The project has Chinese government approval and will start producing 30 petajoules of gas per year as it progresses in three stages over the next two years.

For signing the technology agreement, Carbon will get $10 million upon “certain milestones” as well as additional revenue from technology service fees and ongoing royalty payments.

The project will be located in the Haoqin coal field, which has 3.1 billion tonnes of coal in an area covering 184sq.km.

It will be fully funded by Zhengzhou and is already approved by the ministry of land and resources.

The deal is the formalisation of a memorandum of understanding inked between the pair last month, which was the result of a worldwide search for an appropriate partner carried out by follow-Australian company Cube Gas.

Cube said that independent verification that its seam technology worked was a vital part in being selected.

Carbon received independent verification in April that the cavity drilled at its Bloodwood Creek site in Queensland was done to specification.

The cavity was drilled to power up Panel 2 at the site, which operated continuously for 20 months and gasified about 13,000 tonnes of coal, creating a cavity of 8500 cubic metres.

Aquatronic Solutions took an electro-seismic survey at the site, creating an image of the cavity by taking measurements of the heated rock at the roof of the cavity. The independent verification meant that Carbon could make the claim that it could carry out UCG activities to specification with some assurance.

Carbon’s acting chief executive Morne Englebrecht said the deal would be a shop-window opportunity, but also offered more practical benefits.

“This agreement will provide ongoing revenue for Carbon Energy and it will no doubt open the door to other licensing opportunities with China and globally,” he said in a statement to the market this morning.