Carbon Energy to license underground coal gasification technology to Shanxi Coal

19 October 2012

Australia-based Carbon Energy signed its first international technology license agreement with Chinese coal giant Shanxi Coal Transportation and Sales Group (Shanxi Coal), to be its exclusive underground coal gasification (UCG) technology partner for the Shanxi Province.

Shanxi Coal is China’s second largest coal company with coal rights across the Shanxi Province, China’s major coal producing area. Shanxi Coal is also the 72^nd largest of China’s top 500 enterprises and ranked 447 on the Fortune 500. In 2011 Shanxi Coal produced approximately 40 million tonnes, transported 350 million tonnes and traded 250 million tonnes of coal.

In-line with its strategic direction, announced earlier this year, the agreement marks the first licensing of its technology as a non-equity, contributing partner. This agreement follows the Heads of Agreement (HOA) signed between both parties on 14 May 2012.

The definitive agreement will deliver to Carbon Energy:

• A technology fee of US$10 million (US$7.5 million payable within 30 days of execution of the agreement and the balance of US$2.5 million payable upon achievement of Phase I project milestones);

• The payment of a commercial schedule of rates for technical and engineering services provided by Carbon Energy; and

• A royalty stream based on: Phase I - A single panel supplying 0.5 PJ p.a of syngas to the local township of Changzhi. This will generate an additional US$3 million upon achievement of Phase I project milestones.

  Phase II - The development of major commercial projects with a projected minimum production rate of 30 PJ per year of syngas. This phase has the potential to generate more than US$400 million in royalties over a 20-year project life. Work will commence immediately upon receipt of the initial $7.5 million technology fee.

Shanxi Coal aims to develop UCG projects across the Shanxi region.