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Green Dragon Gas Announces Operations Update

Source: 1/16/2012, Location: Asia

Green Dragon Gas, 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 further substantial progress towards monetisation of its significant gas assets in China.

Drilling / Operations:

During 2011, Green Dragon drilled an additional 67 wells (29 in 2010), an increase of 131% year on year.

The acceleration in the number of wells drilled is a reflection of the Company’s shift in focus from exploration wells to the roll out of production wells across the Shizhuang South (GSS) Block. The increase in the rate of wells drilled is also in line with Green Dragon’s discretionary capex spend of US$250m aimed at significantly increasing gas production.

Of the additional wells drilled, 53 were vertical wells and 14 were LifaBriC wells. The greater number of vertical wells drilled was as a result of rig availability and the Company’s focus during the fourth quarter on building a bank of vertical wells ahead of the arrival of additional rigs contracted from Greka Drilling Limited (AIM: GDL) able to drill the lateral sections of the LiFaBriC wells.

Whilst the focus was at the GSS production block, the Company continued to drill in the five exploration blocks in 2011, with five wells drilled at Guizhou (GGZ), four wells drilled at Qinyuan (GQY), two wells drilled at both Fencheng (GFC) and Panxie East (GPX) and one well at Shizhuang North (GSN). This exploration drilling exceeded the requirements under the Production Sharing Contracts (PSCs).

Upstream: Production

Fourth quarter production was 407.49 MMcf (11,543,652 cubic metres) an increase of 126% year on year. As at 31 December 2011, the annualised exit rate of production increased again to 1.68Bcf (47,489,420 cubic metres). The increase in production is in line with the drilling of additional production wells.

Midstream Infrastructure and Downstream Gas Sales:

The Company’s downstream business has entered into an agreement for the supply of compressed natural gas (CNG) to a CNG gas refilling station capable of delivering 1,059 Mcf per day (30,000 cubic metres) for use by a fleet vehicle transportation business located in Wen Xian, Henan, China. Conversion of an existing diesel filling station is underway and the conversion of 150 trucks from diesel to CNG will commence shortly.

The growth of the Company’s CNG vehicle refilling station network is in line with its strategy to distribute gas produced by its upstream CBM operations directly to end users, thereby gaining a significant uplift in pricing value.

In Midstream, the Company also continued to connect the spur pipeline linking the Huabei gas gathering station to the main West East trunk pipeline, which will enable gas sales to PetroChina Huabei to commence as planned in the second quarter of 2012.

Randeep Grewal, CEO and Founder of Green Dragon, commented:

“Green Dragon has continued to make solid progress across all business lines from the production of gas through to both CNG sales direct to the end user and via pipeline into the main national network. As a result, we remain on target to meet the aggressive growth targets put in place by the Company.

The market has long appreciated the environmental benefits and the cost savings of CNG versus diesel. One of the barriers to the rapid CNG conversion of City-to-City fleet transport hubs has been the lack of a stable supply of gas which we are well-positioned to provide and at prices that are increasingly being supported by favourable Government policy measures. The value to the overall business will become increasingly apparent as momentum continues to build from the additional production wells in a proven resource area with a proven commercial drilling fleet contracted from Greka Drilling Limited.”

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