fastest drilling record of 431 m/day.

As of year-end 2017, the exploration programme has successfully drilled 45 CBM production wells (23 vertical, 19 directional and three LiFaBriC) in GGZ, 15 wells were put on production and seven wells have shown initial commercial gas rates. Initial gas rates and well daily performance is being monitored by Company's highly experienced CBM production engineers.

G3E has acquired a total of 219,827 ft (67 km) of 2D seismic, drilled and logged 45 CBM production wells, covering all seven of the prospective seams and obtained selected slim-hole data for 585 wells previously drilled by the Coal Bureaus. With the availability of significant coal seam and surface data, a highly reliable and credible geological subsurface model to determine future development plans and subsurface optimization is complete over 107 km².

Outlook

The Company successfully submitted CRR to its partner, PetroChina. The CRR is expected to be submitted to Ministry of Land Resources (MLR) in H1 2018. CRR is a precursor to approval of the ODP, which is anticipated to be compiled in H2 2018.

In addition to the current seven online production wells, the drilled wells in 2017 will be stimulated and put online in H2 2018 to commence initial gas sales from the GGZ Block.

Market opportunity

The GGZ asset is proximate to both the China Myanmar Oil & Gas pipeline and the Guizhou Natural Gas pipeline, both of which could be used as a means to transport gas from the GGZ Block to end users.

Guizhou Province is in southern China and currently sources the majority of its gas needs by pipelines from other provinces. The development of gas resources within Guizhou itself is expected to realize enhanced margin as the city-gate pricing, which acts as a barometer for market price, includes a transportation premium to encourage delivery to Guizhou. Gas sourced and produced in Guizhou should benefit from this premium.

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