Shanxi Coal is China’s second largest coal companies and is one of China’s largest coal owners with rights across the country’s major coal producing province, Shanxi Province.

The deal, which includes technology licence and project development agreements, will net Carbon a $US10 million ($A9.9 million) technology fee. A total of $US7.5 million is payable upon execution of final agreements with the balance to be paid upon achievement of project milestone.

Carbon will also receive a payment for technical and engineering services based on a commercial schedule of rates and an ongoing royalty based on the number of UCG panels installed and the volume of syngas produced.

“This agreement will provide the company with cash flow in the short-term and access to a long-term revenue stream without calling on Carbon Energy to contribute capital to the development of these projects,” Carbon managing director Andrew Dash said.

The two parties will first work on a project that involves a single panel supplying 0.5 petajoules of syngas per year to the local township of Changzhi. This phase will generate more than $US3 million in royalties over the next few years.

The second phase involves the development of major commercial projects with a minimum production rate of 30PJ per year.

Dash said the second phase project had the potential to generate more than $US400 million in royalties over a 20-year project life.

The parties will also work together to identify further project opportunities.

The deal is expected to be completed in the next six months.