China - Zitong
On January 11, 2012, Sunwing Energy signed a binding Memorandum of understanding to sell 100% of its 90% participating interest in the Production Sharing Contract for the Zitong block to Shell China Exploration and Production Company Limited, a subsidiary of Royal Dutch Shell.
With the Amendment Agreement and ROFR's waived, on October 15, 2012, Sunwing Energy signed the definitive Sale and Purchase Agreement (SPA) with Shell China. As a final step to close the transaction, CNPC submitted the transfer request to the Ministry of Commerce of the People's Republic of China for its review and final approval. Ivanhoe Energy and Shell closed the transaction on December 17, 2012.
Ivanhoe Energy will receive total pre-tax proceeds of $US105 million. Initial pre-tax proceeds of approximately $US96 million were delivered upon closing. Per the terms of the transaction, the company will receive two remaining components of the proceeds as follows:
- the remaining portion of the $US85 million receoverable past costs supported by the 2012 seismic program, once CNPC completes its annual cost recovery audit for 2012 expenditures; and,
- US$5.1 million representing a customary holdback of 5 per cent of gross proceeds payable in six months.
With the completion of the transaction, Shell will assume the obligations under the Supplementary Agreement and will replace the Company's performance bond with its own. As a result, the collateral for that performance bond, currently presented as restricted cash on the company's balance sheet will be released.
Suning Zitong Energy Ltd., a wholly owned subsidiary of Sunwing Energy, is the operator of the Zitong Block and has a 90% participating interest in it with Mitsubishi Gas Chemical Company Inc. of Japan, which holds the remaining 10%. The original contract, signed in 2002, was a 30-year Production Sharing Contract with China National Petroleum Corporation. Today the contract covers an area of approximately 248,000 gross acres.
Several gas producing structures have been discovered on this block; however, it consists of deep, high pressure gas reservoirs that are classified as "tight gas". The following summarizes the work completed to date.
- In December 2007, Sunwing and Mitsubishi began a three-year exploration phase which included seismic and the drilling of two wells. Neither well demonstrated commercial flow rates of gas, although the second well successfully encountered gas shows.
- Between 2008 and 2009, the projects' partnership relinquished approximately 25% of the Zitong Block acreage and completed a work program involving the acquisition of approximately 200 miles of new seismic and approximately 23,700 feet of drilling.
- In 2010, Sunwing Energy drilled two exploration gas wells at its Zitong Block and subsequently announced two gas discoveries - one at Yixin-2 and the other at Zitong-1. Based on test results at Yixin-2, a condition of our Production Sharing Contract was satisfied which allowed appraisal and development activity to continue on all remaining structures in the block.
- In June 2011, the company produced gas at measurable rates in both the Xu-4 and Xu-5 formations and the Partnership submitted a Development Plan to CNPC.
- In 2012, the company reached agreement with PetroChina and signed a Supplemental Agreement to complete an appraisal program. The appraisal program extends operations on the block to June 2014. The program includes 3D seismic, which was completed in Q3 2012 and drilling of three horizontal wells.