Incident: The Shanxi Provincial Department of Natural Resources passed the review and filing of the company's additional proven coalbed methane report of No. 15 coalbed methane in the T-08 well area of the Heshun Hengling coalbed methane field. The company added 5.722 billion cubic meters of proven reserves.

New progress has been made in coalbed methane exploration in the Heshun Hengling block. The company's Heshun Hengling block is located in Heshun County and Yushe County in Jinzhong City. It is the first batch of coalbed methane exploration blocks sold by public tender in Shanxi Province. Compared with shallow coalbed methane, deep coalbed methane has characteristics such as high ground stress, broken coal structure, soft coal seams, and poor permeability. Compared with conventional coalbed methane development, it has complicated geological conditions, high drilling and completion technology requirements, poor fracturing transformation effects, and high exploration and development costs. In December 2022, its proven geological reserve of coalbed methane was 7.707 billion cubic meters, and after a lapse of two years, the block once again obtained 5.722 billion cubic meters of proven coalbed methane reserves, indicating that the company continues to make new progress in coalbed methane exploration in this block. Up to now, the block has proven reserves totaling 13.429 billion cubic meters.

The company's total proven reserves grew 12% to 53.2 billion cubic meters. By the end of 2023, the company had obtained 23 coalbed methane mining rights, with a total area of 2,653 square kilometers and proven geological reserves of 47.469 billion cubic meters. After the expansion of reserves in the Heshun Hengling block, the company's proven gas content area increased by 1.44% to 2691.30 square kilometers, and proven reserves increased by 12.05% to 53.191 billion cubic meters.

Production capacity has been released steadily, and resource advantages are obvious. China's coalbed methane has a cumulative proven geological reserve of 803.9 billion cubic meters. As one of the provinces with the highest concentration of coalbed methane resources in China, Shanxi Province has two major coalbed methane industrialization bases, the Qinshui Basin and the east edge of the Ordos Basin. By the end of 2022, the total proven coalbed methane geological reserves were about 760 billion cubic meters, accounting for more than 90% of the country's proven reserves. The resource advantage is obvious. In addition, the company's production capacity construction is progressing steadily. The Houjia-Longwan project is a coalbed methane development project in cooperation between the company and North China Oilfield. The first phase of the project has completed infrastructure and is gradually releasing production capacity. The daily gas production volume has stabilized at more than 0.12 million m3/day, and the second phase of the project has gone through preliminary formalities and is progressing steadily according to the construction plan; the Jincheng encryption well project mainly ensures stable development output in the main block of Qinshui. As of September 2024, the construction progress of the project is over half, and it is expected that production capacity will gradually be released.

Investment advice: The company lays out an integrated upstream, middle and downstream coalbed methane industrial chain, and is rich in coalbed methane resource reserves.

We expect the company's net profit for 2024-2026 to be 0.461/0.571/0.686 billion yuan, EPS 0.48/0.59/0.71 yuan/share, respectively, and PE corresponding to the closing price on December 31, 2024 will be 14/11/9 times, respectively, maintaining the “recommended” rating.

Risk warning: risk of falling coalbed methane prices; risk of gas well exploration and extraction falling short of expectations; risk of insufficient policy support.