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Primeline Energy secures finance for Chinese gas project

Last updated: 09:52 06 Nov 2014 EST, First published: 10:52 06 Nov 2014 EST

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Primeline Energy (CVE:PEH) and its affiliate company Primeline Petroleum Corp have secured a US$274mln loan to fund their share of the infrastructure costs for the LS36-1 gas field, 120km off the coast of the city of Wenzhou.

In all US$727mln has been spent on the terminal, platform, pipeline and onshore processing which plugs four production wells directly into a potential market of 50mln customers.

It was developed by China National Offshore Oil Corporation, which owns 51% of the field.  

The Primeline loan which was syndicated by China Development Bank carries an interest rate of 4.7% above the interbank offered rate, a benchmark for these deals.

It is repayable over nine years and Toronto-listed Primeline Energy’s share is US$205.5mln.

The listed company has 36.75% of the project, while its private partner company Primeline Petroleum has the remaining 12.25%.

For Primeline Energy, the asset will generate EBITDA of US$75mln next year, falling to US$50mln the year after. The higher figure includes a contribution towards the cost of exploration incurred by Primeline.

This “base development” is just the start, with opportunities to significantly increase the reserves and production in the future.

The consortium is targeting 72bn cubic feet of 2C reserves accessible from the existing platform that will be funded from cash flow.

The company operates the exploration block 33/07 which surrounds the LS36-1 development area and has also identified the potential for two lower risk exploration wells (i.e. with a chance of success in the high-twenties per cent) targeting 128bn cubic feet of ‘contingent’ gas.

This is expected to cost US$50mln, shared between Primeline and the private company PPC, and which has the other 25% of the licence area. 

An unrisked resource estimate of over 1trln cubic feet of gas points to the huge potential presented by the exploration programme.

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