Final Results

RNS Number : 9820A

Green Dragon Gas Ltd

10 April 2012

 



10 April 2012

GREEN DRAGON GAS LTD

("Green Dragon" or "the Company")

Annual results for the year ended 31 December 2011

Group Revenue increases 51%, Upstream Gas Production up 27%, 2P Reserves up 18%

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 gas in China, is pleased to announce its audited financial results for the year ended 31 December 2011.

HIGHLIGHTS

Financials

·     Revenue increased 51.2% to US$75.2 million compared with US$49.7 million in 2010

·     Raised US$50 million through an equity placement at a share price of US$14.9

·     Repaid a total of US$37.9 million from Sinoenergy, representing a 13% return (annualised) on an initial capital investment of US$34.7 million

·     Entered 2012 with cash of US$86.3 million

Upstream - Exploration and Production

·     CBM Gas Production

§ Annualizedproduction exit rate for 2011 of 1.68 Bcf, an increase of 27% year-on-year (1.32 Bcf in 2010)

§ Annual production for 2011 of 1.5 Bcf, an increase of 150% (0.6 Bcf in 2010)

§ Annualized production target of 18 Bcf following discretionary US$250 million capex plan

·      Substantial increases in certified reserves and resources:

§ Original total gas in place of 25.5 Tcf

Reserves net to the Company

§ 1P, NPV10 increased by 5% to US$263.4m (43 Bcf)

§ 2P, NPV10 increased by 18% to US$1.8bn (307 Bcf)

§ 3P, NPV10 increased by 2% to US$12.6bn (2,513 Bcf)

·     67 additional wells were drilled in 2011, a year-on-year increase of 131%

§ 53 of the wells were vertical and 14 were completed LiFaBriC wells

§ Drilling was focused in the GSS block at Shizhuang South with 53 wells drilled

§ 5 wells drilled at Guizhou (GGZ), 4 wells drilled at Qinyuan (GQY), 2 wells each drilled at Fencheng (GFC) and Panxie East (GPX) and 1 well at Shizhuang North (GSN) continuing the exploration program

·     A total of 295,289 feet were drilled in 2011, an increase of 185% on 2010

§ 62,096 feet of 'in coal seam' were drilled, an increase of 32% on 2010

§ Longest in seam well was 8,173 feet while the shortest was 833 feet

§ Deepest well drilled was 5,936 feet with a total measured depth of 10,111 feet

Midstream - Transport and Infrastructure

·     Wholesale gas sales of 2.8 Bcf, up 47.4% year on year

·     First commercial gas supply pipeline construction with initial daily transmission capacity of 2.6 Bcf expected to be completed in Q2 2012 to PetroChina

·     First 10 MW per hour power plant constructed and in service, adding the "gas-by-wire" option of gas sales  to the state grid

Downstream - Retail Gas Distribution

·     Beijing Huayou sales increased 16% to 12.2 Bcf in 2011 from 10.5 Bcf in 2010

·     CNG gas sales in retail network increased 273% to 252.9 MMcf from 67.8 MMcf

·     CNG gas at our retail network achieving prices excess of US$16/Mcf

Technology & Manufacturing - SCADA System and CNG Equipment

·     Sales increased to US$2.1 million from US$1.3 million, an increase of 67%

·     A 30kW and 75kW well-head compressor designed and produced to significantly reduce casing pressures resulting in demonstrated increased well head production

·     Touch-screen dispensers with optimised interface designed and delivered to market with favorable feedback

Commenting, Randeep S. Grewal, Chairman and CEO of Green Dragon Gas said:

"2011 was a transitional year with continued growth in each of the Group's businesses, all focusing on achieving the 18 Bcf gas production rate target.

The Company successfully distributed a dividend in specie to its shareholders creating an independent drilling service company - Greka Drilling Ltd ("GDL") with a listing on AIM. GDL continues to specialise in unconventional gas drilling and is growing exponentially while providing the Company with LiFaBriC (Lined Faulted Brittle Coals) wells, as planned. The GDL business, launched in November 2007 by the Company and developed over four years, has achieved a market capitalisation of over US$225 million.

Our upstream business has a dual focus. Transition management teams at our GSS block focus on production with a significant emphasis on gas delivery infrastructure while concurrently maintaining exploration programs at the other five blocks. We expect the exploration programs to yield sufficient results by the end of 2012 to enable another block to move into the production phase as we progress into 2013. GSS, the focused gas production block, remains our primary objective and the organisation is committed to our 18 Bcf target. Upon achieving this target, the forecast cash flow will provide comfortable headroom to support the continued growth objectives of the Company.

The midstream business is focused on developing distribution channels in compressed natural gas ("CNG"), pipeline and power. CNG capacity was enhanced to 3.8 Bcf with compression capacity increasing to 433.8 Mcf per hour. Construction is almost complete of a pipeline to PetroChina facilities, which will provide a sales capacity of up to 2.6 Bcf. Additionally, the division made a significant stride into power generation with the completion of a 10MW power plant. The CBM fueled power plant provides a clear pathway to a "gas-by-wire" market which is being developed concurrently with the other two sales channels enabling the maximization of returns.

The downstream gas retail business was significantly changed with its focus now being on CNG distribution stations in Henan and Shanxi provinces. The 25 retail station development continues with the objective of meeting the upstream gas production capacity. The organisation is pleased with the evolving regulatory requirements of local governments as CNG continues to become the fuel of choice provincially. The government incentivised fuel of choice is providing the Company with a sales channel at prices in excess of US$16/Mcf (current market price) thus justifying the pioneering decision by us three years ago to expand beyond an E&P company into an integrated gas supplier.

The technology and manufacturing business demonstrated its value to the Group with the prompt delivery of well head compressors. The upstream business' demand for reducing the well head casing pressures to produce higher gas flow rates from the wells was met by the design, manufacture and delivery of well head compressors that achieved this objective. The well head compressors are now being further enhanced to meet the pipeline's gas flow delivery objectives into the facilities. This division's capability continues to be a cornerstone to the Group's efficient growth and expansion.

Our three joint ventures continued to expand their gas distribution sales. Beijing Huayou sales grew to 12.0 Bcf and further expanded its sales network to 192 miles of pipeline distribution. It now provides gas to 66,971 households and 28 industrial customers. The Petro-China Hengran companies increased their wholesale CNG sales to 1.9 Bcf and 0.9 Bcf in Zhengzhou and Wuhu respectively.

Following the solid achievements of 2011, in 2012, the Year of the Dragon, the Company ought to move into a new paradigm of operations and cash flow. Our continuous tenure, hands-on knowledge, experience and conviction will combine to move us towards our 18 Bcf production target which is expected to provide sustainable cash flow for the Group's future growth."

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

Stephen Hill, VP Corporate Communications Green Dragon Gas	[phone]
Dr Azhic Basirov / David Jones Smith & Williamson - Nomad and Broker	[phone]
Paul Connolly / Steve Baldwin Macquarie Capital (Europe) - Broker	[phone]
James Henderson / Phillip Dennis Pelham Bell Pottinger - Investor Relations	[phone]

The resource 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 Green Dragon's China resources has been reviewed by Nathan Shahan of Netherland, Sewell & Associates, Inc. He is a registered Professional Engineer in the State of Texas and is a member of the Society of Petroleum Engineers.

Definitions

1P	Proved reserves
2P	Proved plus probable reserves
3P	Proved plus probable plus possible reserves
Bcf	billions of cubic feet
CBM	Coal bed methane
CNG	compressed natural gas
Mcf	thousands of cubic feet
MPa	megapascal
NPV10	net present value calculated using a 10% discount rate
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

CHAIRMAN'S STATEMENT

Introduction

In 2011 - the Year of the Rabbit - we achieved growth in gas distribution capacity and sales and saw material transitions resulting in optimum positioning for the realization of the Group's objectives for the Year of the Dragon, 2012.

The Company provided shareholders with a dividend in specie in March 2011 of its drilling services subsidiary, Greka Drilling Ltd (AIM: GDL); the admission to AIM of Greka Drilling enabled shareholders to maintain, increase or monetise their holdings in that company. Greka Drilling has achieved a market capitalization of over US$225 million and continues its exponential growth within its niche of unconventional gas drilling. The business was launched in November 2007 and developed its drilling methodology over four years, benefitting from the Group's knowledge of Chinese coals. GDL continues to provide LiFaBriC wells to the Company as planned.  This dividend monetised a success and demonstrated the Company's potential within its niche - unconventional gas.

Upstream

Achieving positive cash flow from gas production is our focus. Our self-imposed target annual production rate of 18 Bcf (following a discretionary capital expenditure program of US$250 million) is expected to provide a self-sustaining cash flow net of continued growth capital expenditure. We are currently aiming for this short term target to be met entirely from production at GSS, where we have focused our efforts.

Whilst our previous decade of operations had focused on how to extract gas from severely faulted coal seams, 2011's task was to cope with the varying quantities of gas per well and the various associated pressures as they competed with each other for entry into the compression facility. In simpler words, infrastructure enhancements were developed to overcome the bottlenecks being created by the increasing gas production. A critical component of our solution was well head compression, designed and produced by the Group's Greka Technology and Manufacturing Company (GTM), which was added systematically.

Sufficient drilling was achieved at GSS to re-confirm the production profile from the LiFaBriC wells. On average the well costs are being maintained at US$1.5 million and are expected to yield in excess of 250 Mcfpd. Our first well GSS008 just passed its fourth production anniversary and it is maintaining steady production at the rate of 425 Mcfpd, having produced 0.397 Bcf to the end of the March 2012.

While GSS is the focus for gas production, exploration at the other five blocks continues. The Company drilled 14 wells across the other five exploration blocks. We expect to yield sufficient results from our current exploration programs to enable an additional block to move into the production phase during 2013.

Midstream

Upstream well head gas production increases were temporarily restricted from delivery into the compression facilities at GSS by capacity constraints which, once remedied, will challenge the midstream division to rapidly keep pace with the delivery targets. In preparation the midstream business has focused on developing distribution channels in CNG, pipeline and power.

CNG capacity was enhanced to 3.8 Bcf with increased compression capacity to 433.8 Mcf per hour. Two phase compression was established with the first phase being sufficient to supply the gas pipeline and power plant at 5 MPa, while the second phase provides CNG at 25 MPa. Extensive upgrades to the existing GSS - IPF (integrated production facility) were carried out in the second half of the year to achieve the targeted CNG capacity.

Favorable discussions with PetroChina enabled a committed pipeline connection from the GSS - IPF to their facilities for connection to the West-East Pipeline. Our organisation successfully planned, designed and constructed the pipeline providing a sales capacity of up to 2.6 Bcf. The pipeline has some final minor sections to complete the tie in, test the line and initiate the sales channel which is expected to come on-stream by mid-2012.

Additionally, the division made a significant stride into power generation with the completion of the first 10MW power plant. The CBM fueled power plant provides a clear pathway to a "gas-by-wire" market which is being developed concurrently with the other two sales channels enabling the maximization of returns. The existing completed power plant is sufficient to provide all the Group's needs at GSS through development and we now have the in-house knowledge base to increase capacity at the next IPF which is envisioned to have a two stage development of 50 MW each.

Our two joint-ventures with PetroChina Hengran continued the steady expansion of their wholesale CNG sales with revenue increases in Zhengzhou and Wuhu of 471% and 127% respectively. We expect these entities to maintain their steady sales growth and margins for years to come.

Downstream

The downstream gas retail division was significantly changed with its focus now being on CNG distribution stations in Henan and Shanxi provinces. The 25 retail station development continues with the objective of building sufficient capacity to meet the upstream gas production capacity. Being a little behind schedule in the construction turned out to be a blessing as the rapid truck fleet conversions to LNG may evolve into our stations providing LNG in addition to the CNG originally planned. The organisation is pleased with the evolving regulatory requirements of local governments as CNG continues to become the fuel of choice provincially. The government incentivised fuel of choice is providing the Company with a sales channel at prices in excess of US$16/Mcf (current market price) thus justifying the pioneering decision by us three years ago to expand beyond an E&P company into an integrated gas supplier.

Our joint venture with CNPC continues its steady growth in the important Beijing market. Beijing Huayou (BHY) now has a total of 192 miles of pipeline. BHY's footprint expanded to include an area which is currently designated to include the new Beijing Airport and it continued its expansion in Qihe, Shangdong province. This joint venture is a consistent profit generator and is expected to continue to grow in the years ahead as utilisation increases.

Technology and Manufacturing

The technology and manufacturing business demonstrated its value accretion to the Group with the prompt delivery of well head compressors. The upstream division's demand for reducing well head casing pressures to provide higher gas flow rates from the wells was met by the design, manufacture and delivery of well head compressors that achieved this objective. The well head compressors are now being further enhanced to meet the pipeline's gas flow delivery objectives.

The technology division is a mainstay of our vertically integrated business model. Whilst many Companies correctly are focused on the wage pushed inflation in China, the Group's commitment to our proprietary SCADA system enables us to scale the business efficiently without such material concerns. Our pioneering SCADA system allows the organisation to manage, direct, and monitor remotely all of our operations live 24/7 year round through the Operation Control Centre (OCC). The OCC is the Groups brain centre and has a dedicated Director leading the operations.

This division's capability continues to be a cornerstone to the Group's efficient growth and expansion.

Financials

The year ended well with revenues climbing over 50% year on year. We entered the Year of the Dragon with US$86 million in cash.

Outlook

2012 - The Year of the Dragon or simply the year of the Green Dragon.

Since the first signing of our first contract in 1998 and four more in 2003, the Company has stayed its course to commercialising the lucrative unconventional resource - CBM. Our path to success as a pioneer in commercialising CBM in China has proven to be as unconventional as the resource. Whilst the herd merely chose to follow in the technological footsteps of America and Australia, the Chinese geology did break the resolve of many large international and local E&P companies. Unlike any other, we are the only organisation that has worked each day since inception over a decade ago to solve the complex coal bed geological structures and have demonstrated the solution over the last three years. We have stood firm against head winds which might have derailed us. Our methodical progressive drilling approach has indeed been rewarded with LiFaBriC wells converting commercial volumes of gas into sustainable cash flow. It's time to do more of what's working.

The Group is focused on GSS with 25 drilling rigs from Greka Drilling committed to be drilling by mid-year onwards until the short term gas production target is achieved. I expect our pioneering integrated model economics will be demonstrated over the next 24 months with each of the Group's companies increasing in value.

Our continued expansion has been accomplished through the relentless dedication of a growing employee base which is expected to expand from 411 to 1,200 by the end of 2012. I thank each of the hard working employees whose efforts have enabled our tremendous achievements to date and welcome the new joiners to the team.

I look forward to keeping our fellow shareholders updated on our continued progress.

Randeep S. Grewal

Founder & Chairman

10 April 2012

Consolidated Statement of Comprehensive Income

		Year ended	Year ended
		31 December	31 December
	Notes	2011	2010
		US$'000	US$'000
Continuing operations
Revenue	2	75,201	49,725
Cost of sales		(66,309)	(41,280)
		________	________
Gross profit		8,892	8,445
Selling and distribution costs		(2,473)	(1,450)
Administrative expenses		(25,699)	(13,880)
		________	________
Loss from operations	3(a)	(19,280)	(6,885)
Finance income	4	3,559	488
Finance costs	5	(9,453)	(3,987)
		________	________
Loss before income tax		(25,174)	(10,384)
Income tax (charge)/credit	7	(1,310)	191
		________	________
Loss for the year from continuing operations		(26,484)	(10,193)
Discontinued operations
Loss for the year from discontinued operations	3(b)	(676)	(3,340)
		________	________
Loss for the year		(27,160)	(13,533)
Other comprehensive income:
Exchange differences on translating foreign operations		10,529	(497)
		_______	_______
Total comprehensive loss for the year		(16,631)	(14,030)
Loss attributable to:
- Owners of the company		(27,608)	(13,231)
- Non-controlling interests		448	(302)
		________	________
		(27,160)	(13,533)
		________	________
Total comprehensive loss
attributable to:
- Owners of the company		(17,361)	(13,679)
- Non-controlling interests		730	(351)
		________	________
		(16,631)	(14,030)
		________	________
Basic and diluted loss per share attributable
to owners of the Parent:	8	(0.205)	(0.109)
		________	________
Arising from:
- Continuing operations (US$)		(0.200)	(0.079)
- Discontinued operations (US$)		(0.005)	(0.03)
		________	________

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	As at	As at
	31 December	31 December
	2011	2010
	US$'000	US$'000
Assets
Non-current assets
Property, plant and equipment	61,679	68,399
Gas exploration and appraisal assets	697,582	641,508
Other intangible assets	16,757	19,332
Payments for leasehold land held for own use
under operating leases	559	264
Deferred tax asset	1,949	1,367
Loan receivables	-	15,000
	________	________
	778,526	745,870
	________	________
Current assets
Inventories	1,548	4,795
Trade and other receivables	15,023	19,610
Other financial assets	50,255	44,497
Cash and cash equivalents	86,334	148,317
	________	________
	153,160	217,219
	________	________
Total assets	931,686	963,089
	________	________
Liabilities
Current liabilities
Trade and other payables	25,136	30,695
Loans and borrowings	-	4,051
Current tax liabilities	728	1,131
	________	________
	25,864	35,877
	________	________

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

		As at	As at
		31 December	31 December
		2011	2010
		US$'000	US$'000
Non-current liabilities
Convertible notes		77,559	88,699
Other financial liabilities		13,000	13,000
Deferred tax liability		151,443	151,327
		________	________
		242,002	253,026
		________	________
Total liabilities		267,866	288,903
		________	________
Total net assets		663,820	674,186
		________	________
Capital and reserves
Share capital		14	13
Treasury shares		(427)	-
Share premium		704,344	705,410
Convertible note equity reserve		9,198	10,924
Share based payment reserve		12,743	4,010
Capital and surplus reserve		1,169	895
Other reserve		253	-
Foreign exchange reserve		9,170	(1,077)
Retained deficit		(92,577)	(64,465)
		________	________
Total equity attributable to owners of the Parent		643,887	655,710
Non-controlling interests		19,933	18,476
		________	________
Total equity		663,820	674,186
		________	________

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Share capital		Treasury shares		Share premium		Convertible note equity reserve		Share based payment reserve		Capital and surplus reserve		Other reserve		Foreign exchange reserve		Retained deficit		Equity attributable to owners of the Parent		Non- controlling Interests		Total
		US$'000		US$'000		US$'000		US$'000		US$'000		US$'000		US$'000		US$'000		US$'000		US$'000		US$'000		US$'000
At 1 January 2010		12		-		604,701		-		4,010		570		-		(629)		(50,909)		557,755		18,827		576,582
Loss for the year		-		-		-		-		-		-		-		-		(13,231)		(13,231)		(302)		(13,533)
Exchange differences on translating foreign operations		-		-		-		-		-		-		-		(448)		-		(448)		(49)		(497)
Total comprehensive loss for the year		-		-		-		-		-		-		-		(448)		(13,231)		(13,679)		(351)		(14,030)
Issue of convertible notes		-		-		-		10,924		-		-		-		-		-		10,924		-		10,924
New issue of ordinary shares		1		-		100,213		-		-		-		-		-		-		100,214		-		100,214
Exercise of share options		-		-		496		-		-		-		-		-		-		496		-		496
Transfer to capital reserve		-		-		-		-		-		325		-		-		(325)		-		-		-
At 31 December 2010		13		-		705,410		10,924		4,010		895		-		(1,077)		(64,465)		655,710		18,476		674,186
Loss for the year		-		-		-		-		-		-		-		-		(27,608)		(27,608)		448		(27,160)
Exchange differences on translating foreign operations		-		-		-		-		-		-		-		10,247		-		10,247		282		10,529
Total comprehensive loss for the year		-		-		-		-		-		-		-		10,247		(27,608)		(17,361)		730		(16,631)
Placement of new shares		1		-		49,246		-		-		-		-		-		-		49,247		-		49,247
Issue of new shares upon conversion of convertible notes		-		-		15,788		(1,726)		-		-		-		-		-		14,062		-		14,062
Recognition of equity-settled share-base payment		-		-		-		-		8,733		-		-		-		-		8,733		-		8,733
Exercise of employee share options		-		-		12,695		-		-		-		-		-		-		12,695		-		12,695
Transfer to capital reserve		-		-		-		-		-		375		-		-		(375)		-		-		-
Transfer to other reserve		-		-		-		-		-		-		253		-		(129)		124		-		124
Demerger of Greka   Drilling by way of dividend in specie		-		-		(77,944)		-		-		(101)		-		-		-		(78,045)		727		(77,318)
On cancellation of shares bought back		-		851		(851)		-		-		-		-		-		-		-		-		-
Treasury shares acquired		-		(1,278)		-		-		-		-		-		-		-		(1,278)		-		(1,278)
At 31 December 2011		14		(427)		704,344		9,198		12,743		1,169		253		9,170		(92,577)		643,887		19,933		663,820

CONSOLIDATED STATEMENT OF CASH FLOWS

		Year ended	Year ended
		31 December	31 December
		2011	2010
		US$'000	US$'000
Operating activities
Loss before income tax from continuing operations		(25,174)	(10,384)
Loss before income tax from discontinued operations		(676)	(2,694)
Loss before income tax		(25,850)	(13,078)
Adjustments for:
Depreciation		3,832	5,653
Amortisation of leasehold land held for own use
under operating leases		7	25
Amortisation for intangible assets		2,413	2,479
Share based compensation		8,733	-
Loss on disposal of property, plant and equipment		9	1,345
Change in fair value of financial derivative		-	-
Finance income		(3,559)	(488)
Finance costs		9,492	4,068
Foreign exchange differences		252	(155)
		________	________
Cash flows before changes
in working capital		(4,671)	(151)
Increase in inventory		(1,185)	(2,425)
Decrease/(increase) in trade and other receivables		885	(12,504)
(Decrease)/increase in trade and other payables		(1,876)	13,168
		________	________
Net cash used in operations		(6,847)	(1,912)
Income tax paid		(1,485)	(1,316)
		________	________
Net cash used in operating activities		(8,332)	(3,228)
		________	________
Investing activities
Payments for purchase of property, plant and equipment		(9,874)	(6,967)
Payments for intangible assets		-	(39)
Payments for leasehold land held for own use under
operating leases		(282)	-
Purchase of held-to-maturity investment		(50,255)	(25,007)
Proceeds upon maturity of held-to-maturity investment		25,007	-
Proceeds from sales/(purchase) of financial assets
at fair value through profit and loss		19,490	(19,490)
Loans repaid/(issued)		15,000	(15,000)
Payments for exploration activities		(49,009)	(26,857)
Net proceeds from demerger of Greka Drilling		(56,300)	-
Net cash paid on acquisition of subsidiary company		(4,234)	-
Interest received		3,559	488
		________	________
Net cash from investing activities		(106,898)	(92,872)
		________	________

CONSOLIDATED STATEMENT OF CASH FLOWS

	Year ended	Year ended
	31 December	31 December
	2011	2010
	US$'000	US$'000
Financing activities
Proceeds from the issue of share capital	61,942	100,710
Proceeds from strategic farm-out	-	12,625
Repayment of bank borrowings	(7,146)	(1,542)
Payment of convertible notes	-	96,957
Other interest paid	(6,570)	(1,402)
Proceeds from bank borrowings	4,419	1,473
Purchase of treasury shares	(1,278)	-
	________	________
Net cash from financing activities	51,367	208,821
	________	________
Net (decrease) / increase in cash and
cash equivalents	(63,863)	112,721
Cash and cash equivalents at beginning of year	148,317	38,753
	________	________
	84,454	151,474
Effect of foreign exchange rate changes	1,880	(3,157)
Cash and cash equivalents at end of year	86,334	148,317
	________	________

Abridged notes to the financial information for the year ended 31 December 2011

1        BASIS OF PREPARATION

Green Dragon Gas Ltd. ("the Company") is incorporated in the Cayman Islands. The financial statements have been prepared in accordance with IFRSs as adopted by the European Union, that are effective for accounting periods beginning on or after 1 January 2011.  The principal accounting policies adopted in the preparation of the financial statements are disclosed in the Group's full annual report and accounts for the year ended 31 December 2011.

2        REVENUE AND SEGMENT INFORMATION

The Group has seven reportable segments as set out below.  The operating results of each of these segments are regularly reviewed by the Group's chief operating decision makers in order to make decisions about the allocation of resources and assess their performance.

During the year revenue of US$32,146,000 (2010: US$22,883,000) was recognised by the Pipelined Gas Distribution segment in respect of 2 (2010: 2) customers representing 10% or more of the Group's total revenue for the year.

For the year ended 31 December 2011

								Discontinued
	Continuing operations							operations
	____________________________________________________________________________________________							____________________________________
			Pipelined	Gas	Gas filling
	Sale of	Tran-	gas	stations	equipment
	CBM gas	sportation	distribution	sales	sales	Corporate	Sub-total	Well drilling	Eliminations	Consolidated
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Segment revenue:
Sales to external
customers	-	2,232	54,399	17,065	1,505	-	75,201	-	-	75,201
Inter-segment sales	2,229	1,812	-	-	634	-	4,675	4,872	(9,547)	-
	________	________	________	________	________	________	________	________	________	________
	2,229	4,044	54,399	17,065	2,139	-	79,876	4,872	(9,547)	75,201
	________	________	________	________	________	________	________	________	________	________
Depreciation	41	497	2,779	377	52	86	3,832	-	-	3,832
	________	________	________	________	________	________	________	________	________	________
Amortisation	-	-	4	1,917	494	5	2,420	-	-	2,420
	________	________	________	________	________	________	________	________	________	________
(Loss)/profit from operations	(1,932)	(227)	4,919	496	(85)	(17,301)	(14,130)	(954)	(4,833)	(19,917)
	________	________	________	________	________	________	________	________	________	________
Assets	707,812	11,911	60,627	32,373	7,794	601,369	1,421,886	-	(490,200)	931,686
	________	________	________	________	________	________	________	________	________	________
Liabilities	173,497	945	11,954	1,337	802	398,056	586,591	-	(318,725)	267,866
	________	________	________	________	________	________	________	________	________	________

For the year ended 31 December 2010

								Discontinued
	Continuing operations							operations
	____________________________________________________________________________________________							______________________________________
			Pipelined	Gas	Gas filling
	Sale of	Tran-	gas	stations	equipment
	CBM gas	sportation	distribution	sales	sales	Corporate	Sub-total	Well drilling	Eliminations	Consolidated
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Segment revenue:
Sales to external
customers	-	88	38,304	10,054	1,279	-	49,725	-	-	49,725
Inter-segment sales	474	952	-	-	-	-	1,426	37,436	(38,862)	-
	________	________	________	________	________	________	________	________	________	________
	474	1,040	38,304	10,054	1,279	-	51,151	37,436	(38,862)	49,725
	________	________	________	________	________	________	________	________	________	________
Depreciation	39	211	2,999	207	16	91	3,563	2,090	-	5,653
	________	________	________	________	________	________	________	________	________	________
Amortisation	-	-	3	1,919	494	18	2,434	70	-	2,504
	________	________	________	________	________	________	________	________	________	________
(Loss)/profit from operations	(1,931)	(367)	1,956	(1,014)	(562)	(5,916)	(7,834)	4,775	(6,439)	(9,498)
	________	________	________	________	________	________	________	________	________	________
Assets	650,240	2,609	63,578	19,135	5,281	639,815	1,380,658	25,553	(443,122)	963,089
	________	________	________	________	________	________	________	________	________	________
Liabilities	170,692	1,150	19,770	897	1,114	348,133	541,756	23,036	(275,889)	288,903
	________	________	________	________	________	________	________	________	________	________

3        LOSS FROM OPERATIONS

(a) Loss from operations from continuing operations is stated after charging/(crediting):

	Year ended	Year ended
	31 December	31 December
	2011	2010
	US$'000	US$'000
Staff costs (note 6)	15,081	4,422
Depreciation of property, plant and equipment	3,832	3,563
Operating lease expense (property)	623	533
Amortisation of leasehold land held for own use
under operating leases	7	7
Amortisation of intangible assets	2,413	2,427
Foreign exchange differences	221	368
Transaction costs	4,167	1,508
	________	________

          During the year the Group incurred transaction costs of US$4,167,000 (2010: US$1,508,000) which relate to professional fees incurred in respect of fundraising and refinancing advice.

          (b) Discontinued operations

On 7 March 2011, the shareholders approved the demerger of Well Drilling Group by way of a dividend in specie of entire shares in Greka Drilling to Green Dragon's shareholders.

On the same date, the transactions were completed and the Group retained no interest in Greka Drilling following the demerger. The carrying amounts of assets and liabilities disposed of for Greka Drilling at the date of demerger are disclosed in note 39 to the financial statements.

The Board believes that the demerger of Greka Drilling from the Group will enhance shareholder value in both companies. Greka Drilling's management team will focus on a separate strategy and business development plan from the Group with enhanced growth prospects as an independent company servicing both the Group and third party drilling contracts. The Board also believes that the separate entities will provide shareholders and the investment community with greater clarity resulting in improved access to the capital markets.

The disposal of Greka Drilling constitutes a discontinued operation under IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations" and the revenue, results and cash flows of Greka Drilling aredisclosed as follows

	From	From
	1 January to	1 January to
	7 March	31 December
	2011	2010
	US$'000	US$'000
Revenue	-	-
Expenses	(676)	(2,694)
	________	________
Loss before income tax	(676)	(2,694)
Taxation	-	(646)
	________	________
Loss for the year from discontinued operations	(676)	(3,340)
	________	________
	From	From
	1 January to	1 January to
	7 March	31 December
	2011	2010
	US$'000	US$'000
Operating cash flows	(31,313)	7,511
Investing cash flows	(563)	(3,146)
Financing cash flows	77,190	(46)
	________	________
Net cash flows	45,314	4,319
	________	________

For the purpose of presenting the discontinued operation, the comparative consolidated statement of comprehensive income and the related notes have been re-presented as if the operations discontinued during the year ended 31 December 2010 had been discontinued at the beginning of the comparative period.

4        FINANCE INCOME

	Year ended	Year ended
	31 December	31 December
	2011	2010
	US$'000	US$'000
Continuing operations
Bank interest	1,019	188
Interest income from other loan receivables	2,540	300
	________	________
	3,559	488
	________	________

5        FINANCE COSTS

	Year ended	Year ended
	31 December	31 December
	2011	2010
	US$'000	US$'000
Continuing operations
Interest expense on other loans wholly repayable within five years	84	154
Accretion expense calculated using the effective interest
method	9,369	3,833
	________	________
	9,453	3,987
	________	________

6        STAFF COSTS

	Year ended	Year ended
	31 December	31 December
	2011	2010
	US$'000	US$'000
Continuing operations
Staff costs (including directors' emoluments) comprise:
Wages and salaries	5,966	4,154
Employer's national social security contributions	910	545
Share based payments	8,733	-
Other benefits	1,086	821
	________	________
	16,695	5,520
Less: expenses capitalised as gas exploration and
appraisal assets	(1,614)	(1,098)
	________	________
Total staff costs charged to profit or loss (note 3(a))	15,081	4,422
	________	________

7        TAXATION

	Year ended	Year ended
	31 December	31 December
	2011	2010
	US$'000	US$'000
Continuing operations
Current tax
Charges for current year	1,660	954
Deferred tax
Temporary timing differences	145	(636)
Previously unrecognised deferred tax assets assessed
as recoverable at the end of the year	(495)	(509)
	________	________
Total tax charge/(credit)	1,310	(191)
	________	________

Taxation for the Group's operations in the PRC is provided at the applicable current tax rate of 25% (2010: 25%) on the estimated assessable profits for the year.

8        LOSS PER SHARE

The calculation of the basic and diluted loss per share attributable to owners of the Company is based on the following data:

	Year ended	Year ended
	31 December	31 December
	2011	2010
	US$'000	US$'000
Loss for the year attributable to
owners of the Parent arising from:
- Continuing operations	(26,932)	(9,604)
- Discontinued operations	(676)	(3,627)
	________	________
Loss for the purpose of basic and diluted
loss per share	(27,608)	(13,231)
	________	________

Loss per share is based on the loss attributable to owners of the Parent of US$27,608,000 (2010: US$13,231,000) and the weighted average of 134,556,389 ordinary shares in issue (31 December 2010:  121,048,178) during the year.

	Year ended	Year ended
	31 December	31 December
	2011	2010
	US$	US$
Basic and diluted loss per share	(0.205)	(0.109)
- Continuing operations	(0.200)	(0.079)
- Discontinued operations	(0.005)	(0.030)
	________	________

Due to the loss arising in the group during all periods presented the diluted loss per share is considered to be the same as the basic loss per share 145,320,361 potential ordinary shares (31 December 2010: 122,855,245) have therefore been excluded from the above calculations.

9        DIVIDENDS

          During the year the Company paid a dividend in specie of three shares in Greka Drilling Limited for every ordinary share (2010: Nil).

10      CONTINGENT LIABILITIES

During the year ended 31 December 2009 the Group entered into a joint venture arrangement with ConocoPhillips China Inc ("COPC").  Under the terms of the farm-out agreement, COPC made an initial payment of US$20 million to the Group towards exploration costs incurred to date and would also fund up to a total of US$30 million of the future surface-to-inseam wells at the Shizhuang South, Shizhuang North and Qinyuan PSCs. COPC could elect to continue with a second phase of development and pay US$120 million to acquire 50% of Group's interest in these three Chinese Coal Bed Methane PSCs.

In the event that COPC elected not to proceed with the farm-out, all funds invested by COPC accrued to the benefit the Group.

On 8 November 2010 the Group terminated the farm-out agreement as COPC had not made the required payments under the funding arrangements. COPC have made total payments of $42.6m to the Group since inception of the agreement and have demanded full reimbursement of this amount. After taking legal advice the Board have refuted this claim and are strongly of the opinion that no amounts are repayable under the terms of the farm-out agreement. In the event of a dispute the agreement is subject to arbitration. The Board welcomes an arbitration hearing and is confident of a positive outcome for the Group.

The Directors' current treatment of the $12.6m (2010: $30m) that has been received from COPC during the year is to allocate the amount against additions to the Gas exploration cost pool.

11      EVENTS AFTER THE REPORTING DATE

There were no significant events that happened after 31 December 2011 up to the date of approval of the financial statements.

12      PUBLICATION OF NON-STATUTORY ACCOUNTS

The financial information for the years ended 31 December 2011 and 31 December 2010 set out in this announcement does not constitute the Group's statutory financial information but is extracted from the Company's audited financial statements for those years. The auditors have reported on the full accounts for both periods and their reports were unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports.

13      ANNUAL REPORT

The Company's Annual Report and copies of this announcement will be available in due course on the Company's website at www.greendragongas.com and from the office of the Company's nominated adviser, Smith & Williamson Corporate Finance Limited at 25 Moorgate, London EC2R 6AY, United Kingdom.

 

END

 

 

FR SSAFIUFESEIL