Fortune will be owned 40% by Molopo and 60% by its new JV partner Fortune Oil, which will fund the first $US2.5 million ($A3.3 million) of work at the Liulin project.

Most of the funding will pay for production testing to prove-up gas reserves and identify the most appropriate stimulation technique that could be applied to the estimated 700-800 billion cubic feet (740-845 petajoules) of CSM resource at Liulin.

In addition to this approval, China’s Ministry of Commerce has also extended the PSC exploration period for a further two years.

Fortune earlier told the London Stock Exchange that the Liulin block was one of the best geologically-proven CSM blocks in China.

Analysis from coal holes and exploration wells has indicated an in-place gas resource of approximately 800 billion cubic feet, Fortune said.

“With a successful appraisal program, this resource may be converted to recoverable reserves in the order of 400 billion cubic feet in an area of approximately 200 square kilometres.

“The gas recovered to date is over 95% methane, located in three main coal seams at a depth of 400 to 700 metres. The coal parameters such as permeability, gas content and seam thickness are favourable for coalbed methane drilling.”

While China has one of the world’s largest reserves of CSM, the industry is still in its infancy and output is only 3.5 trillion cubic feet per year.