1. Overview of performance in 2013

Because the company has not yet been approved by ODP, coalbed methane revenue is not included in total revenue. If coalbed methane revenue is included, revenue during the period will be HK $60.5 million, up 59 per cent year-on-year, while adjusted gross profit will be HK $35.1 million, up 178 per cent year-on-year, with a net loss of HK $61.33 million, down 46 per cent from the same period last year. The net loss includes 25 million of the cost of an one-time share issue.

2. Operation in 2013

In 2013, the gas production was 45.45 million cubic meters and the gas sales volume was 30.45 million cubic meters, of which Sanjiao Senze pipeline accounted for 84.7%, Sanjiaolin county pipeline accounted for 10.2% and technology CNG accounted for 5.1%.

3. Sales price of coalbed methane

At the price of RMB 0.20 per cubic meter including VAT but excluding RMB 0.20 per cubic meter, the price of Sanjiao Senze pipeline is 1.8RMB, Sanjiaolinxian pipeline is 1.18RMB, and CNG is 1.84RMB.

The value-added tax on coalbed methane shall be levied first and then returned. The company's financial statements currently do not reflect subsidies and VAT returns. Before the price adjustment of natural gas in Shanxi Province in July 2013, the retail price of private gas was 2.2-2.3 yuan per cubic meter, while that for industry was 2.8 yuan per cubic meter. After the price adjustment, the price was higher.

4. The latest development of ODP scheme.

After obtaining the preliminary approval of the National Development and Reform Commission in August 2012, 11 special approvals are currently under way, including environment, soil and water conservation, earthquake safety pre-assessment, etc., and the company has obtained 4 approvals in the first half and second half of 2013, and two more in 2014. The company has now obtained 10 approvals, and the last one is that the determination of mining rights is under approval, and it is estimated that there will be results in April. The overall ODP programme is expected to be approved in the third quarter of 2014.

5. Prediction of gas production after obtaining ODP scheme.

It usually takes 2-3 years, that is, 2017, to reach the target output of 500 million cubic meters. Formal development is expected to begin in 2015, with an output of about 1-120 million cubic meters, which will double every year thereafter.

6. Capital expenditure

Since ODP development has not yet started in 2014, the capital expenditure will be relatively small, which is divided into 4-5 wells, about 50 million, CNG 3000-40 million in surface engineering, 30 million in pipelines and power facilities, and 50 million in financial expenditure.

If ODP development starts in 2015, the total capital expenditure will be 1.2 billion, and the company's 70% share will be about 800 million.

7. Gas sales corresponding to break-even

Based on existing sales prices and subsidies, profits can be achieved in more than 70 million. (10 million gas sales in the first half of 2013 and 20 million in the second half of 2013)

8. In proportion to Petrochina Company Limited's volume sales

Petrochina Company Limited invested 140 million yuan in history, which can no longer be invested according to the agreement. Petrochina Company Limited asked for it back. Petrochina Company Limited's share is 26.5%, while that of the company is 73.5%. The average gas sales price in 2013 is 1.8 yuan, including tax price, and the actual price is 1.67 yuan. When calculating the gas sales income, we should consider the proportion of the company on the one hand and deduct VAT on the other hand.

9. Cost structure

Fixed cost: it includes two parts, one is the amortization of the coalbed methane project of US $320 million, which is about 0.5 yuan per cubic meter by 2036, and the other is due to depreciation of fixed assets, which is also amortized to 2036, which is calculated according to the unit production method, that is, 70% of the total gas volume of 3 billion cubic meters. In the 2-3 year development phase, the equipment is amortized according to 70% of the total expenditure for 2-3 years, and the initial calculation is about 0.5 yuan / cubic meter; that is, the fixed cost is 1 yuan / cubic meter.

The cash cost is 0.25 yuan per cubic meter.

The administrative expenses are 30 million RMB per year, and the financial expenses are capitalized before obtaining ODP and expended after obtaining ODP.

10. Life cycle of drilling and coalbed methane production

For a new type of multi-branch horizontal well, an experimental well drilled by the company costs 15 million yuan and the drilling cycle is 3 months. The normal drilling cycle in the future is 2 months, and the cost is less than 12 million. The ideal output is generally achieved 6-9 months after the wellhead equipment is installed. The production curve of coalbed methane has a life cycle of 10-15 years, with a peak in 1 year and a stable production period of 2-4 years.

11. Financing arrangements

Before ODP came down, there was no large-scale capital expenditure. We have got 600 million credit from ODP CDB, and we are currently negotiating long-term loans with domestic commercial banks. Large domestic commercial banks can be granted credit without ODP in stages.

12. Coalbed methane subsidy

It's about 0.4 yuan per cubic meter. Waiting for the official release of government documents.

13. Our suggestion

It mainly depends on the approval of ODP and the introduction of coalbed methane subsidies. At the same time, the mature gas production of new multi-branch horizontal wells is also a very key factor. Only when these conditions are met can the company's coalbed methane resources be operated commercially.