Genesis Energy to put 3b yuan into Shaanxi oil

Oil and gas company Genesis Energy Holdings (0702) plans to invest up to 3billion yuan (HK$3.1 billion) on a 25-year oil exploitation project in Shaanxi province, executive director Terence Kong Siu-tim told a press briefing yesterday following a technical report presentation.

Drilling consultant Halliburton revealed that initial test findings at the Xun Yi Oil Field in central China indicate total crude oil reserves of 60.86 million tonnes, with prospective recoverable reserves of 13.27 million tonnes.

The total gas reserve was estimated at 96.93 million tonnes, of which 56.85 million tonnes would be exploitable.

"The technical report points to higher-than-expected prospects for Xun Yi Oil Field, exploration of which is expected to begin in January 2008," said Kong. "This project will also provide headway for our investments in the oil and gas prospects of China."

The report estimated oil exploration investment of 130 million yuan, plus another 233.6 million yuan for gas exploration.

With an exploration cycle of 10 to 15 years, annual investment would range between 24.24 million yuan and 36.36 million yuan.

Under a joint-venture agreement reached earlier this month, Genesis would be entitled to 95 percent of profit generated from the oil exploration and production project, while its partner, Ningxia Changqing Shuang Long Industrial, would get 5 percent.

The site covers 560 square kilometers in Shaanxi.

"We have paid our partner 2million yuan as a deposit or a cooperation fee," said Genesis financial controller Terence Wan Tze-fan.

Genesis will hold the exclusive right to explore and produce oil from not fewer than 1,000 oil wells, at a cooperation fee of 120,000 yuan each.

Drilling cost per well will amount to between 850,000 yuan and 1million yuan, according to the technical report. Development works must be completed in three years and Genesis retains exploitation rights on the worked oil wells for 25 years after exploration.

"Commercial production is expected to commence in early 2008 and it will take 18 to 24 months to generate positive cash flow," Kong said.

Genesis is responsible for all related exploitation costs and expenses for the project, while the technical staff and engineers, equipment and technological analysis are to be the responsibility of the mainland partner.

Genesis shares closed yesterday at HK$0.49, gaining 6.5 percent.