Primeline has been operating in the Chinese offshore petroleum industry in a joint venture with China National Offshore Oil Corporation ("CNOOC"), for over 20 years, and currently has a substantial offshore exploration license together with a producing LS36-1 gas field, in the East China Sea under Petroleum Contracts with CNOOC.
The LS36-1 gas field was discovered by Primeline and jointly developed by CNOOC and Primeline during 2008-2014. The development work includes an offshore platform in about 85m of water, 127km of subsea pipeline, a processing terminal and a 32km sale gas pipeline linked to the Zhejiang Provincial Gas grid. Total development costs were circa US$600m, of which Primeline contributed 49%, in additional, Primeline has so far invested about US$100m in the exploration effort, relating to LS36-1 and the surrounding area.
The gas from LS36-1 is sold to Zhejiang Natural Gas Development Company Limited ("Zhejiang Gas") under a 15 year take or pay gas sale contract (the "Gas Sale Contract") which was signed by CNOOC, on behalf of themselves and Primeline, and Zhejiang Gas on October 29, 2014. The Gas Sale Contract is the continuation of a series of gas sale agreements dating back to the original take or pay gas sale agreement signed in 2008 which was required before the development work could commence. The Gas Sale Contract features a fixed basic price and a take or pay provision, as is typical in this type of project, to provide the upstream investor a secure income stream for the investment. Primeline relied on the Gas Sale Contract to secure the bank finance for its share of the development cost. Such finance was obtained from a syndicate of Chinese banks: China Development Bank, China Export and Import Bank and Shanghai Pudding Development Bank.