he ground for under $1.50/mcf. His drilling company had proven it with more than 250 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 ratOften 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 the 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 was 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 and 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 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 rat

panies during the 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 was 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 and 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 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 rat

this tiny and very speculative CBM play was 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 and 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 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 rat

ent’s CBM analyst Eric Nuttall had told us, “CBM exploration and 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 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 rat

he ground for under $1.50/mcf. His drilling company had proven it with more than 250 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 Drilling 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 start 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 (SIS), 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 coal 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 Ve