Fortune Liulin Gas Company Limited (“FLG”), Molopo’s joint...

Fortune Liulin Gas Company Limited (“FLG”), Molopo’s joint venture company established to develop the Liulin Block in Shanxi Province, China, continues to make significant progress in the Liulin project.
FLG recently completed drilling and coring from two datawells and has recently spudded an additional pilot production well, FL-ED1B, with plans to spud another production well, FL-ED3, in early October. This follows the spudding in April 2007 of two vertical pilot wells (FL-EP1 and FL-EP2), which are currently being dewatered, with new pumps soon to be installed to accelerate the dewatering process.
The exploration strategy at Liulin is to obtain sufficient production and geology datapoints so that FLG can meet the government requirements on reserves certification, prior to submission of an overall development plan in 2008. FLG expects to extend the current exploration period of the Liulin block to beyond April 2008 in order to explore other sectors of the block.
FLG is owned 40% by Molopo and 60% by Fortune Oil PLC (“Fortune Oil”). Fortune Oil’s US$2.5 million expenditure obligation relating to acquisition of its 60 per cent interest in FLG has recently been met, with additional exploration expenditure in Liulin to be funded 60% and 40% by Fortune Oil and Molopo, respectively. Most of the exploration costs will be recoverable in the production period under the Production Sharing Contract.
In January 2007 FLG partnered with a Shanxi government laboratory to assess the gas resource at Liulin. Following an internal review of the FLG study, Molopo announced in May 2007 an increase of its estimated Gas in Place (GIP) to 1.2 trillion standard cubic feet (Tscf) from its previous estimate of 0.7-0.8Tscf. This represents a trebling of recovery expectations for the Liulin Block, given new horizontal well techniques Molopo and its joint venture partners intend to employ in China. Vertical fracced wells would be expected to recover some 30% to 40% of the previous GIP or approximately 0.2-0.3Tscf, while horizontal well-based development methods, already employed by Molopo and others in Australia, can be expected to recover some 50% to 70% of the GIP or approximately 0.6-0.9Tscf.
NDRC (National Development and Reform Commission), the PRC government body responsible for energy policy, has reiterated that prices for domestic gas will continue to increase and will eventually be linked to international prices. Domestic production of gas will be encouraged and priority will be given to utilisation of gas for residential, commercial and vehicular use, particularly in areas such as Shanxi province where coal is the primary source of power.
MOLOPO AUSTRALIA LIMITED ABN 79 003 152 154 Registered Office Level 14, 31 Queen Street, Melbourne, Vic. 3000, Australia GPO Box 223, Melbourne, Vic. 3001, Australia Telephone: (61 3) 9618 8722 Facsimile: (61 3) 9620 2804 Website: www.molopo.com.au Email: [email protected] NSW Office: Suite 1006, Level 10, 50 Clarence Street, Sydney, NSW, 2000, Australia GPO Box 7075, Sydney, NSW, 2001, Australia Telephone: (61 2) 9290 2267 Facsimile: (61 2) 9290 2099