Development Plan Approved For GCZ Block

RNS Number : 5539C

Green Dragon Gas Ltd

18 April 2017

 

18 April 2017

GREEN DRAGON GAS LTD.

("Green Dragon" or the "Company")

Overall Development Plan approved for Chengzhuang Block, Qinshui Basin

Green Dragon Gas Ltd. (LSE: GDG), one of the largest independent companies involved in the production and sale of Coal Bed Methane (CBM) gas in China, is pleased to announce that the Qinshui Basin Chengzhuang Cooperative CBM Block ("GCZ Block") Overall Development Plan ("ODP") has been  approved by the Consultation Center of China National Petroleum Corporation ("CNPC").

Highlights

·     As of date, 114 wells have been drilled on the acreage. The development plan includes the drilling of an additional 147 production wells in 2017 & 2018. These wells will be targeting both coal seam #3 & coal seam #15.

·     Estimated gross annual production of 3.01 Bcf in 2017, with production estimated to increase to 3.23 Bcf (2.64 Bcf from existing wells and 0.59 Bcf from new wells) in 2018.

·     Upon the successful completion of the development plan, the 2016 NSAI CPR estimated current probable reserves at GCZ of 15.7 Bcf (NPV10 $116.1m) are expected to be migrated to 1P reserves, bringing total 1P reserves to 29Bcf.

·     The development cost for GCZ is budgeted to be c.$53.80 million over 2017 and 2018. CNPC will invest $28.51m in accordance with its 53% participating interest and the Company $25.28m based on its 47% of participating interest in the Block. Under the terms of the PSC, CNPC can carry the company which it has done till date in the blocks development.

·     Senior technical experts from CNPC Planning Department, CNPC Exploration & Production Branch, China Foreign Cooperation Administration Department ("CCAD"), PetroChina Huabei Oilfield and Greka Energy (International) B.V. jointly took part in the technical working sessions and overall discussions.

·     The Joint Management Committee approved the ODP on 14^th April, 2017 for submission to NDRC.

Chinese State support for CBM industry

On 8 April 2017, in accordance with China's 13^th Five-Year Plan, Chinese government authorities delivered a policy to facilitate  expediting the State approval processes. Following the issuance of this policy, once the ODP is approved by the State Owned Enterprise, it is to be registered with the NDRC and promptly implemented, as part of this new policy.

About the Chengzhuang Block (GCZ Block)

The GCZ Block is located in the prolific Qinshui Basin with an area of 67 km², approximately 20 km south of the Greka Shizhuang South Main Block ("GSS Block"). Reservoir properties and geological settings are similar to those found in the GSS Block. There are two major laterally continuous shallow coal seams present throughout the GCZ Block, namely, coal seam #3 and #15. CBM in this area is imbedded in the coal formations at average depths, ranging from 300m to 600m. The block has been in commercial production since 2010.

The block is producing a stable cash flow, which is split in proportion to working interest between GDG (47%) and CNPC (53% - operator) since the completion of CNPC's cost recovery pool in August 2015.

As per the NSAI Reserve Report of 31 December 2016, GCZ Block has original gas in place of 275 Bcf. The Block has 14 Bcf in net 1P gas reserves, 29 Bcf in net 2P gas reserves and 51 Bcf in net 3P gas reserves with future NPV 10 of 116 MM$ in 1P, 232 MM$ in 2P and 376 MM$ in 3P.

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

"This is a significant step forward for GDG and a further realisation of our strategy of progressing our resource base through to long term production.  GCZ ODP, while only 0.44% of our total acreage, fairly represents the profit potential of Green Dragon's asset portfolio.  In this investment, $45.5million was invested between 2009-2016, during which 114 wells were drilled and on commencement of production, the costs were recovered  leading to net cash flow returned as dividends to the parent from October 2015. GDG has been carried for all development capex and cost in relation to GCZ.

"Additionally, I would like to note and welcome the continued and consistent support of the Chinese central government for CBM in China and its plans to aid the coal bed methane industry. I look forward to announcing the progress of GCZ, alongside our partners CNPC and PetroChina, as we implement  the development plan and drive our production growth."

GCZ Block (Shanxi Province) ODP Executive Summary
Contract Area ( km²)	67
Operator	Joint Management Team - CNPC
Partners	GDG (47%) ; CNPC (53%)
OGIP (Bcf)	275
GDG Net 1P Reserves (31 Dec 2016)	14
GDG Net 2P Reserves (31 Dec 2016)	29
GDG Net 3P Reserves (31 Dec 2016)	52
Major Coal Seams	3 ; 15
Drilled Wells Count (as of 31-Mar-2017)	114
Commercial Production Commencement (year)	2010
Cost Recovered	2015
Future Development Wells Count (2017 & 2018)	147
Future Development Start Period	3Q-2017
Gross Estimated Peak Production (Bcf)	5.7
Peak Production (year)	2020
Gross Estimated Cumulative Production (Bcf)	76.8
Gross Estimated Capital (mmUSD)	53.8
Gross Capital Invested (mmUSD, as of end 2016) un-audited	45.5
License Expiry	2033
GSA Long-term (year)	20

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

FTI Consulting

Edward Westropp/Elizabeth Burnham/ Toby Chidavaenzi

Tel: [phone]

Peel Hunt

Richard Crichton / Ross Allister

Tel: [phone]

About Green Dragon Gas Ltd

Green Dragon Gas is a leading independent gas producer with operations in China and is listed on the main market of the London Stock Exchange (LSE: GDG). The Company has 559 Bcf of 2P reserves and 2,386 Bcf of 3P reserves across eight production blocks covering over 7,566 km² of license area in the Shanxi, Jiangxi, Anhui and Guizhou provinces. It holds six Production Sharing Agreements with strong, highly capitalised Chinese partners including CUCBM (CNOOC), CNPC and PetroChina, and has infrastructure in place to support multiple routes to monetize gas production.

This information is provided by RNS

The company news service from the London Stock Exchange

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
NPV 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)

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