Hong Kong-based oil and gas company Green Dragon Gas Ltd reports a farm-out agreement between its wholly-owned unit Greka Energy (International) BV and ConocoPhillips for the development of wells in its Chinese coal bed methane interests.

Under the agreement, ConocoPhillips will make an initial payment of US$20 million to Greka, and will fund up to a total of US$30 million of capital expenditure on the development of surface-to-inseam wells at the Shizhuang South, Shizhuang North and Qinyuan Production Sharing Contracts (PSC) before the end of 2010.

ConocoPhillips will also have an option to continue into a second phase development plan by paying US$120 million to acquire 50% of Greka’s interest in three of its six Chinese Coal Bed Methane PSCs. In addition, ConocoPhillips has an option until mid-2011 to evaluate participating in Green Dragon’s other midstream and downstream businesses.

The transaction advised by Goldman Sachs was identified within the strategic options assignment initiated in the first quarter, said Green Dragon.

Chairman Randeep Grewal said "The ConocoPhillips agreement coincides with the Overall Development Plan approval which we expect to receive this quarter on our most advanced Shizhuang South block. The ODP has been extensively vetted and will provide relevant guidance to expedite the ODPs on the Company's other five blocks."

Tags: ConocoPhillips, Green Dragon Gas Ltd.