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Underground coal gasification project in South Africa

Oilfield Technology,

Linc Energy has announced that it has signed formal agreements with Exxaro Resources, which will result in the development of the company’s first commercial Underground Coal Gasification (UCG) project in Sub-Saharan Africa.

UCG allows access to coal resources that are not economically recoverable by other technologies. By some estimates, UCG will increase economically recoverable reserves by 600 billion t globally.

The agreements signed by Linc and Exxaro allow for the joint pursuit of UCG to develop energy solutions in the region, including utilising synthesis gas (syngas) for power generation and gas-to-liquids.

Linc Energy will receive an upfront licence fee of AUD$ 20 million; ongoing royalties for the synthesis gas produced and sold; a further AUD$ 7 million on the initial UCG project passing agreed performance tests, currently scheduled for 2017; and engineering fees for services to the partnership.

Linc Energy has also agreed to take a minimum of 15% equity in the initial UCG project, plus an option for up to 49% equity participation in all UCG project developed by Exxaro.

In return, Exxaro Resources will be granted a non-exclusive licence to use Linc Energy’s UCG intellectual property in Sub-Saharan Africa and an exclusive licence for specified areas within the region.

Linc Energy’ CEO, Peter Bond, said the deal marked a significant milestone for the company: “This agreement with Exxaro demonstrates the real, tangible value of our technology and marks a new era for our underground coal gasification business.” Mr Bond said.

“In the short-to-medium term we expect to execute a number of other commercial UCG opportunities currently being negotiated across the globe,” he said.

The CEO also noted that there was growing awareness internationally of the potential of UCG and its range of applications, from liquid fuels, to gas and power generation.

“The UCG process is a clean, indirect mining option and provides an affordable and safe method of creating an alternative energy source for a growing world market."

The Exxaro deal will see UCG deliver an alternative and complementary energy solution to Southern Africa, bringing efficient and reliable energy supply to developing regions and an economic uplift to the local communities.

Mr Bond said the formal agreements with Exxaro Resources were the culmination of joint concept studies on prospective coal resources over the past 18 months under an MOU announced in November 2011 and subsequent Term Sheet announced in December 2012.

The agreements consist of an Intellectual Property Licence Agreement supported by a Services Agreement plus a Master Agreement governing key aspects of the relationship.

Adapted from press release by Samuel Dodson.

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