GREEN DRAGON GAS LTD

(“Green Dragon” or the “Company”)

Green Dragon Gas Ltd. (LSE:GDG), one of the largest independent companies involved in the production and sale of CBM gas in China, is pleased to announce that the Company has issued its first public corporate bond (“the Bond”) into the debt capital markets and closed this initial issue at USD88m. This funding allows the Company to launch its drilling programme of 150 LiFaBriC wells at the commercial gas production block Shizhuang South (GSS) with up to 50 wells being funded through this closing.

The Bond is senior secured three year paper, is due 20^th November, 2017, carries a 10% cash payment and is redeemed at 102 par. The Company has a right to redeem the Bond early for 107,105,103 at the 12, 18, 24 and 30 month anniversaries. The Bond is secured by a pledge over the shares of Greka Gas China, a wholly owned subsidiary of Green Dragon Gas. Pareto Securities acted as book runner and manager to the transaction, with Investec Bank PLC as co-manager.

Mr. Randeep S. Grewal, Founder and Chairman of Green Dragon, commented:

“We are pleased with this debt issuance as it marks the first public debt capital raised by the Company. Since inception, Green Dragon has funded its discretionary growth through equity or convertible debt issuances resulting in the current net equity being in excess of USD600m. We expect to fund our continued growth with disciplined debt issuances so as to gradually increase the current debt to equity from 8% to 25% over time. Including this issuance, we expect our debt to be USD138m by year end.

“We expect to conclude this phase of the drilling programme concurrently by placing additional debt by the second quarter of 2015 which should enable us to complete the entire 150 LiFaBriC well programme at GSS along with the continued development of our other prolific seven gas blocks”.

by Amy McLellan 

Chairman Randeep S Grewal

Last week Green Dragon Gas Ltd made its debut on the Main Market in London, eight years after its admission to AIM. This week the Hong Kong-based company, which focuses on coal bed methane production in China, announced another milestone, signing a ten year offtake agreement with an affiliate of Chinese oil giant Sinopec.  Shanxi Guohua Energy Co will take gas from Green Dragon‘s Shizhuang South (GSS) and North (GSN) blocks in Shanxi Province.

This is the company’s second long-term offtake agreement: it has a 20-year deal with PetroChina Huabei Oilfield Co, signed in 2011, for up to 6.45 BCF of gas per year.  Under the new agreement, the gas will be delivered to Shanxi Guohua’s delivery point near the Guxian compression station in Shanxi Province with pricing annually agreed and reviewed between the parties.

This is a phased supply deal, with Green Dragon supplying 1.8 to 2.5 BCF in 2015, 3.5 to 12.4 BCF in 2017, 12.4 to 17.7 BCF in 2020 and 17.7 to 24.7 BCF in 2025.  The company certainly has the gas base to meet these volumes: last month a CPR from Netherland, Sewell reported 1P reserves of 126 BCF, 2P reserves of 382 BCF and 3P reserves of almost 2.4 TCF; the corresponding NPV10 valuations are US$985.8 million, US$3.1 billion and US$18.56 billion.

The volumes in the agreement are maximum amounts, however. There are no minimum contracted volumes which will give some comfort to investors who have seen the company struggle to ramp production from its blocks.

For many years Green Dragon, a first mover in China’s CBM industry, battled to find an engineering solution to produce the gas from the faulted anthracite coal seams: this was achieved in 2008 when it developed its proprietary LiFaBriC technology, what VP Stephen Hill calls “the Eureka moment”.

But the roll out of this breakthrough technology, which delivers repeatable results from each well and delivers the annuity type returns that make successful CBM plays so attractive to shareholders, was then hampered by a series of legal and corporate issues that were out of its control. By late 2013 these were resolved, with the company’s title to its blocks reaffirmed by the authorities and the legal and commercial issues that arose when it discovered around 1,500 third party wells on its acreage satisfied through a series of joint venture and cost recovery agreements.

Now the £640 million market cap company, as evidenced by its move to the Main Market, is ready to move to the next stage of its evolution as a CBM company.

This week’s agreement with the Sinopec affiliate underscores this.  Chairman and CEO Randeep S. Grewal said the agreement not only “secures a major revenue stream for the company over the next decade, but also diversifies our options for monetising our gas”.

The company now needs to accelerate the drilling of its LiFaBriC wells in order to maximise the potential of its new offtake deal: the metrics from these wells are compelling, with the first well, which cost circa US$1.5 million, yielding cumulative production of more than three-quarters of a BCF and delivering an IRR of more than 75 per cent at contracted prices.

Many more of these wells will be needed to really shift the needle – at the time of the half yearly report in September, the company has 78 LiFaBriC wells.  Already production is increasing: in 2013 it produced 4.86 BCF and over the first half of this year already almost matched that, producing 4.1 BCF in the six month period, generating revenues of US$15.5 million.

(“Green Dragon” or “the Company”)

Green Dragon Gas (LSE:GDG), China’s largest independent coal bed methane (“CBM”) gas company, is pleased to announce that the Company’s wholly owned subsidiary Zhengzhou Greka Gas Co. has signed a 10-year offtake agreement (the “Agreement”) with Shanxi Guohua Energy Company Limited (“Shanxi Guohua”), a joint venture between Shanxi International Energy Group and Sinopec, for the sale of CBM gas  from the Company’s Shizhuang South and North blocks, in Shanxi Province.  The Agreement is separate and in addition to the existing 20-year offtake agreement with PetroChina Huabei Oilfield Company Limited.

Key terms of the Agreement

Under the Agreement, the Company can sell gas from its GSS (Shizhuang South) and GSN (Shizhuang North) blocks to Shanxi Guohua’s delivery point near the Guxian compression station, in Shanxi Province with pricing annually agreed and reviewed between the parties. 

The table below references the maximum amounts that can be annually supplied; there are no minimums:

The commencement of CBM gas supply is expected to occur between 31 December 2014 and 30 May 2015, and the Agreement will be valid until 31 December 2025.

Commenting on the announcement, Randeep S. Grewal, Chairman and CEO of Green Dragon Gas, commented:

“We are delighted to have successfully secured this long-term offtake agreement with such a significant partner.  The Agreement not only secures a major revenue stream for the Company over the next decade, but also diversifies our options for monetising our gas. This contract is the second such agreement signed by the Company for PNG, the first being the Petrochina Huabei pipeline contract first announced on 5 July 2011, which already covers up to [6.45 Bcf] gas sales per annum.

“I look forward to successfully developing our partnership with Shanxi International Energy Group and Sinopec as Green Dragon continues with our strategy of building the leading upstream unconventional gas producer in China.”

ENDS

For further information on the Company and its activities, please refer to the website at www.greendragongas.com or contact:

About Green Dragon Gas

Green Dragon is a focused upstream (Exploration & Production) company, concentrating on its core asset value proposition over eight blocks, two of which are producing.  The enterprise’s blocks are located within six Production Sharing Contracts across four Provinces: Shanxi, Anhui, Jiangxi and Guizhou.

About Sinopec

China Petrochemical Corporation (Sinopec Group) is a petroleum and petrochemical enterprise group established in July 1998 on the basis of the former China Petrochemical Corporation. Sinopec Group is a state-owned company solely invested by the State, functioning as a state-authorized investment organization in which the state holds the controlling share. Headquartered in Beijing, Sinopec Group has a registered capital of RMB 182 billion (USD 30 billion).

About Shanxi International Energy Group

Shanxi International Energy Group (SIEG) is one of the twelve biggest state-owned enterprises in Shanxi Province, mainly engaging in the investment of energy projects, including electric power, coal, gas, new waste energy, sewage disposing, power, tourism and real estate. SIEG operates more than 30 subsidiaries, with total assets of RMB 30.3 billion (USD 5 billion).

Proactive Investors

By Giles Gwinnett     

The coal bed methane specialist noted it was not raising any funds or issuing any new equity in association with the listingThe coal bed methane specialist noted it was not raising any funds or issuing any new equity in association with the listing

Shares in Green Dragon Gas (LON:GDG) started trading on London’s main board this morning, while its AIM listing was cancelled.

The coal bed methane specialist noted it was not raising any funds or issuing any new equity in association with the listing.

Last week, the company told investors its proved (1P) reserves were now valued worth US$985.8mln which is a 6% rise on previously.

Proved and probable (2P) reserves are valued at US$3.10bn, 10% more than before. At the same time the value of proved, probable and possible (3P) reserves are up 15% on prior estimates at US$18.56bn.

A reserve statement, dated April 30 2014, shows 124.5bn cubic feet (bcf) of 1P gas reserves, with 379.2bcf of 2P and 2.4tln cubic feet of 3P.

The firm says it believes the move to London’s main market will provide the company with a larger liquid market with an enhanced profile and an appropriate platform for future growth.

Emily Ashford, an analyst at City firm Cantor, which repeated a ‘buy’, said: “We believe this move to the main market is a natural upward migration for Green Dragon, following a period of corporate and operational development.

“It will invariably lead to the attraction of a wider pool of investors; will enhance liquidity, and the company’s profile, whilst potentially reducing share price volatility.

The target price is 952p, compared to a current price of 540p.

Further to previous announcements, Green Dragon Gas (“the Company”) announces that its ordinary shares will today be admitted, with a standard listing, to the Official List of the United Kingdom Listing Authority and to trading on the London Stock Exchange plc’s main market for listed securities (“Main Market”) (together “Admission”). Dealings in the Company’s ordinary shares will commence on the Main Market at 8.00 a.m. GMT and trading in the Company’s ordinary shares on the AIM market of the LSE will be cancelled concurrently.

The Company is not raising any funds or issuing any new ordinary shares in connection with Admission. The Company’s TIDM code on the London Stock Exchange will remain ‘GDG’ and, on Admission, there will be 142,316,289 ordinary shares in issue.

The prospectus, prepared by the Company in connection with the Admission, is available on the Company’s website at www.greendragongas.com. It is also available for inspection at the office of Memery Crystal LLP, 44 Southampton Buildings, London, WC2A 1AP, during normal business hours.

The Company will be conducting a Capital Markets Update presentation at 12:30pm on Tuesday 28 October 2014. The presentation will be broadcast via webcast at http://view-w.tv/906-1217-15058/en and teleconference via the following dial in:

UK: 0808 109 0700

Hong Kong Toll Free: 800 900 476

Standard International Access: +44 (0) 20 3003 2666

Password: Green Dragon Gas

Additionally, a copy of the presentation slides will be available via the Company’s website: www.greendragongas.com

(“Green Dragon” or the “Company”)

Publication of Prospectus and Further re Admission to Official List

Updated Reserves and Resources

Green Dragon Gas Ltd. (AIM:GDG), one of the largest independent companies involved in the production and sale of CBM gas in China, is pleased to announce, further to the announcement on 26 September, that it has published a prospectus (the “Prospectus”) in connection with the admission with a standard listing, of its ordinary shares (the “Ordinary Shares”) to the Official List of the UK Listing Authority (“UKLA”) and to trading on the London Stock Exchange’s Main Market for listed securities (together, “Admission”).

It is expected that Admission will become effective and that dealings in the Ordinary Shares of the Company on the London Stock Exchange’s Main Market will commence at 8.00am on 27 October 2014.  Trading in the Ordinary Shares on AIM will be cancelled at the time of Admission.

The Company is not raising any funds or issuing any new shares in connection with Admission.  The Company’s TIDM code on the London Stock Exchange will remain ‘GDG’ and its ISIN will remain KYG409381053. On Admission, there will be 142,316,289 Ordinary Shares in issue.

Updated Reserves and Resources

The Company also announces, as disclosed in the Prospectus, an updated estimate of reserves and resources, as prepared by Netherland, Sewell & Associates, Inc (“NSAI”), as summarised below.

Highlights:

·      Reserves and resources confirmed by NSAI Competent Person Report

·      Increase in NPV10 reserve valuations, as at 30 April 2014*:

-      1P: US$985.8m, a 6.6% increase (31 Dec 2013: US$898m)

-      2P: US$3.10bn, a 10% increase (31 Dec 2013:US$2,81bn)

-      3P: US$18.56bn, a 15% increase (31 Dec 2013: US$16.12bn)

*Net present value of future revenues, at a discount rate of 10% ($m)

Please contact to us if you have any further questions. Thank you.

By Giles Gwinnett       

China–based unconventional gas group Green Dragon Gas (LON:GDG) is worth 952p per share, suggests City broker Cantor, which recently started analysing the company.

That’s a pretty punchy number  compared with the current share price at 510p.

Green Dragon has developed its own method to extract CBM (coal bed methane) gas and has six production contracts, valid for up to two decades, in four Chinese provinces.

It has a market cap of around £620mln and this month is expected to step up to London’s main board from AIM – not bad for a firm, which only listed in the City eight years ago.

It is an independent upstream explorer and producer of CBM – the largest such firm in the economic powerhouse that is China.

With issues regarding title now behind it, GDG has direct equity interest in around 1,870 wells. It also has trucks, pipelines and wholesale and retail distribution stations for compressed natural gas, notes analyst Emily Ashford in her initiation note.

This year has already been a successful one for Green Dragon.

In the half year to end June, the company’s production climbed to 4.1bn cubic feet (Bcf), up by more than 200% over the comparable period.

This reflected agreements signed by Green Dragon with PetroChina, CNPC, CNOOC and CUCBM, four of China’s largest energy groups, to develop its acreage.

Green Dragon said last month that 30% of its producing wells are now hooked up to the gas grid network across its eight licences out of a total 1,869 wells drilled.

Revenues for the six months came in at US$15.6mln (US$6.9mln). Gross profits rose by 55% to US$5.4mln while underlying net losses declined to US$7.3mln from US$8.3mln.

Ashford said Green Dragon has now de-risked its assets and has now aligned its interests with partners, with firm agreements now in place over ownership of licences.

In August, it also settled it outstanding dispute with US oil giant ConocoPhilips over a farm-out agreement that did not work out, which it had entered in 2009.

Ashford expects soon a step-change in Green Dragon’s cash flow through its 60% interest in the producing GSS block, which will have a significant impact on 2015 results and beyond.

GDG’s focus is now moving its reserves towards 1P (proven), she added, noting that in May this year, the consultant Netherland, Sewell & Associates increased net 1P proven reserves by 113% to 126Bcf compared to 59Bcf in 2012 and net 2P by 22% to 382Bcf compared to 314Bcf in 2012.

The company is now looking to secure reserve-based lending to progress a 150 LiFaBriC well drilling programme.

The now proven LiFaBriC drilling method, which is an adaptation of traditional horizontal methods, will become a manufacturing process.

“The technique is mature, offers stable production with little decline, and the interference created by LiFaBriC wells is potentially able to aid de-watering and boost production from proximal vertical wells,” highlighted Ashford.

“Later this month, the firm will move from AIM to the LSE main market. We believe this will enhance liquidity and the company’s profile, whilst potentially reducing share price volatility,” she said.

Green Dragon shares are up around 7% today at 510p.

By Bianca Bartucciotto

India’s Essar Oil has spudded the first in a 100-well drilling programme at its Raniganj East coal bed methane block in West Bengal, India.

The campaign could see production from the block increase to 42 million cubic feet per day of gas by March 2015.

Current output stands at 7.7 MMcfd and the gas is mostly sold to local companies through test sales, Upstream previously reported.

Essar overcame major delays to kick off drilling at the Raniganj CBM project, where the company is now aiming to produce about 88 MMcfd of gas by the end of March 2016.

The drilling programme, which is expected to take around 12 months, is being carried out by Chinese contractor Greka Drilling under a US$65 million contract.

By Razak Musah Baba

Greka Drilling Ltd (GDL.LN) Wednesday posted a widened loss during the half year-end, adding that whilst mobilization orders have been slower than anticipated, it now expect a busier second half of the year.

The independent and specialized unconventional gas driller in China, reported pretax loss of $4.3 million during the half year ending June 30, compared with loss of $2.8 million a year earlier, on revenue of $8.9 million and $14.4 million respectively.

Randeep S. Grewal, Chairman and Chief Executive said whilst mobilization orders have been slower than anticipated, the Company is pleased that it has seen forward momentum on two of its main contracts.

“Greka Drilling maintains a healthy backlog of business on both contracts that have been recently mobilized and those that still remain to be given mobilzation orders.

“We are also pleased to have increased our counter parties year on year and continue to remain in dialogue with numerous potential business opportunities”, Mr. Grewal added.

Shares at 0750 GMT flat at 10 pence, valuing the company at GBP40.3 million.