Carbon Energy (ASX: CNX) has signed its first international technology license agreement, making it Chinese coal giant Shanxi Coal Transportation and Sales Group's exclusive underground coal gasification technology partner for the Shanxi Province.
Shanxi Coal is China's second largest coal company with coal rights across the Shanxi Province having produced about 40 million tonnes of coal in 2011. It also transported 350 million tonnes and traded 250 million tonnes of coal in the same year.
Carbon Energy will receive a technology fee of US$10 million, a commercial schedule of rates for technical and engineering services it provides and a royalty stream.
The first US$7.5 million of the technology fee is payable within 30 days of execution of the agreement while the remaining US$2.5 million is payable upon achievement of Phase I project milestones.
Phase I of the project consists of a single UCG panel supplying 0.5 petajoules per annum of syngas to the local township of Changzhi. This will generate an additional US$3 million upon achievement of Phase I project milestones.
The second phase consists of the development of major commercial projects with a projected minimum production rate of 30 petajoules per annum of syngas. This phase has the potential to generate over US$400 million in royalties over a 20 year project life.
Work will commence immediately upon receipt of the initial IS$7.5 million fee. Shanxi Coal aims to develop UCG projects across the Shanxi region.
Both companies will work together exclusively in Shanxi Province to identify further project opportunities for the production of syngas through UCG.
This has the potential to provide substantial growth in technology royalty payments to Carbon Energy, as additional projects are developed.