ASX-listed Jade Gas has executed a non-binding collaboration agreement with a consortium comprising PT Beijing Energy Linking (PTBEL), its lead contractor, and subcontractors PetroChina and Hunan Geology & Mining Technology, which paves the way for Phase 1 drilling of the Red Lake coal bed methane area, in Mongolia.

The collaboration agreement considers the funding of 100% of Jade Gas's planned Phase 1 capital expenditure (capex), which is estimated at $762-million, or A$1.1-billion.

Phase 1 of the Red Lake development will comprise 175 wells, which covers only 30% of the total drilling currently being advanced across the 60 km² Red Lake development area, which is, in turn, part of the company's broader 665 km² permit area.

Jade Gas operates the Tavan Tolgoi coal bed methane project in the South Gobi region of Mongolia.

PTBEL has agreed to make up to ten drill rigs available for short-term deployment, with initial mobilisation targeted for February or March next year. PTBEL has also agreed to fund 100% of the capital expenditure required for Phase 1 drilling - as an approved contract cost in a field services contract that will be negotiated by the parties.

Jade Gas will retain ownership of Red Lake, with PTBEL to be repaid through a future gas sales revenue sharing agreement.

The funding contemplates associated infrastructure including an expanded camp facility, roads, communications, water handling and battery energy storage systems to support an accelerated drill programme.

Separately, Jade Gas has agreed with the consortium to fund a $150-million, or A$215-million, scalable liquefied natural gas (LNG) liquefaction facility, which forms part of the total Phase 1 capex estimate. The facility will enable the initial monetisation of about 40 wells, with modular additions to follow as production from Red Lake grows.

The Red Lake coal bed methane project has the potential to become a major new energy development, not only in Mongolia but within the Asia Pacific region, Jade Gas explains.

The company is pleased to partner with seasoned companies such as PTBEL, PetroChina and Hunan, given their proven coal bed methane drilling and large-scale project execution expertise from the Qinshui and Ordos Basin coal bed methane developments in northern China. These projects are the closest operating analogue to Jade Gas's Red Lake project.

For Jade Gas executive director Joe Burke, the need to secure reliable, proximate gas resources has never been more urgent and with the backing of PTBEL, PetroChina and Hunan, the company can develop Red Lake at a scale and speed that would not have been possible alone.

"This collaboration provides a clear pathway to bring significant volumes of Mongolian gas to market, displacing diesel, supplying LNG and contributing to the energy security of an entire region," Burke states.

He concludes that the agreement marks the beginning of developing one of Asia Pacific's most strategically located gas projects.

Meanwhile, Jade Gas has received commitments for a A$11-million placement at a price of $0.12 apiece, which can support field operations, working capital and a proposed listing in Hong Kong.