q4 - asx.com.au

Q4

Successfully “Closing Out”on 2010

Sino Gas & Energy Holdings Limited (Sino Gas, ASX:SEH)

Sino Gas’s Flow Testing Program

2010 - Activities Report

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The December Quarter (Q4) was the busiest ever in the history of Sino Gas.

During Q4, Sino Gas completed the drilling of 3 new wells and completed tests and a workover on 4 wells. Extensive work was also completed on the Company’s Pilot developments.

The work program has generated extensive sub-surface and well performance data which is now being used by Sino Gas’s independent reserves

report.

data as requested and also to review the report.

Whilst good progress is being made, as the Chinese New Year celebrations will commence

until the 2nd half of February 2011. Sino Gas will make a further announcement to the market

Commenting on Q4, Sino Gas Managing Director, Stephen Lyons, said.

“Sino Gas is very pleased with the conduct of its 2010 work program. The work was well planned and well executed. Very importantly the work resulted in 3 new Gas Discovery Wells, extensive information on well performance through the testing program and achieved substantial

Successfully closing out the 2010 Work Program

Q4, 2010 - Activities Report

It is also particularly pleasing to report that in a work program exceeding 156,000 man hours there were no accidents, no incidents and no environmental impact. This result is a testament

and effectively in China for the long term.

The work program now provides the platform for Sino Gas in 2011 to move towards commercialising its large gas assets in China through the preparation of Overall Development Plans (ODP)”.

Sino Gas has also continued to strengthen our employee base with high quality local Chinese personnel. In Q3, 2010, Mr Frank Fu, a very experienced oil, gas and CBM professional joined

continued to build the organisations operating and sub-surface capability, which has recently seen the hiring of a Pilot Development Manager, Pilot Field Supervisors, a Drilling and Completions Specialist, Procurement Coordinator and Project Controller. These efforts continue in 2011.

In addition, on 1 January 2011, Mr Gavin Harper transitioned to Executive Chairman and continues his very active involvement in the Pilot Development programs which are a major focus for the Company.

As China enters the Chinese New Year festival, Sino Gas wishes all of its staff, partners and contractors a happy, safe and prosperous New Year.

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Linxing PSC (SEH interest 65% following partner back-in)

The Linxing Production Sharing Contract (PSC) covers an area of 2,616 km2, within the Ordos Basin in Shanxi Province, North China.


TB08 Well Drilling: Sino Gas’s Larry Yuan (left) and Scott Li

Sino Gas is the operator of Linxing. The Government Partner is China United Coal Bed Methane (CUCBM).

In late 2010, it was reported that China National Offshore Oil Company (CNOOC) would acquire a 50% interest in CUCBM. CNOOC is looking to expand its interests in unconventional gas assets on-shore China and has a strategy of supplying the Northern province of Shanxi with gas in the form of pipeline gas, compressed natural gas and LNG.

CNOOC has also recently invested in Australia acquiring exploration rights in 5 Australian CBM blocks as well as

Australian LNG.

Sino Gas has cooperated with CUCBM very well over the past 5 years and looks forward to even stronger cooperation in the future with CUCBM now supported by CNOOC.

its appraisal program on the Linxing PSC. The drilling program involved the:

TB08 Gas Discovery Well, which after a slow start

presence of gas in 4 potential reservoirs and the well was cased;TB09 Gas Discovery Well which after good drilling

of gas in 4 potential reservoirs with the well being cased.

On the TB08 Gas Discovery Well, Sino Gas conducted Drill Stem Tests (DST) on 2 prospective pay zones to measure formation parameters and pressure data. This work

contractor Changqing Downhole Technical Company (CCDC).

Following the DST on the 2nd potential zone an initial

was not achieved and the DST was concluded. Further

stimulate both potential zones following the end of the Chinese winter in late Q1, 2011.

Similarly, on the TB09 Gas Discovery Well, Sino Gas is in the process of determining the testing program likely to commence following the end of the Chinese winter.

Pilot program on the Linxing PSC. In early October 2010, Sino Gas signed a Memorandum of Understanding (MOU) with CUCBM relating to gas marketing on its Pilot program. This MOU formalised the establishment of a gas marketing team to handle Pilot gas sales.

Since that time Sino Gas has been working with CUCBM

designs. Sino Gas has also been working with potential gas buyers on the terms of a Gas Sales Agreement.

lines

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Sino Gas has been building the team that will handle the Pilots. During Q4, this involved hiring a Specialist Facilities Engineer. Since then, 2 Pilot Field Supervisors have been

shortly.

towards the end of Q1, 2011.

The extensive appraisal that has been completed on the Linxing PSC supports Sino Gas’s intention to commercialise these assets. In China this is achieved through the lodgment of an Overall Development Plan (ODP). The foundational step in that program is the completion of a Chinese reserves report prepared in accordance with the various regulations and guidelines as they exist in China.

Sino Gas is working with its partner CUCBM to appoint an appropriate Chinese based consultancy to commence the preparation of this report. Similarly Sino Gas will engage appropriate consultants to assist in the preparation of the ODP report. These efforts are the centre piece to Sino Gas’s 2011 work program on the Linxing PSC with all activities designed to support these objectives. Again, Sino Gas has been working extensively with

The Sanjiaobei PSC covers an area of 1,126 km2, adjacent to Sino Gas’s Linxing PSC in the Ordos Basin. Sino Gas is the operator.

Sanjiaobei PSC (SEH interest 49% following partner back-in)


Linxing PSC (Continued)

to develop its onshore unconventional gas resources with PCCBM being a key player in those plans.

In late Q4, China National Petroleum Corporation (CNPC), the controlling entity of PCCBM received its licence from the Chinese Ministry of Commerce to conduct CBM activities with foreign enterprises in China. With the receipt of this licence and PCCBM’s forward plans, Sino Gas looks forward to building on the strong and cooperative working relationships that have been established.

Again Q4 was extremely active on the Sanjiaobei PSC. The work program started in early October with a major ceremony to mark the start of drilling on the SJB03 well. The ceremony was attended by representatives of PCCBM and the Linxian County Government with whom Sino Gas works very closely.

Following good drilling progress, the SJB03 Gas Discovery

the presence of gas in 3 potential reservoirs. Side wall samples were also taken and the well was cased.A perforation and DST on the 1st zone on the SJB03 well

Management Committee (JMC) to be held after the Chinese New Year. The program is expected to involve the:

completion of all steps required to implement the Linxing Pilot development and to expand the Pilot as additional wells are brought on stream. The Pilot is

into the Chinese Reserves Report;fracture stimulation of potential zones in the TB08 well with the intent that this contribute to the Pilot;stimulation of potential zones in the TB09 well, again to contribute to the Pilot;stimulation of potential zones in the existing TB03 and TB06 wells. During 2010, Sino Gas encountered highly

rate estimated at 2,900,000 scf/day. The TB08 and TB09 wells being drilled as step out wells designed to verify the extent of the productive intervals. Sino Gas’s further study work indicates that similar prospective zones may be present in the existing TB03 and TB06 wells. Stimulation tests similar to those performed on

the drilling of up to 2 new wells, north of the existing TB06 well to expand Sino Gas’s Discovered Area and its Contingent Resource pool.

seismic lines

The Government partner on the PSC is PetroChina Coal Bed Methane (PCCBM) following the transfer of the PSC from CUCBM.

As explained later in this report, as part of China’s new

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after Chinese New Year, and are expected to involve:

completion of all steps required to implement the Sanjiaobei Pilot development on either the SJB03 or TB04 well and to expand the Pilot as additional wells are brought on stream for the purpose of contributing to the Chinese reserves report;potentially fracture stimulating the zone in SJB03 perforated late in Q4;the drilling of up to 3 new wells, south and east of the existing well penetrations on the Sanjiaobei PSC to

acreage for the Chinese reserves report.

The Chinese economy continues to power ahead with the

the previous week.

covering the period from 2011 to 2015, during Q1, 2011. Indications are that a major theme will be the development of China’s “home grown” gas resources, in particular its large unconventional gas resources.

Sino Gas’s Linxing and Sanjiaobei Production Sharing Contracts (as shown) are located in the “key” Ordos Basin, the 2nd largest Oil & Gas basin in China. Sino Gas’s holdings being some of the largest held by a foreign operator in the Ordos.

Gas is reviewing the most appropriate stimulation to be applied to this well.

the TB04 well. On TB04, a 2 meter prospective zone was perforated and a DST test was conducted. After a strong

China’s race to secure Gas

Ordos Basin Infrastructure Map - Domestic Gas Growth Theme and Distribution. Source: Wood Mackenzie - Jan 2011


TB04 testing program: Sino Gas’s Stephen Lyons and Mr Peng

Sanjiaobei PSC (Continued)

To increase the wells productivity, the zone was then

approximately 240,000 scf/day at a tubing head pressure (THP) of approximately 330 psi. Sino Gas intends to include TB04 as part of its Pilot on the Sanjiaobei PSC and through that process will determine the true potential of the well.

A workover was also conducted on 1 zone in the TB02 well

of 440psi. Again, Sino Gas is determining the potential of this well to contribute to the Sanjiaobei Pilot.

Sino Gas has also made substantial progress on the Sanjiaobei Pilot Development.

Again, Sino Gas’s Pilot team recently held a pre-commissioning meeting with PCCBM and facility providers

either the SJB03 or TB04 well during Q1, 2011.

Sino Gas is also formalising the necessary agreements with PCCBM and the gas offtakers for the sale of Pilot gas.

Sino Gas is completing the appraisal on the Sanjiaobei PSC with the intention of commercialising these assets. As part of this Sino Gas is working with PCCBM on the steps required to complete the Chinese reserves report.

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The Ordos basin, which is largely controlled by PetroChina, is expected by some commentators to become China’s largest onshore basin by 2015 and China’s most important gas transportation hub.

As mentioned earlier, within the Ordos, Sino Gas partners with PCCBM and China United Coal Bed Methane (CUCBM), now backed by CNOOC, each of which have bold plans for the development of their unconventional gas assets on-shore China.

With Sino Gas’s large unconventional gas assets and China’s plans for the development of its domestic gas resources,

Chaoyang District, Beijing, China, 100004

Linxian County, Lvliang City, Shanxi Province, China

311-313 Hay Street, Subiaco, Western Australia, WA 6008

Stephen LyonsManaging DirectorPhone: +86 139 1148 1669, +86 10 6530 9260Email: [email protected]

The statements of resources in this report have been independently determined to Society of Petroleum Engineers (SPE) Petroleum Resource Management Systems standards by internationally recognized oil and gas consultants RISC Pty Ltd.

tubing head pressure of 200 psi.

The information in this report is not an offer or recommendation to purchase or subscribe for shares in Sino Gas & Energy Holdings Limited or to retain or sell any shares that are currently held. This report has been prepared with due care and attention and is current at the date of release. Actual results may vary materially from any forecasts (where applicable) in this report. The report does not take into account the individual investment objectives

independent professional advice in this regard.

Corporate Update

level as it moves towards commercialising its large gas assets in China.

The Company has been developing a capital management program that will provide funding to maximise the potential of the asset portfolio and provide a strong base for increasing shareholder value. A number of alternatives are being

milllion due to slower than expected claims from its contractor group. Sino will settle those over the next month or so

reserves reports and on commencing the implementation of the Pilot programs. Aside from settling the 2010 claims, cash

Q4 saw additional steps designed to build the organisation including the move to larger premises in Beijing and the

Government headquarters. These new facilities are working well for the Company.

Spindler, can be contacted via this address.


China’s race to secure Gas (continued)F

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Appendix 5B Mining exploration entity quarterly report

+ See chapter 19 for defined terms. 30/9/2001 Appendix 5B Page 1

Appendix 5B

Mining exploration entity quarterly report Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001.

Name of entity Sino Gas & Energy Holdings Limited

ABN Quarter ended (“current quarter”) 16 124 242 422 31 December 2010

Consolidated statement of cash flows

Cash flows related to operating activities

Current quarter $A’000

Year to date (9.months)

$A’000 1.1 Receipts from product sales and related debtors

0 0

1.2 Payments for (a) exploration and evaluation (b) development (c) production (d) administration

(993) 0 0

(534)

(4,963) 0 0

(2,428) 1.3 Dividends received 0 0 1.4 Interest and other items of a similar nature received 107 169 1.5 Interest and other costs of finance paid 0 0 1.6 Income taxes paid 0 0 1.7 Other (provide details if material) 9 59

Net Operating Cash Flows (1,411) (7,163)

Cash flows related to investing activities

1.8 Payment for purchases of: (a)prospects (b)equity investments (c) other fixed assets

1.9 Proceeds from sale of: (a)prospects (b)equity investments (c)other fixed assets

1.10 Loans to other entities 1.11 Loans repaid by other entities 1.12 Other (provide details if material)

Net investing cash flows 0 0

1.13 Total operating and investing cash flows (carried forward)

(1,411) (7,163)

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1.13 Total operating and investing cash flows (brought forward)

(1,411) (7,163)

Cash flows related to financing activities

1.14 Proceeds from issues of shares, options, etc. 0 17,125 1.15 Proceeds from sale of forfeited shares 0 0 1.16 Proceeds from borrowings 0 0 1.17 Repayment of borrowings 0 (5,042) 1.18 Dividends paid 0 0 1.19 Other -Payment of share issue expenses (15) (1,796) Net financing cash flows (15) 10,287

Net increase (decrease) in cash held

(1,426) 3,124

1.20 Cash at beginning of quarter/year to date 9,849 5,830 1.21 Exchange rate adjustments to item 1.20 (126) (657)

1.22 Cash at end of quarter 8,297 8,297

Payments to directors of the entity and associates of the directors

Payments to related entities of the entity and associates of the related entities

Current quarter $A'000

1.23

Aggregate amount of payments to the parties included in item 1.2

208

1.24

Aggregate amount of loans to the parties included in item 1.10

0

1.25

Explanation necessary for an understanding of the transactions

The amount shown in item 1.23 above represents directors remuneration

Non-cash financing and investing activities 2.1 Details of financing and investing transactions which have had a material effect on consolidated

assets and liabilities but did not involve cash flows Nil

2.2 Details of outlays made by other entities to establish or increase their share in projects in which the

reporting entity has an interest

Nil

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Financing facilities available Add notes as necessary for an understanding of the position.

Amount available $A’000

Amount used $A’000

3.1 Loan facilities

0 0

3.2 Credit standby arrangements

0 0

Estimated cash outflows for next quarter

$A’000 4.1 Exploration and evaluation

5,179

4.2 Development

0

4.3 Production

0

4.4 Administration 233

Total

5,412

Reconciliation of cash Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.

Current quarter $A’000

Previous quarter $A’000

5.1 Cash on hand and at bank 8,297 9,849

5.2 Deposits at call

5.3 Bank overdraft

5.4 Other (provide details)

Total: cash at end of quarter (item 1.22) 8,297 9,849

Changes in interests in mining tenements

Tenement

reference Nature of interest

(note (2)) Interest at beginning of quarter

Interest at end of quarter

6.1 Interests in mining tenements relinquished, reduced or lapsed

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6.2 Interests in mining tenements acquired or increased

Issued and quoted securities at end of current quarter

Description includes rate of interest and any redemption or conversion rights together with prices and dates. Total

number Number quoted

Issue price per security (see

note 3) (cents)

Amount paid up per security (see note 3) (cents)

7.1 Preference +securities (description)

- - - -

7.2 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy-backs, redemptions

n/a n/a n/a n/a

7.3 +Ordinary securities

934,771,569 934,771,569 n/a n/a

7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy-backs

Nil n/a

n/a n/a

7.5 +Convertible debt securities (description)

Expires 30 September 2010, pays interest of 10% per annum, convertible to shares at price of greater of 20 cents and a 20% discount to the volume weighted average ASX price in the 30 days prior to conversion. (refer to last annual report for terms)

Nil n/a n/a n/a

Expires 30 June 2010, pays interest at 10% per annum and is convertible by holder to shares at $0.50 per share.

Nil n/a n/a n/a

7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted

Nil

7.7 Options (description and conversion factor)

Exercise price Expiry date

295,285,567 295,285,567 12.5 cents 31 December 2012

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31,644,345 31,644,345 50 cents 31 December 2011

17,500,000 nil 25 cents 15 September 2011

4,400,000 nil 50 cents 15 September 2011

1,310,000 nil 50 cents 13 March 2013 7.8 Issued during quarter Nil n/a n/a

n/a

7.9 Exercised during quarter - - n/a n/a 7.10 Expired during quarter Nil n/a 7.11 Debentures

(totals only) - -

7.12 Unsecured notes (totals only)

- -

Compliance statement 1 This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 4). 2 This statement does /does not* (delete one) give a true and fair view of the matters disclosed.

Sign here: Print name: STEPHEN JOHN LYONS

MANAGING DIRECTOR 31 January 2011

Notes 1 The quarterly report provides a basis for informing the market how the entity’s activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report. 2 The “Nature of interest” (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement

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and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2. 3 Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities. 4 The definitions in, and provisions of, AASB 1022: Accounting for Extractive Industries and AASB 1026: Statement of Cash Flows apply to this report. 5 Accounting Standards ASX will accept, for example, the use of International Accounting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

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