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Green Dragon Access to West East 1 Trunk Pipeline

Source: www.gulfoilandgas.com 7/5/2011, Location: Asia

Green Dragon Gas Ltd. (AIM: GDG), one of the largest independent companies involved in the production of CBM gas and the distribution and sale of wholesale gas in China, is pleased to announce that its wholly owned subsidiary, Zhengzhou Greka Gas Company Limited, has entered an agreement with PetroChina Huabei Oilfield Company Limited under which GDG will gain access to the West East 1 trunk Pipeline to distribute and monetise its growing gas production.

Green Dragon will construct a pipeline connecting the Greka Shizhuang South (GSS) Integrated Production Facility (IPF) and the Huabei oilfield Fan 4 station. The Huabei Oilfield is south west of the Company’s gas gathering station (the IPF) and is a connection point to the PetroChina West East 1 pipeline.

The initial design for the 7.5km pipeline connecting to Huabei's system is based on an annual capacity of 6.45 bcf (500,000m3/day). Subject to obtaining the relevant permission, construction of both the main-trunk pipeline at GSS and the 7.5km pipeline to Huabei’s system is expected to be completed by by the end of 2011. The estimated total cost to the Company for the pipeline and ancillary equipment is approximately USD2.5m.

The agreement is for 20 years until 31 December 2031 and contracted annually for the following year’s volume and price. The first contract is for an annual production of 2.58 bcf (200,000 m3/ day). It is envisaged that following additional construction approvals by the local government the pipeline will be expanded to receive the remaining 3.87 bcf annually (300,000 m3/day).

The West East 1 Pipeline is 4,000km long, running from Lunnan in Xinjiang to Shanghai. The pipeline passes through 66 counties in the 10 provinces in China and has a total capacity of 12 billion cubic metres of natural gas, annually. The pipeline is owned and operated by a subsidiary of PetroChina.

Upstream production is currently distributed from the GSS IPF to the end users through a fleet of trucks and sales are made through the retail distribution network, which currently consists of six fully operational retail stations and a further 25 in various stages of construction / planning, all in the Henan province and with proximity to Green Dragon’s integrated production facilities at GSS. When in full operation, the retail stations will, in aggregate, initially handle around 7 bcf of gas annually.

Randeep Grewal, Chairman and Chief Executive of Green Dragon Gas, commented:
“This agreement is a further demonstration of the Company’s commitment to monetise its assets as gas production increases to the initial target gas volume of 18bcf (annualised exit rate) from the annualised rate of 1.3bcf as at 31 December 2010. We will continue to add strategic infrastructure that facilitates the Company’s capacity to efficiently monetise its increasing gas production in a timely fashion. Importantly for us, the West East pipeline can now function both as an entry point for our upstream gas and an exit point at our midstream Zhengzhou distribution facility. We will continue to explore additional opportunities to ensure our strength in upstream pricing dynamics.”

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