MONGOLIA — Jade Gas Holdings Limited (ASX:JGH) has announced a significant step forward in its Red Lake gas project development, signing a non-binding term sheet with Chinese drilling company DWK for a gas production partnership.
The agreement aims to accelerate the development of Jade‘s Red Lake gas resource in Mongolia.
Under the proposed partnership, DWK is set to fund the next 20 production wells at Red Lake, contingent on the successful drilling of the initial four production wells and regulatory approval.
The deal structure allows Jade to retain project ownership while minimising its capital outlay, potentially leading to earlier gas sales and revenue generation.
Key aspects of the partnership include:
- An appropriate revenue-sharing arrangement on gas sales from the 20 Red Lake wells
- Jade maintains project operatorship and ownership
- A pathway to earlier gas sales and long-term funding flexibility for future development
Dennis Morton, Executive Chairman of Jade Gas Holdings, expressed enthusiasm about the partnership, stating: “This is a significant milestone for the Company that has the potential to fundamentally change the pathway for Jade to achieve meaningful production and revenues from Red Lake.”
The partnership covers only a portion of Jade’s planned 175 wells at Red Lake, which hosts estimated Gross Contingent Resources of 1C / 118 Bcf, 2C / 246 Bcf, and 3C / 305 Bcf.
This resource estimate was the largest for coal bed methane in Mongolia when booked in August 2022.
Elton Dong, CEO of DWK, highlighted the similarities between the Red Lake project and their experience in China’s Qinshui Basin, expressing confidence in replicating their success at Red Lake.
The companies aim to negotiate and enter a binding service and revenue-sharing agreement before December 1, 2024.
This partnership model, widely used in China, supported the accelerated development of the Qinshui Basin and could potentially drive similar rapid progress at Red Lake.
As Jade Gas Holdings moves forward with this strategic partnership, it positions itself to capitalise on the strong market demand for gas in the South Gobi region, potentially transforming into a major gas producer in Mongolia.