fortune favours the brave

Old but worth a read for background to Luilin
18 APRIL 2006
FORTUNE OIL PLC
( Fortune Oil or the Company )
Liulin Coal Bed Methane
The Company is pleased to announce a conditional agreement to take a 60% interest in a
company formed to develop coal bed methane ( CBM ) gas reserves in the Liulin block
in Shanxi Province, China. The other 40% shareholding will be held by Molopo
Australia Limited ( Molopo ), an ASX-listed company with significant experience in the
development of CBM in Australia. In 1999 a subsidiary of Molopo signed a Production
Sharing Contract ( PSC ) for development of the Liulin block with CUCBM (China
United Coal Bed Methane Company), a PRC government entity responsible for all CBM
PSCs. Subject to approval by the Ministry of Commerce, the foreign contractor rights in
this PSC will be extended and transferred to the new company, Fortune Liulin Gas
Company Limited, registered in Hong Kong. The initial obligation of Fortune Oil is to
commit US$2.5 million for further field appraisal, to be financed from the Company s
cashflow.
CBM consists of natural gas that is trapped within coal seams. China has one of the
world s largest reserves of CBM and its development is being encouraged because of
resource limitations and the need to remove gas from coal reserves on safety grounds. To
date CUCBM has signed over 20 PSCs with foreign companies but the industry is only
just emerging and China s CBM output is small at 100 million cubic metres per year.
The industry has now been spurred by the development of local gas markets and supply
infrastructure, particularly in Shanxi Province which has the two largest CBM basins.
We believe that Fortune Oil is the only foreign company controlling pipelines and
reticulation networks for supply of natural gas in Shanxi Province. This gas is sourced
from the Shaanxi-Beijing trunk pipelines which pass through the province and are
operated by our partner in the Fu Hua natural gas business. As CBM fields are developed
the gas will be supplied initially to local markets by truck as compressed natural gas
(CNG) and ultimately to Beijing as pipeline gas. Therefore, once the Liulin block has
been commercially developed, we envisage the gas being supplied to Fortune Oilcontrolled
gas distribution companies such as the Tongzhou CNG station in Beijing. This
will provide Fortune Oil with an independent source of gas and increase reliability of
supply for our downstream businesses.
The Liulin block is one of the best geologically proven CBM blocks in China. Analysis
from coal holes and exploration wells has indicated an in-place gas resource of
approximately 0.8 trillion cubic feet ( TCF ). With a successful appraisal programme,
this resource may be converted to recoverable reserves in the order of 400 billion cubic
feet (12 billion cubic metres) in an area of approximately 200 square kilometres. The gas
recovered to date is over 95% methane, located in three main coal seams at a depth of
400 to 700 metres. The coal parameters such as permeability, gas content and seam
thickness are favourable for CBM drilling, as advised by our technical consultants,
Advanced Resources International, Inc of Virginia, USA.