Chinese coalbed methane (CBM) developer Sino Oil and Gas Holdings Ltd. could be set for some respite after a tough start to the year, with the Hong Kong Stock Exchange-listed company announcing this week it expected to receive government approval for the commercialization of its Sanjiao CBM project.

In a statement on Tuesday, Sino Oil and Gas indicated that "official and written consent is expected to be received shortly", from the National Development and Reform Commission (NDRC) for the overall development program (ODP) for Sanjiao in Shanxi Province's Ordos Basin.

If confirmed, the endorsement from the NDRC for the project would mark just the second time an independent operator has been granted approval to take a CBM development project in China to full commercialization. Asian American Gas Inc., a Beijing-based CBM developer, won Chinese government approval in December for its Panzhuang CBM project in the nearby Qinshui Basin, also in Shanxi.

Sino Oil and Gas believes the forthcoming approval for the Sanjiao CBM project will be a milestone for both the firm and for the unconventional gas industry in China, company representative Zenia Hon told Interfax on Wednesday。

It could also spark a much needed turnaround for a company that has seen its share price slump by more than 30 percent since the beginning of the year. Sino Oil and Gas recorded a loss of HK$ 96.24 million ($12.4 million) in 2011, primarily due to administrative expenses that dwarfed turnover.

Looking to allay any lingering doubts about the company's accounts, Chief Executive Officer King Hap Lee said in the company announcement that "the group's financial conditions and cash position are strong and steady, and are sufficient to fund the daily operations of the project", adding that the Sanjiao project had already begun to generate a sustained cash flow for the company.

Sino Oil and Gas has a 70 percent interest in the Sanjiao Block, which it acquired following its purchase of Orion Energy International Inc. in 2010. Proven plus probable plus possible gas reserves have been estimated at 669.5 billion cubic feet (18.75 billion cubic meters) at the block.

The current flow rate at the Sanjiao project had reached the company's second quarter target of 100 thousand cubic meters per day, Hon told Interfax. The project's output was being sold in the form of compressed natural gas (CNG) at an average price of RMB 1.51 ($0.24) per cubic meter (cm), according to Hon, a slight increase from the RMB 1.35/cm ($0.21) reported by the company in August 2011.

Together with partner PetroChina Co. Ltd., Sino Oil and Gas signed a sales and purchase agreement with a buyer in Shanxi in June 2011.

Hon declined to confirm the identity of the buyer, but noted that the company was a city gas distributor that supplied industrial and residential users in Lvliang, a prefecture-level city of nearly 3.5 million people in central Shanxi.