【Daily Research Report Analysis·Shouhua Gas】

(Source: Wealth Online Technology)

Shouhua Gas Technology (Shanghai) Co., Ltd. (formerly Shanghai Woshiyuan Gardening Co., Ltd.) was established on January 8, 2003. It is a technology-based enterprise focusing on energy investment and horticultural product design and development. Currently, the company mainly focuses on developing natural gas extraction business.

Shouhua Gas’s subsidiary Beijing Zhonghai Wobang Energy Investment Co., Ltd., in cooperation with China National Petroleum Corporation Coalbed Methane Limited Liability Company, is developing the Shilou West Block for natural gas and coalbed methane in Shanxi Province, covering an area of 1,524 square kilometers. It has obtained approval from the Ministry of Natural Resources for proven geological reserves of 127.6 billion cubic meters of natural gas and has a development plan filed with the National Energy Administration for 2.2 billion cubic meters annually.

The Shilou West Block is located on the eastern edge of the Ordos Basin, rich in natural gas resources, and is one of China’s key areas for natural gas exploration and development. In 2018, China National Offshore Oil Corporation Wobang was rated as a “High-Tech Enterprise” by the Beijing Municipal Science and Technology Commission.

The two major well areas in the Shilou West Block have been designated as key provincial projects for 2021 and 2022 by the Shanxi Provincial Government. Technological innovation has driven continuous progress in unconventional oil and gas exploration and development, achieving “fine exploration, efficient development, and scientific production” within the block.

Company Highlights:

1. Turnaround to profitability by 2025.

The company announced a performance forecast, expecting a net profit attributable to shareholders of 150-200 million yuan in 2025. In 2024, the company suffered a loss of 711 million yuan but is expected to turn profitable in 2025, exceeding our expectations. After excluding non-recurring gains and losses, net profit is projected to be 146-196 million yuan, shifting from a loss of 725 million yuan to profit. In the first three quarters of 2025, net profit attributable to shareholders was -20 million yuan, with profits mainly reflected in the fourth quarter.

2. Significant increase in gas volume and subsidies boosting profits; notable reduction in extraction costs may be the core reason for the company’s better-than-expected performance.

In 2025, the company’s natural gas production increased rapidly, with daily output surpassing 3 million cubic meters by year-end, nearly doubling compared to the previous year. Additionally, Beijing Zhonghai Wobang confirmed government subsidies related to revenue of approximately 159 million yuan. We infer that the core reason for the company’s outperformance is a significant decrease in single-well extraction costs.

3. Promising prospects for deep coalbed methane, with technological breakthroughs driving continuous cost reductions.

Deep coalbed methane extraction has entered a large-scale development stage, with resources more than three times those of shallow layers. China’s exploration and development of coalbed methane can be roughly divided into four stages, entering the deep-scale development phase since 2021. Deep wells, such as the Daning-Jixian block (China Oil Coal Development), have shown nearly an order of magnitude higher gas production per well compared to shallow coalbed methane during the 13th Five-Year Plan period.

According to statistics from China’s Petroleum Exploration Journal in 2024, the resource volume of deep coalbed methane (below 1500 meters) is approximately 69 trillion cubic meters, more than three times that of shallow coalbed methane at the same depth, indicating great potential for exploitation.

With technological progress, extraction costs are expected to decline. According to data from Shouhua Gas, in 2024, the company’s per-well depletion cost was about 0.85 yuan. With new wells coming online, this cost is expected to approach 0.53 yuan per cubic meter, leading to overall cost reductions. As technology advances, investment costs will decrease, gas volume will increase, and fixed costs will be spread over larger outputs, further lowering unit costs.

4. Core Competitiveness

The company’s competitive advantages in natural gas business mainly lie in reserves, technology, and market channels, as detailed below:

(1) Reserve Advantages

China National Offshore Wobang mainly engages in natural gas exploration, development, production, and sales. The reserves in the cooperative blocks are crucial for the company’s operations.

• Natural Gas (Tight Gas)

Currently, the Shilou West Block’s Yonghe 18, Yonghe 30, and Yonghe 45 wells (total gas-bearing area of 928 square kilometers) have proven geological reserves of 127.6 billion cubic meters, technically recoverable reserves of 61 billion cubic meters, and economically recoverable reserves of 44.3 billion cubic meters, as filed with the Ministry of Natural Resources.

• Natural Gas (Coalbed Methane)

The cumulative proven geological reserves of coalbed methane in the Shilou West Block are about 88.741 billion cubic meters, with technically recoverable reserves of 44.37 billion cubic meters and economically recoverable reserves of 34.242 billion cubic meters, covering an area of 300.10 square kilometers.

Rich reserves provide a solid foundation for the company’s development. The company continues to expand exploration of coalbed methane in new areas, increasing proven reserves and supporting scale expansion. The company will follow strategic planning, advancing exploration and development of various natural gas resources in an orderly and efficient manner.

(2) Technological Advantages

With years of experience in natural gas extraction, the company has accumulated extensive expertise in unconventional natural gas exploration and development, establishing a professional, experienced, and capable management and technical team.

Average technical staff have over 10 years of experience, capable of handling complex geological conditions, especially in the development of unconventional natural gas in the Shilou West Block. The team’s practical experience ensures risk management and technical problem-solving, guaranteeing smooth operations.

The company emphasizes integrated geological engineering, combining technical expertise with geological conditions to develop a comprehensive system for exploration, extraction, and production tailored to local geological and reservoir characteristics.

Since 2023, breakthroughs in deep coalbed methane exploration and technology have been achieved in China, including precise evaluation of favorable zones, fast drilling and completion, extreme volume fracturing, and full-cycle integrated development. The China Oil Coal East Danning-Jixian deep coalbed methane demonstration project has also yielded significant results.

The proximity of the Dajin and Jixian blocks, both located on the eastern edge of the Ordos Basin, allows the company to maintain close ties with China Oil Coal. Joint project teams have been established to exchange insights on geology and technology, developing tailored approaches for deep coalbed methane development in the Shilou West Block, continuously optimizing practices.

To explore new technologies, the company has established a New Energy Research Institute, focusing on natural gas exploration and development technologies, organizing industry research and technical exchanges, and promoting the adoption of advanced industry technologies.

Subsidiary Zhonghai Wobang has established a High-Tech Committee, annually setting research projects and plans, and strengthening technical exchanges with neighboring blocks, similar gas fields, research institutions, and major oil service companies. They conduct technical discussions and feasibility analyses, investing resources in innovative experiments for suitable technologies, increasing R&D and technological innovation efforts to achieve “fine exploration, efficient development, and scientific production” of natural gas resources, enhancing core technological competitiveness.

The company also promotes automation and intelligent system construction, integrating IoT and data visualization into forward-looking management strategies, embedding advanced concepts and technologies into all processes, and building a highly integrated, efficient modern exploration, development, and production management system.

In recent years, subsidiaries like Zhonghai Wobang have been recognized as “High-Tech Enterprises” by the Beijing Science and Technology Commission, receiving certificates such as the Zhongguancun High-Tech Enterprise Certificate, Intellectual Property Management System Certification, and Intellectual Property Pilot Unit Certificate. The “Integrated Geology and Technology for Shilou West Block Tight Sandstone Gas Exploration and Development” has obtained a Science and Technology Achievement Registration Certificate. The company has also been awarded titles like “Beijing Intellectual Property Demonstration Unit,” “Beijing Enterprise Technology Center,” and “National Intellectual Property Advantage Enterprise,” and has been certified as a “Specialized, Refined, Special, and New” enterprise by Beijing.

In November 2024, the company obtained a national patent-intensive product filing certificate for “Tight Sandstone Gas Exploration and Development Technology Based on Integrated Geology and Technology in Shilou West Block.” In December 2024, Zhonghai Wobang was recognized as an “Intellectual Property Advantage Unit” by the Beijing Intellectual Property Office. As of June 2025, the company’s natural gas business has been granted 146 patents and 17 software copyrights.

(3) Market and Industry Chain Advantages

Shanxi Province has developed a relatively complete natural gas industry chain over the years. Five national-level main pipelines—Shanxi-Jing, Shanxi-Jing, Shanxi-Jing, West-to-East Gas Transmission, and Yujin Line—pass through Shanxi, with the provincial pipeline network reaching all 11 cities, over 90 counties (cities, districts), and key towns, covering urban residents, industry, and gas stations.

The Shilou West Block is located within Yonghe County and Shilou County in Shanxi Province. Its export pipelines connect to provincial trunk lines and the national West-to-East Gas Transmission network, supplying downstream markets domestically.

The company continues to expand downstream sales, enriching profit points in the natural gas industry. In late 2019, Zhonghai Wobang established Shanxi Wojin Gas Sales Co., Ltd., and in June 2020, set up a wholly-owned subsidiary Zhejiang Woqing Energy Co., Ltd.

In November 2021, through Zhejiang Woqing, the company signed a cooperation agreement with China National Oil & Gas Group (02688.HK) subsidiary China National OGE Investment Co., Ltd., to jointly establish Shanxi Hengjing Energy Co., Ltd. This expansion enhances downstream sales channels, stabilizes sales, and improves bargaining power.

In February 2024, the company completed the acquisition of a 51% stake in Yonghe Weirun. Yonghe Weirun specializes in natural gas boosting, pipeline transportation, and sales. It connects to the West-to-East Gas Transmission Line No. 88# valve station in Yonghe County, Shanxi, enabling natural gas to be transported onto the pipeline, providing upstream gas sources with transportation services.

Additionally, leveraging the proximity of the West-to-East Gas Transmission Line No. 88# valve station and nearby gas sources in the Dajin and Jixian blocks, the company develops natural gas sales business.

Further expanding downstream sales, the company aims to capitalize on the nationwide interconnected pipeline network, ensuring smooth gas source and pipeline connections, and enlarging its natural gas sales footprint.

5. Market Outlook

With technological progress reducing investment costs and increasing gas volumes, fixed costs will be spread over larger outputs, further lowering unit costs. Benefiting from technological innovations in deep coalbed methane, the company’s gas volume and profit growth are expected to be high.

Risk warnings: Changes in government subsidy policies, slower-than-expected exploration progress, safety operation risks, and macroeconomic downturns.

Source: WIND, 2026-01-26, Dongwu Securities, Shouhua Gas, Shouhua Gas (300483): Pioneer in deep coalbed methane turning losses into profits; company announcement; Wealth Online compilation, date 2026/03/19.

The above opinions, strategies, and analysis results are for reference only and are not investment advice. Investment risks are to be borne by the investor. The stock market involves risks; please invest cautiously.

These views are provided by the Investment Advisory Service Department. Investment advisors: Chang Jianwu, registration number: A1050619080001; Zhu Xiaofei, registration number: A1050621070003; Cai Manqiang, registration number: A1050621040002.