Annual Audited Reserve Report

RNS Number : 9538K

G3 Exploration Limited

16 April 2018

 

16 April 2018

G3 EXPLORATION LTD.

("G3 Exploration", "G3E" or the "Company") 

Annual Audited Reserve Report

G3 Exploration Ltd. (LSE: G3E), an independent specialist in the exploration and development of coal bed methane gas (CBM), with roots in China and a focus on international expansion, is pleased to announce its reserves estimates as at 31 December 2017.

As set out on 20 December 2017, The Company will be spinning out its main producing assets (blocks GSS and GCZ) into a new Hong Kong listed company which will hold the name Green Dragon Gas. The remaining development and exploration blocks will stay in G3E, which in turn will remain listed in London. G3E will also maintain a direct shareholding of up to 25% in GDG post its spin out onto the Hong Kong exchange and the G3E shareholders provided a dividend in specie (the level of this shareholding will be confirmed on completion of the IPO). The Hong Kong listing is subject to HKEX approval.

Currently, ahead of the Hong Kong listing, all assets are retained in the G3E corporate group but are reported below on a segmented basis.

	GDG			G3E
	(Blocks GSS and GCZ)			(Blocks GGZ, GSN,GQY A & B,GFC,GPX)
	Bcf	NPV10 US$M		Bcf	NPV10 US$M
1P	91.5	440.5		5.2	33.7
2P	306.6	1539.2		70.5	879.4
3P	1124.6	5223.1		919.8	7526.7
2C				762.2
	No of Wells			No of Wells
Wells drilled	1453			335

Source: Netherland Sewell and Associates Inc. (NSAI) as of yearend 2017. Average gas price US$9.38/Mcf for producing blocks.

Highlights:

·     Total net proved 1P (P90) reserves of 96.7 Bcf valued at US$474M (2016: 184.4 Bcf)

·     Total net proved + probable (P50) 2P reserves of 377.1 Bcf valued at US$2.42B (2016: 558.6 Bcf)

·     Total net proved + probable + possible (P10) 3P reserves of 2044.4 Bcf valued at US$12.75B (2016: 2386.3 Bcf)

·     Best net contingent (2C) resources of 762.2 Bcf and Best net prospective resources of 1542.8 Bcf

·     Average wellhead gas price (inclusive of subsidy) of US$9.38/Mcf (RMB 2.15/ m³) for production blocks

·     Reserve migration includes first-time booking of proved 1P (P90) reserves volumes on G3E's GGZ Block totalling 5.2 Bcf valued at US$33.7M

The estimates of reserves have been provided by independent reserve engineers Netherland Sewell and Associates Inc. (NSAI) on eight coal bed methane exploration and development blocks namely GSS, GCZ,  GSN, GQY-A, GQY-B, GGZ, GFC and GPX.

Randeep S. Grewal, Chairman and Founder commented:

"Our annual independent updated reserves report reinforces the potential of our quality and well positioned asset base in China. The reduction in the consolidated reserve values are as a result of the US$613m cost recovery and removal of Area 2 in the GSS Block as a result of the Supplementary Agreement with CNOOC.

"The GGZ Block is progressing well towards development, with first gas anticipated this year as planned. Once in production, the GGZ Block will be the next asset to be ring-fenced for sale, farm-out or a dividend in specie, as per producing blocks, GSS and GCZ which are presently planned to be included in the Hong Kong IPO of GDG.

"Our continued primary focus is to explore and develop our remaining exploration blocks and dis-risk the development profile across our vast acreage with our partners CNOOC, CUCBM, CNPC and PetroChina."

G3 Exploration Ltd.; Exploration & Development Assets

Reserve volumes reported as at 31 December 2017 include first-time booking of our first proved (P90) 1P reserve volumes on the GGZ development asset located in the Guizhou Province, which is an initial step towards the commencement of large scale commercial gas sales from the block. In accordance with the plan announced on 20 December 2017, the migration of resources to proved reserves reflects the following achievements at GGZ during 2017:

·      Successfully completed 12 CBM production wells in multiple coal seam reservoirs

·      Continuous and stable pilot commercial production from seven CBM production wells

·      Finalised initial pilot gas sales programme for current gas producing wells

Guizhou Province is located in southern China and currently sources the majority of its gas needs by pipeline from other provinces. As such, prices in Guizhou attract a transportation premium to encourage the delivery of gas to the province. It is expected that gas sourced and produced directly in Guizhou will also benefit from this premium as the premium is a factor in determining city-gate end user pricing, making these assets even more desirable.

Proved reserves estimates	Net	Net Investment (US$M)	PV10 (US$M)
	(Bcf)
Total
Proved (1P)	5.2	2.7	33.7
Proved + probable (2P)	70.5	58.9	879.4
Proved + probable + possible (3P)	919.8	324.1	7526.7
GGZ Block
Proved (1P)	0.7	2.7	9.1
Proved + probable (2P)	29.9	32.0	427.3
Proved + probable + possible (3P)	103.6	120.7	1464.2
GFC Block
Proved (1P)	-	-	-
Proved + probable (2P)	24.3	26.9	363.3
Proved + probable + possible (3P)	215.3	203.4	3133.3
GSN Block
Proved (1P)	4.5	-	24.6
Proved + probable (2P)	16.3	-	88.8
Proved + probable + possible (3P)	600.9	-	2929.2

Best Resources Estimates	Contingent		Prospective
	Net (Bcf)		Net (Bcf)
Total	762.2		1542.8
GGZ Block	737.1		494.4
GFC Block	4.6		213.7
GQY Block	17.3		817.3
GSN Block	3.2		-
GPX Block	-		17.4

Green Dragon Gas Ltd.; Production Assets

GSS Block and GCZ Block are located in the southern Qinshui Basin, Shanxi Province, China, which is one of the two areas in China where the initial gas in place (GIIP) estimates are over 3,500 Bcf according to NSAI. GDG holds 47% and 60% of the participating interests under the Cooperation Agreement (for GCZ Block) and the PSC (for GSS Block), respectively.

The 2017 reserve report includes all 1,453 wells operated by GDG, CNOOC and PetroChina across these blocks in which the company has varying equity interests.

Average wellhead price used in the reserves evaluation for year 2018 was US$9.38/Mcf (5% escalation thereafter) at the production blocks, inclusive of Government subsidies. Changes in PV10 values in year over year comparison are mainly as a result of:

·      Inclusion of CNOOC GSS Block cost recovery balance of circa. US$613 million

·      Removal of Area 2 coal seam 3 from GSS Block according to the GSS Supplementary Agreement signed in 2017

Proved Reserves Estimates	Net	Net Investment (US$M)	PV10 (US$M)
	(Bcf)
Total
Proved 1P (P90)	91.5	51.8	440.5
Proved + probable 2P (P50)	306.6	155.9	1,539.2
Proved + probable + possible 3P (P10)	1,124.6	765.5	5,223.1
GSS Block
Proved 1P (P90)	77.5	44	368.6
Proved + probable 2P (P50)	275.5	134.2	1,384.7
Proved + probable + possible 3P (P10)	1,068.3	726.2	4,935.3
GCZ Block
Proved 1P (P90)	14.0	7.8	71.9
Proved + probable 2P (P50)	31.1	21.7	154.5
Proved + probable + possible 3P (P10)	56.3	39.3	287.8

The estimates in this announcement have been prepared in accordance with definitions and guidelines set forth in the 2007 Petroleum Resources Management System (PRMS) approved by the Society of Petroleum Engineers. The information in this announcement pertaining to the Company reserves have been reviewed by Hassan Sindhu, the Company's Director of Resources Management, who holds a Petroleum Engineering degree from the China University of Petroleum.

For further information on the Company and its activities, please refer to the website at http://www.g3-ex.com/or contact:

FTI Consulting: Edward Westropp / Kim Camilleri Tel: [phone]

About G3 Exploration Ltd.

An independent specialist in the exploration and development of coal bed methane gas (CBM); G3 Exploration has accumulated a unique wealth of experience through its significant 25 year track record of technology-led exploration and drilling success in CBM, across different geographies.

G3 Exploration's intention is to leverage its expertise, monetise its current 7112km² acreage position in mainland China and widen its asset portfolio into other prospective geographies across  Africa, Europe and Asia, utilising its proprietary knowledge and experience in exploiting CBM resources. Furthermore, G3 Exploration has interests in Green Dragon Gas, which comprises of two producing assets with an acreage of 455km² in Shanxi province, China

G3 Exploration is listed on the main market of the London Stock Exchange (LSE: G3E).

Glossary of terms:

1P	Proved reserves
2P	Proved plus probable reserves
3P	Proved plus probable plus possible reserves
Bcf	Billions of cubic feet
CBM	Coal bed methane
PV 10	Net present value calculated using a 10% discount rate
ODP	Overall Development Plan
OGIIP	Overall Gas Initially In Place
Original Gas In Place	The total reserves contained in a reservoir. Only a proportion of the gas in place is recoverable (see definition of Reserves below)
PSC	Production Sharing Contract
Reserves	Reserves are those quantities of hydrocarbons anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions
Tcf	Trillions of cubic feet
USD	United States Dollar
RMB	Renminbi (official currency of the People's Republic of China)

-END-

 

END

 

 

MSCMMGMDKVZGRZG