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Top Adding - Multi-Million Dollar Contract for CBM Company's Drilling Subsidiary
Often overlooked in finding the lower risk coalbed methane (CBM) company is the fact it can take years before a company can generate cash flow from gas sales. While the CBM blocks awarded by Chinese United Coalbed Methane (CUCBM) to its foreign partners are quite generous, and should become increasingly valuable later this decade, investors remain less well-informed as to the realistic time frame these CBM projects might take. The upfront development costs could burden many companies during th
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
e first two to five years. The elusive jackpot, which could be enormous, might not materialize until circa 2009 or 2010, or take longer.
Not so for Pacific Asia China Energy or PACE for short. When we began coverage of the CBM sector, it was done with a jaundiced eye. The appeal was not pure CBM although China’s red-hot growth and ravenous energy appetite demanded we focus on China’s CBM plays, instead of those in North America.
What attracted us to this tiny and very speculative CBM play wa
Not so for Pacific Asia China Energy or PACE for short. When we began coverage of the CBM sector, it was done with a jaundiced eye. The appeal was not pure CBM although China’s red-hot growth and ravenous energy appetite demanded we focus on China’s CBM plays, instead of those in North America.
What attracted us to this tiny and very speculative CBM play wa
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
s the joint venture relationship PACE had begun, at the time we began writing about PACE, with Mitchell Drilling Corp, Australia’s largest private drilling company. After interviewing Nathan Mitchell this past May, it became evident PACE’s CBM extraction story would play second fiddle to the coal degasification in China until the company achieves commercial production.
At the time, we were concerned about what Sprott Asset Management’s CBM analyst Eric Nuttall had told us, “CBM exploration an
At the time, we were concerned about what Sprott Asset Management’s CBM analyst Eric Nuttall had told us, “CBM exploration an
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
d development can get pricey.” This sounded like CBM explorations were best left to the oil giants, such as BP Plc, which recently announced it was spending $2.4 billion in the San Juan Basin over the next decade to expand its CBM development in Colorado and New Mexico.
By contrast, Nathan Mitchell argued the latest drilling technology his firm has used for the past six years was regularly getting gas out of the ground for under $1.50/mcf. His drilling company had proven it with more than 250
By contrast, Nathan Mitchell argued the latest drilling technology his firm has used for the past six years was regularly getting gas out of the ground for under $1.50/mcf. His drilling company had proven it with more than 250
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
wells in Australia using the Dymaxion® horizontal/vertical drilling technology. The company had drilled about 50 wells in India with another 70 wells coming. Corporately, the company had taken acreage in southern Kansas in the United States where it had just finished its first CBM well. His company’s website boasts of ‘Finding the Needle in the Haystack’ and having had a 100-percent success rate intersecting the surface-to-inseam wells with the main vertical wells.
What married Mitchell Dril
What married Mitchell Dril
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
ling to PACE was the inroads the CBM company’s president Tunaye Sai has made, as well as his personal connections, within CUCBM in China. Mitchell wanted to expand into China’s explosive CBM sector, hence the partnership with PACE. We first discussed the potential of this relationship after Mitchell and Sai unveiled the Dymaxion drilling technology at a Chinese coal symposium in spring 2006. Both were unabashedly excited about being swamped by Chinese coal executives asking when they could sta
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
rt using this innovative drilling technique to degasify their coal mines. Shortly thereafter, PACE paid the upfront costs to build two drill rigs.
Last week, the PACE Mitchell joint venture inked its first drilling contract to degasify a Chinese coal mine, valued at about US$7.5 million, with a unit of the Shenhua Group. In an email from PACE President Tunaye Sai, we were told, “This is a turnkey operation, which includes 44,000 meters of drilling – both SIS and UIS. For surface-to-inseam (SI
Last week, the PACE Mitchell joint venture inked its first drilling contract to degasify a Chinese coal mine, valued at about US$7.5 million, with a unit of the Shenhua Group. In an email from PACE President Tunaye Sai, we were told, “This is a turnkey operation, which includes 44,000 meters of drilling – both SIS and UIS. For surface-to-inseam (SI
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
), it includes the supply of well head CBM production equipment, test production for three months and the training of local operators.”
Buried at the bottom of the company’s news release was a paragraph describing a signed Memorandum of Understanding for a second degasification – in Yunnan Province – with a different coal mining company, noting that contract terms are now being negotiated. Curious about this, we emailed Mr. Sai, who is also a mining engineer living in China, as to how many co
Buried at the bottom of the company’s news release was a paragraph describing a signed Memorandum of Understanding for a second degasification – in Yunnan Province – with a different coal mining company, noting that contract terms are now being negotiated. Curious about this, we emailed Mr. Sai, who is also a mining engineer living in China, as to how many co
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
al mining companies were in the pipeline. In his curt response, Sai said, “We can get another ten companies to sign up soon, but we have three which are very close now.”
Hypothetically, if all ten coal mining companies materialized, this could represent upwards of US$75 million in revenues for an obscure TSX Venture-listed company whose main assets, until now, were exploration-stage production-sharing CBM contracts in China. Where’s the profit? We asked about the cost of building each drill r
Hypothetically, if all ten coal mining companies materialized, this could represent upwards of US$75 million in revenues for an obscure TSX Venture-listed company whose main assets, until now, were exploration-stage production-sharing CBM contracts in China. Where’s the profit? We asked about the cost of building each drill r
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
ig. “The cost of building the drill rig was US$1.5 million,” Sai wrote. “But we have to add in other accessories.”
Of the US$4.125 million the PACE subsidiary would gross from the 55-45 split with its marketing partner, this would leave about $US2.6 million. Sai would not offer any guidance on profitability, writing, “We have to operate this first and then calculate the net profit.” Still, there appears to be sufficient profit margins in this contract. In an audio interview with PACE executiv
Of the US$4.125 million the PACE subsidiary would gross from the 55-45 split with its marketing partner, this would leave about $US2.6 million. Sai would not offer any guidance on profitability, writing, “We have to operate this first and then calculate the net profit.” Still, there appears to be sufficient profit margins in this contract. In an audio interview with PACE executiv
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
e vice president Steve Khan on December 14th, he explained the cost of building the drill rig, borne by PACE, would be paid down first and then the profits split by the joint venture.
In all, this appears to be a potentially lucrative arrangement for PACE. Other foreign CBM operators have expressed interested in using the subsidiary’s Dymaxion® drill rigs. How many? “About four,” Sai responded. We independently confirmed at least one competing CBM company has been evaluating the drill rig.
T
In all, this appears to be a potentially lucrative arrangement for PACE. Other foreign CBM operators have expressed interested in using the subsidiary’s Dymaxion® drill rigs. How many? “About four,” Sai responded. We independently confirmed at least one competing CBM company has been evaluating the drill rig.
T
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
he big boost for this deal was the client, which was subtly noted in the PACE news release. The Shenhua Group is not only China’s largest coal producer, but it is also the world’s third largest coal mining company behind Peabody Energy and Rio Tinto. In June 2005, Shenhua’s initial public offering in Hong Kong – at $3.3 billion – was one of the year’s largest IPOs. Major investors such as Hong Kong billionaires Lee Shau Kee and Cheng Yu-Tung invested, and so did Fidelity.
Shenhua has been on
Shenhua has been on
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
a tear for the past six years. Recently, the company’s deputy general manager announced the company planned to become the world’s largest coal company by 2010, producing 200 million tons per year. In July, Bloomberg reported Royal Dutch Shell Plc and Shenhua Ningxia Coal agreed to study investing up to $6 billion in building a 70,000 barrel/day plant in the Ningxia province for turning coal into fuels and chemicals. British construction giant Amec has been appointed to provide the initial engi
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
neering design for this plant.
The Ningxia Hui Autonomous region in northwest China has proven coal reserves of about 31 billion tons; potential reserves could run more than 200 billion tons. The Shenhua Ningxia Coal Group, which awarded the PACE-Mitchell contract, has at least 13 coal mines in the province. This first contract may be viewed as an audition for the Dymaxion® drill rig. For a tiny company, this would be on similar footing for a tech company announcing a new technology contract
The Ningxia Hui Autonomous region in northwest China has proven coal reserves of about 31 billion tons; potential reserves could run more than 200 billion tons. The Shenhua Ningxia Coal Group, which awarded the PACE-Mitchell contract, has at least 13 coal mines in the province. This first contract may be viewed as an audition for the Dymaxion® drill rig. For a tiny company, this would be on similar footing for a tech company announcing a new technology contract
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
ith Microsoft. Shenhua is the 11th largest company, by market capitalization, trading on the Hong Kong stock exchange, and the world’s second largest publicly traded coal company.
The timing is perfect. As we’ve reported previously, the State Administration of Coal Mine Safety has been beating the drums to improve mine safety. The horrendous publicity of China’s unparalleled level of coal miner deaths is an image the Chinese would like to change. In an article written last March, we reported
The timing is perfect. As we’ve reported previously, the State Administration of Coal Mine Safety has been beating the drums to improve mine safety. The horrendous publicity of China’s unparalleled level of coal miner deaths is an image the Chinese would like to change. In an article written last March, we reported
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
Chinese Premier Wen Jiabao’s concerns about methane gas explosions in his country’s coal mines. A mining engineer by profession, he said, “The development of coal bed methane exploration and production can not only prevent gas explosions in the collieries, but also help diversity the energy consumption mix, and we should intensify efforts to research, explore and utilize coal bed methane resources.”
The Chinese Premier has been tough on coal miners. Coal-rich Shanxi province, for example, pla
The Chinese Premier has been tough on coal miners. Coal-rich Shanxi province, for example, pla
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
ns to shut down many of its smaller and more dangerous mines this year. By June, the province will have closed nearly 6,000 coal mines, cutting the total number of producing coal mines to 3,200.With China’s quantity of coal mines, and the substantial number of coal miner deaths, mine safety is one of the country’s greatest concerns. Degasifying coal mines is at the top of the mine safety list, and bodes well for drilling technologies, such as the Dymaxion®, for many years into the future.
We
We
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
asked Steve Khan for his take on this new contract. “Revenues from our drill rig subsidiary offer investors some ‘risk protection’ as the company moves forward toward commercial gas production,” he responded. Meanwhile the company soon plans a vertical drilling program on its Guizhou CBM block. According to Sproule International Resource estimates, which have not been independently reviewed, there might be up to 11.2 trillion cubic feet on the 970 kilometer square concession.
True, the initi
True, the initi
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
al drilling contract doesn’t hold the sexy appeal of a major natural gas discovery, but this may also be on the horizon, judging by the world-class gas content found at shallow depths during the early-stage drilling of 2006. Results were comparable to at least two other foreign-owned CBM companies hoping to commercially develop their concessions. Results were similar to gas content found in New Mexico’s San Juan Basin and in Alabama’s Black Warrior Basin – both major CBM producers in the Unite
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
d States.
In the interim, PACE appears to be on a roll of lining up, and hopefully signing more, contracts. If the Dymaxion® drilling technology catches on in China, this could very well result in a steady and increasing stream of revenues to buttress PACE against any possible volatility in natural gas prices. After all, there are more than 800 Chinese coal mining companies with several thousand mines which may need degasification.
COPYRIGHT © 2007 by StockInterview, Inc. ALL RIGHTS RESERVED
In the interim, PACE appears to be on a roll of lining up, and hopefully signing more, contracts. If the Dymaxion® drilling technology catches on in China, this could very well result in a steady and increasing stream of revenues to buttress PACE against any possible volatility in natural gas prices. After all, there are more than 800 Chinese coal mining companies with several thousand mines which may need degasification.
COPYRIGHT © 2007 by StockInterview, Inc. ALL RIGHTS RESERVED
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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