Final Results

RNS Number : 6190G

Green Dragon Gas Ltd

10 June 2013

 



10 June 2013

GREEN DRAGON GAS LTD

("Green Dragon" or "the Company")

Annual results for the year ended 31 December 2012

Upstream Gas Production up 23%, Year End Reserves: 1P US$324m, 2P US$1.8b, 3P US$12.7b

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 2012.

HIGHLIGHTS

Financials

·     Revenue of  US$74.1 million compared with US$75.2 million in 2011

·     Entered 2013 with cash of US$40 million

Upstream - Exploration and Production

·     CBM Gas Production

§ Annualized production exit rate for 2012 of 2.6 Bcf, an increase of 55% year-on-year (1.7 Bcf in 2011)

§ Annual production for 2012 of 1.78 Bcf, an increase of 23% (1.45 Bcf in 2011)

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

·      Substantial increases in certified reserves and resources:

§ Original total gas in place of 25.2 Tcf

Reserves net to the Company

§ 1P, NPV10 increased by 23% to US$324m (59 Bcf)

§ 2P, NPV10 increased by 1% to US$1.82b (313 Bcf)

§ 3P, NPV10 increased by 0.5% to US$12.68b (2,508 Bcf)

·     90 additional wells were drilled in 2012, a year-on-year increase of 34%

§ 55 of the wells were vertical, 4 were directional and 31 were completed LiFaBriC wells

§ Drilling was focused in the main on  GSS PSC with 81 wells in 2012

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

·     A total of 464,968 feet were drilled in 2012, an increase of 57% on 2011

§ 94,184 feet of 'in coal seam' were drilled, an increase of 51% on 2011

§ Longest in seam well was 7,052 feet while the shortest was 518 feet

§ Deepest well drilled was 5,937 feet with a total measured depth of 10,113 feet

Midstream - Transport and Infrastructure

·     Wholesale gas sales of 2.54 Bcf, a decline of 8.8% year on year

·     First commercial gas supply pipeline construction with initial daily transmission capacity of 2.6 Bcf completed in Q3 2012 to PetroChina

Downstream - Retail Gas Distribution

·         Beijing Huayou sales increased 4% to 12.6 Bcf in 2012 from 12.2 Bcf in 2011

·         CNG gas sales in retail network increased 29% to 327 MMcf from 253 MMcf

·         CNG gas at GDG’s retail network achieving prices excess of US$16/Mcf

Technology & Manufacturing - SCADA System and CNG Equipment

·     Sales increased to US$2.6 million from US$2.1 million, an increase of 23%

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

"The rationale for our strategic plan to focus on upstream exploration and production (E&P) is clearly demonstrated by the performance of our first LiFaBriC well. This well was drilled on 20 March 2008 (GSS008) and by the close of 2012 had produced  526MMcf of gas. At contracted prices this well had yielded a financial return of US$5.6m. Against its initial cost of US$1.5m, the IRR on the well has been an impressive 69%. The returns are increasing exponentially as the high valued gas is sold consistently with insignificant production costs. We have demonstrated the repeatability of such LiFaBriC wells and thus are firmly focused on the drilling program with our 18 Bcf production target.

In 2012, the technology and manufacturing business demonstrated its value to the Green Dragon Group via the prompt delivery of well head compressors. The upstream business' demand for reducing the wellhead casing pressures to produce higher gas flow rates from the wells was met by the design, manufacture and delivery of wellhead compressors that achieved this objective. The wellhead 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. This niche business will be distributed to our shareholders through a dividend in specie shortly.

Our three joint ventures continued to expand their gas distribution sales. Beijing Huayou sales grew to 12.6 Bcf. It now provides gas to 75,529 households and 28 industrial businesses and 56 heating customers. The Petro-China Hengran companies increased their wholesale CNG sales to 2 Bcf and 0.54 Bcf in Zhengzhou and Wuhu respectively.

The post balance sheet transaction of the sale of non-core assets announced in June 2013 further focused the efforts of the management team to deliver the results of 18 Bcf annualized exit rate in 2014. In essence the business is now entirely focused on producing the IRR's of 70% or more from our wells as has already been demonstrated."

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]
Steve Baldwin / Nicholas Harland Macquarie Capital (Europe) - Broker	[phone]
Richard Crichton / Andy Crossley Peel Hunt - 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
MMcf	Millions of cubic feet
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

The year of the dragon was a year of two halves. In the first half, the drilling contractor Greka Drilling Limited was receiving its newly specked rig fleet and training its staff to be able to execute the drilling program as required. The ability to drill required trained hands and as such in the second half activity was able to steadily increase. The resultant increase in the number of wells drilled by year end was impressive with production results exceeding a forecasts to reach 2.6 Bcf annually as we moved into 2013, a very respectable increase of 55% year on year.

Upstream

We continued to confirm the cost of drilling LiFaBriC wells at US$1.5m per well and the repeatability of the output per in seam meter. The E&P team is appropriately distributed between Development and Exploration. Our GSS team continues to be focused on developing and completing the 200 well LiFaBriC program to achieve its 18 Bcf per annum target by year end 2014. While the Exploration team's focus is to continue to migrate the vast resources within the other five blocks into reserves through an orderly program of certification.

Midstream

At GSS, a major component of our 2012 midstream business was the completion of the pipeline connection to PetroChina under a 20 year gas sales agreement. Test sales by year end achieved total sales of 153 MMcf. We are now capable of delivering 6.5 Bcf/year of gas through that connection. 

Our two joint-ventures with PetroChina Hengran continued the steady expansion of their wholesale CNG sales with volume achieved 2.54 Bcf in Zhengzhou and Wuhu.

Downstream

The 25 retail station development continued with the objective of building sufficient capacity to meet the upstream gas production capacity. We added two completed stations by year end 2012. The organisation is pleased with the evolving regulatory requirements of local governments as CNG continues to become the fuel of choice provincially.

Our joint venture with PetroChina continued its steady growth in the important Beijing market. 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, Shandong province. It also expanded its footprint in the North of Beijing.

Technology and Manufacturing

The technology and manufacturing business demonstrated its value accretion to the Group with the prompt delivery of wellhead 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 wellhead compressors that achieved this objective. The well head compressors are now being further enhanced to meet the pipeline's gas flow delivery objectives. Our pioneering SCADA system allows the organization to manage, direct, and monitor remotely all of our operations live 24/7 year round through the Operation Control Centre (OCC).

Financials

The year ended well with revenues relatively flat year on year. We entered the Year of the Snake with US$40 million in cash.

Outlook

2013 - The Year of the Snake

I am very pleased to report our successful execution of the strategic plan objectives as we go into 2013. We had three specific options in achieving this objective; the board's decision was on taking the path of expediency and certainty. This decision resulted in picking the option to conclude this transaction as a package allowing for the immediate focus on monetizing our vast audited CBM reserves as the core value of the Company. We have transformed the Company into a focused E&P growth business, paid off the maturing convertible bonds and accreted drilling capital to continue the drilling of additional LiFaBriC wells in our GSS gas production block. Additionally, the sale monetized a 15% IRR since inception on the investment in our wholesale gas businesses.

We look forward to providing the second dividend in specie to our shareholders. Greka Engineering and Technology (GET) dividend is planned for completion in the third quarter following the shareholder approval. GET, quite similar to the GDL dividend in specie will provide the shareholders with an option to monetize some of their investments in the Company or participate in an exponentially growing energy service sector within China.

Following the above two corporate transactions, we once again moved towards becoming an   exclusively Upstream company which is now focused on drilling LiFaBriC wells in GSS and the exploration programs with LiFaBriC applications within  our other five large CBM blocks. The business is now focused on one specific objective without any technology risks or capital dilution to ancillary businesses.

While we acquired the GSS block in April 2003, operations were handed to us in November 2003, seven months later. Under our PSC's, this leaves us another 20 years under the current agreements for gas production. In consideration of the long reserve life of each LiFaBriC well, we are eager to drill as quickly as we can across all six blocks for maximum gas production within this period.

Our continued expansion has been accomplished through the relentless dedication of a growing employee base. 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

Consolidated Statement of Comprehensive Income 

	Notes	Year ended 31 December 2012 US$'000	Year ended 31 December 2011 US$'000
Continuing operations
Revenue	2	74,069	75,201
Cost of sales		(65,141)	(66,309)
		________	________
Gross profit		8,928	8,892
Selling and distribution costs		(3,295)	(2,473)
Other administrative expenses		(17,455)	(16,966)
Share-based payments		-	(8,733)
Total administrative expenses		(17,455)	(25,699)
		________	________
Loss from operations	3	(11,822)	(19,280)
Finance income	4	1,452	3,559
Finance costs	5	(8,094)	(9,453)
		________	________
Loss before income tax		(18,464)	(25,174)
Income tax charge	7	(958)	(1,310)
		________	________
Loss for the year from continuing operations		(19,422)	(26,484)
Discontinued operations
Loss for the year from discontinued operations	3	-	(676)
		________	________
Loss for the year		(19,422)	(27,160)
Other comprehensive income, net of tax:
- Exchange differences on translating foreign operations		2,594	10,529
		_______	_______
Total comprehensive loss for the year		(16,828)	(16,631)
		________	________
Loss attributable to:
- Owners of the company		(20,649)	(27,608)
- Non-controlling interests		1,227	448
		________	________
		(19,422)	(27,160)
		________	________
Total comprehensive loss
attributable to:
- Owners of the company		(18,055)	(17,361)
- Non-controlling interests		1,227	730
		________	________
		(16,828)	(16,631)
		________	________
Basic and diluted loss per share attributable
to owners of the Parent:	8	(0.151)	(0.205)
		________	________
Arising from:
- Continuing operations (US$)		(0.151)	(0.2)
- Discontinued operations (US$)		-	(0.005)
		________	________

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	As at	As at
	31-Dec	31-Dec
	2012	2011
	US$'000	US$'000
Assets
Non-current assets
Property, plant and equipment	47,373	61,679
Gas exploration and appraisal assets	767,641	697,582
Other intangible assets	14,343	16,757
Payments for leasehold land held for own use
under operating leases	719	559
Deferred tax asset	1,999	1,949
	________	________
	832,075	778,526
	________	________
Current assets
Inventories	3,956	1,548
Trade and other receivables	21,011	15,023
Other financial assets	-	50,255
Cash and cash equivalents	39,971	86,334
	________	________
	64,938	153,160
	________	________
Total assets	897,013	931,686
	________	________
Liabilities
Current liabilities
Convertible notes	79,751	-
Trade and other payables	27,712	25,136
Current tax liabilities	344	728
	________	________
	107,807	25,864
	________	________

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	As at	As at
	31-Dec	31-Dec
	2012	2011
	US$'000	US$'000
Non-current liabilities
Convertible notes	-	77,559
Other financial liabilities	13,000	13,000
Deferred tax liability	150,356	151,443
	________	________
	163,356	242,002
	________	________
Total liabilities	271,163	267,866
	________	________
Total net assets	625,850	663,820
	________	________
Capital and reserves
Share capital	14	14
Treasury shares	-	-427
Share premium	703,917	704,344
Convertible note equity reserve	9,198	9,198
Share based payment reserve	12,743	12,743
Capital and surplus reserve	1,325	1,169
Other reserve	391	253
Foreign exchange reserve	11,755	9,170
Retained deficit	(113,511)	(92,577)
	________	________
Total equity attributable to owners of the Parent	625,832	643,887
Non-controlling interests	18	19,933
	________	________
Total equity	625,850	663,820
	________	________

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 2011	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
Loss for the year	-	-	-	-	-	16	-	-	(20,665)	(20,649)	1,227	(19,422)
Exchange differences on translating foreign operations	-	-	-	-	-	(129)	138	2,585	-	2,594	-	2,594
Total comprehensive loss for the year	-	-	-	-	-	(113)	138	2,585	(20,665)	(18,055)	1,227	(16,828)
Elimination on disposal on dilution of stake in joint venture	-	-	-	-	-	-	-	-	-	-	(21,142)	(21,142)
Transfer to capital reserve	-	-	-	-	-	269	-	-	(269)	-	-	-
On cancellation of shares bought back	-	427	(427)	-	-	-	-	-	-	-	-	-
At 31 December 2012	14	-	703,917	9,198	12,743	1,325	391	11,755	(113,511)	625,832	18	625,850

CONSOLIDATED STATEMENT OF CASH FLOWS

	Year ended	Year ended
	31-Dec	31-Dec
	2012	2011
	US$'000	US$'000
Operating activities
Loss before income tax from continuing operations	(18,464)	(25,174)
Loss before income tax from discontinued operations	-	(676)
	________	________
Loss before income tax	(18,464)	(25,850)
Adjustments for:
Depreciation	3,508	3,832
Amortisation of leasehold land held for own use
under operating leases	76	7
Amortisation for intangible assets	2,408	2,413
Share based compensation	-	8,733
Loss on disposal of property, plant and equipment	71	9
Finance income	(1,452)	(3,559)
Finance costs	8,094	9,492
Foreign exchange differences	-	252
	________	________
Cash flows before changes in working capital	(5,759)	(4,671)
Increase in inventory	(1,420)	(1,185)
Decrease in trade and other receivables	4,904	885
Decrease in trade and other payables	(3,534)	(1,876)
	________	________
Net cash used in operations	(5,809)	(6,847)
Income tax paid	(1,772)	(1,485)
	________	________
Net cash used in operating activities	(7,581)	(8,332)
	________	________
Investing activities
Payments for purchase of property, plant and equipment	(8,820)	(9,874)
Prepayments for purchase of property, plant and equipment	(7,740)	-
Payments for leasehold land held for own use under
operating leases	-387	-282
Purchase of held-to-maturity investment	-	(50,255)
Proceeds upon maturity of held-to-maturity investment	50,255	25,007
Proceeds from sales/(purchase) of financial assets
at fair value through profit and loss	-	19,490
Loans repaid/(issued)	-	15,000
Payments for exploration activities	(70,011)	(49,009)
Net proceeds from demerger of Greka Drilling	-	(56,300)
Net cash paid on acquisition of subsidiary company	-	(4,234)
Interest received	1,452	3,559
	________	________
Net cash used in investing activities	(35,251)	(106,898)
	________	________

CONSOLIDATED STATEMENT OF CASH FLOWS

	Year ended	Year ended
	31-Dec	31-Dec
	2012	2011
	US$'000	US$'000
Financing activities
Proceeds from the issue of share capital	-	61,942
Repayment of bank borrowings	-	(7,146)
Other interest paid	(5,902)	(6,570)
Proceeds from bank borrowings	-	4,419
Purchase of treasury shares	-	(1,278)
	________	________
Net cash from financing activities	(5,902)	51,367
	________	________
Net decrease in cash and cash equivalents	(48,734)	(63,863)
Cash and cash equivalents at beginning of year	86,334	148,317
	________	________
	37,600	84,454
Effect of foreign exchange rate changes	2,371	1,880
	________	________
Cash and cash equivalents at end of year	39,971	86,334
	________	________

Abridged notes to the financial information for the year ended 31 December 2012

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 2012.  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 2012.

2        REVENUE AND SEGMENT INFORMATION

The Group has six (2011: 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$19,487,000 (2011: US$32,146,000) was recognised by the Pipelined Gas Distribution segment in respect of 2 (2011: 2) customers representing 10% or more of the Group's total revenue for the year.

For the year ended 31 December 2012

								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	-	29	54,108	18,423	1,509	-	74,069	-	-	74,069
Inter-segment sales	4,721	3,380	-	1,020	1,106	-	10,227	-	(10,227)	-
	________	________	________	________	________	________	________	________	________	________
	4,721	3,409	54,108	19,443	2,615	-	84,296	-	(10,227)	74,069
	________	________	________	________	________	________	________	________	________	________
Depreciation	15	750	1,802	692	171	78	3,508	-	-	3,508
	________	________	________	________	________	________	________	________	________	________
Amortisation	-	-	6	2,478	-	-	2,484	-	-	2,484
	________	________	________	________	________	________	________	________	________	________
(Loss)/profit from operations	(1,432)	(744)	5,093	(2,091)	(168)	(8,650)	(7,992)	-	(3,830)	(11,822)
	________	________	________	________	________	________	________	________	________	________
Assets	799,488	24,343	39,780	32,883	4,713	652,032	1,553,239	-	-656,226	897,013
	________	________	________	________	________	________	________	________	________	________
Liabilities	164,439	20,838	9,138	23,795	1,509	524,550	744,269	-	(473,106)	271,163
	________	________	________	________	________	________	________	________	________	________

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)	(637)	(4,833)	(19,280)
	________	________	________	________	________	________	________	________	________	________
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
	________	________	________	________	________	________	________	________	________	________

3        LOSS FROM OPERATIONS

Loss from operations from continuing operations is stated after charging:

	Year ended	Year ended
	31-Dec	31-Dec
	2012	2011
	US$'000	US$'000
Auditors' remuneration:
Fees payable to the Company's auditors for the audit of the annual financial statements	200	150
Fees payable to the Company's auditors for the review of the interim results	10	5
Fees payable to the Company's auditors for other services	-	200
Staff costs (note 6)	6,593	15,081
Depreciation of property, plant and equipment	3,508	3,832
Operating lease expense (property)	1,387	623
Amortisation of leasehold land held for own use
under operating leases	75	7
Amortisation of intangible assets	2,408	2,413
Foreign exchange loss, net	959	221
Transaction costs	3,369	4,167
	________	________

During the year the Group incurred transaction costs of US$3,369,000 (2011: US$4,167,000) which relate to professional fees incurred in respect of fundraising and refinancing advice.

4              FINANCE INCOME

	Year ended	Year ended
	31-Dec	31-Dec
	2012	2011
	US$'000	US$'000
Continuing operations
Bank interest	1,452	1,019
Interest income from other loan receivables	-	2,540
	________	________
	1,452	3,559
	________	________

5        FINANCE COSTS

	Year ended	Year ended
	31-Dec	31-Dec
	2012	2011
	US$'000	US$'000
Continuing operations
Interest expense on other loans wholly repayable within five years	8,094	9,453
	________	________
	8,094	9,453
	________	________

6        STAFF COSTS

	Year ended	Year ended
	31-Dec	31-Dec
	2012	2011
	US$'000	US$'000
Continuing operations
Staff costs (including directors' emoluments) comprise:
Wages and salaries	6,243	5,966
Employer's national social security contributions	1,193	910
Share based payments	-	8,733
Other benefits	1,303	1,086
	________	________
	8,739	16,695
Less: expenses capitalised as gas exploration and
appraisal assets	(2,146)	(1,614)
	________	________
Total staff costs charged to profit or loss (note 3)	6,593	15,081
	________	________

7        TAXATION

	Year ended	Year ended
	31-Dec	31-Dec
	2012	2011
	US$'000	US$'000
Continuing operations
Current tax - PRC Enterprise Tax
Charges for current year	1,656	1,660
Deferred tax
Temporary timing differences	(637)	145
Previously unrecognised deferred tax assets assessed
as recoverable at the end of the year	(61)	(495)
	________	________
Total tax charge	958	1,310
	________	________

Taxation for the Group's operations in the PRC is provided at the applicable current tax rate of 25% (2011: 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-Dec	31-Dec
	2012	2011
	US$'000	US$'000
Loss for the year attributable to
owners of the Parent arising from:
- Continuing operations	(20,649)	(26,932)
- Discontinued operations	-	(676)
	________	________
Loss for the purpose of basic and diluted
loss per share	(20,649)	(27,608)
	________	________

Loss per share is based on the loss attributable to owners of the Parent of US$20,649,000 (2011: US$27,608,000) and the weighted average of 136,540,711 ordinary shares in issue (31 December 2011: 134,556,389ordinary shares) during the year.

	Year ended	Year ended
	31-Dec	31-Dec
	2012	2011
	US$	US$
Basic and diluted loss per share	(0.151)	(0.205)
- Continuing operations	(0.151)	(0.2)
- Discontinued operations	-	(0.005)
	________	________

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 145,320,361potential ordinary shares (31 December 2011: 145,320,361) have therefore been excluded from the above calculations.

9        DIVIDENDS

No dividends were paid during the year (2011: the Company paid a dividend in specie of three shares in Greka Drilling Limited for every ordinary share).

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 subsequently elect to continue with a second phase of development and pay US$76m (as well as contingent milestones bonuses of up to US$44m) to acquire 50% of the 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 of the Group.

On 1 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 US$42.6m to the Group since inception of the agreement and have demanded full reimbursement of this amount. After taking legal advice the Board has refuted this claim and are strongly of the opinion that no amounts are repayable under the terms of the farm-out agreement. The Group has also counter-claimed for the amount outstanding under the farm-out agreement. Arbitration proceedings are currently underway between the Group and COPC. After arbitration proceedings had been commenced, COPC brought a claim for lost profits, which contravenes the farm-out agreement, in addition to its claim for reimbursement. This damages claim would have to be assessed by the arbitral tribunal if COPC is able to establish liability. The Board is of the view that the Group has strong arguments on liability as well as on the damages claim and is confident of a positive outcome for the Group.

The Directors' current treatment of the total of US$42.6m that has been received from COPC is to allocate the amount against additions to the Gas exploration cost pool.

Saved as disclosed above, the Group had no other significant contingent liabilities as at 31 December 2012.

11      EVENTS AFTER THE REPORTING DATE

On 3 June 2013, the Company entered into a sale and purchase agreement for the sale of the Company's 29.11% effective interest in Beijing Huayou United Gas Development Co., Ltd ("BHY") and its 100% interest in Giant Power International Investment Limited ("GPI") which included the Company's interests in the wholesale gas distribution pipeline network in the Beijing Development Area and the wholesale gas stations in Zhengzhou and Wuhu, for a cash consideration of US$65 million.

The Company acquired BHY in 2007 for US$27.1 million and GPI in 2008 for US$10.8 million; these investments had book values of US$30.6 million and US$8.9 million respectively at 31 December 2012. The consideration for the sale of BHY and GPI represents a 65% premium to the book value of the investment with an IRR of 15% on the investment since inception. In the year ended 31 December 2012, BHY generated profit before tax of US$10.5 million on turnover of US$109.5 million and GPI generated a loss of US$61,000 on turnover of US$10.3 million.

On the same day, the Company raised US$35 million through the issuance of a secured bond. The Bond carries a 7% coupon, payable semi-annually, and has a final maturity date of 3 December 2014. The Bond is secured, unsubordinated and non-convertible.

In connection with the Bond, the Company has also issued 13,756,000 warrants to subscribe for new ordinary shares in the Company. The Warrants are exercisable at an exercise price of 197.216 pence per ordinary share and are exercisable at any time up to and including the date of maturity of the Bond.  

12      PUBLICATION OF NON-STATUTORY ACCOUNTS

The financial information for the years ended 31 December 2012 and 31 December 2011 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

 

 

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