Sino Gas & Energy Limited (SGE) will be able to recover the exploration, development and operating costs from the initial revenue generated from the PSC. The exploration investment sunk by SGE will be repaid before the accumulated development costs.
The remainder of the revenue will be used to pay the Value Added Tax (VAT) and Royalties. The remainder after recoverable costs and taxes will go into the ‘remainder pool’, as shown below.
Depending on the rate of production, a portion of the ‘remainder pool’ will be paid to SGE and the Chinese partners according to each share of interest in the PSCs.