Molopo says that its South African subsidiary, Highland E&P has signed a gas sales agreement with Novo Energy.

The GSA is initially for Molopo to supply, on an as available basis, approximately 600,000 cubic feet per day from four existing wells in Molopo's Virginia gas field. Novo will be responsible for processing the gas into Compressed Natural Gas ("CNG") at processing facilities constructed by Novo near each well-head and transporting the CNG from those processing facilities to its customers for use in local vehicles. The term of the GSA is 10 years from the date on which initial supply commences.

Under the GSA, Novo has a right to purchase gas from an additional four existing wells which, if exercised, would increase the volume of gas supplied to approximately 1 million cubic feet per day. The same pricing parameters would apply in respect of gas sourced from these wells. Novo also has a first right of refusal to purchase additional gas from new wells developed by Molopo, up to a total 8.2TJ/day, subject to mutually satisfactory terms being agreed in respect of any new production.

Commencement of supply is subject to a number of conditions precedent being satisfied, including each party securing all necessary approvals and licenses from government bodies and other third parties relating to supply of gas, the construction and operation of processing facilities and road access arrangements.

Molopo now expects to submit a Production Right application over a portion of the Virginia field in coming weeks. The PR approval process may be lengthy, however Molopo has received regulatory approval to market gas from its operations in the interim.

Gas sales are expected to commence by March 2011.

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