Half Yearly Report

RNS Number : 9397R

Green Dragon Gas Ltd

01 September 2010

 



1 SEPTEMBER 2010

GREEN DRAGON GAS LTD

("Green Dragon Gas" or "the Company")

Interim results to 30 June 2010

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 interim results for the six months ended 30 June 2010.

HIGHLIGHTS

Financials:

·    Revenues increased 15% to US$21.5 million in 2010 over same period in 2009.

·    Gross profit increased by 44%.

·    Loss for the period reduced by 20%.

·    Loss per share reduced by 35%.

·    Current assets of US$92.3 million with US$77.6 million in cash.

·    Total Equity of US$576.2 million.

·    US$8 million received from ConocoPhillips farm out agreement for work program activity in Shanxi blocks, as per the farm in agreement announced last year.

·    Raised US$50 million through a Convertible Bond issue to GLG Partners LLP. The bond is convertible into the equity at a price of US$9.10 per share.

Upstream - Coal Bed Methane:

·    CBM gas production in line with targets set for exit 2010 of 1 Bcf.

·    CBM gas production (unrestricted) from GSS block increased to 2.3 MMCFPD.

·    Gas in place of 25.5 Tcf, 3P of 2.3 Tcf with a net PV10 of US$9.3 billion.

·    Across all blocks, 7 vertical and 6 SIS wells drilled.

·    GSS Block drilling continued with 44,068 feet (12,507 meters) drilled in 4 vertical and 4 SIS wells. A record 40% was drilled in seam.

·    GSS Integrated Production Facilities (IPF) upgrade completed, increasing capacity to 3.8 MMCFPD (108,000 cubic meters), a 200% increase.

Midstream Wholesale Gas:

·    Gas sales increased 4.28% to 1.2 Bcf for the six month period.

·    Environmentally progressive and profitable CNG wholesale transport fleet of five fueled by CBM from GSS block.

Downstream Sales of Gas:

·    Gas sales increased to 5.17 Bcf representing a 7% increase over period.

·    One CNG retail station added in Beijing with a daily capacity of 1.7 MMCFPD.

Technology and Manufacturing:

·    PetroChina significantly increased its purchases of our proprietary CNG dispensers. An order of 140 units was received in period as compared to 39 in the entire previous year.

·    First third party order for proprietary SCADA received.

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

"Green Dragon Gas continued its organic growth in the first half of the year with each of the four divisions making solid progress and importantly with CBM gas production increasing in line with the aggressive growth targets set for the end of this year. As each division develops we are increasingly seeing the real benefits of a vertically integrated business. Each division continues to work with its partners, such as PetroChina and CNPC Kunlun, and each partnership in one segment is yielding synergies for the other segments."

"Success in drilling and the results from the SIS wells in the GSS block has defined the standard operating procedure and is now the typical gas extraction process used. GSS  has entered the manufacturing and production phase over exploration. We expect a continuous drilling program with significantly more rigs drilling in GSS next year to conclude this field's development. We expect GSS development to be completed within five years and continue producing gas for at least 20 years and thereafter."

"Our joint-ventures in gas distribution also continued their profitable growth. This growth ought to be further enhanced by favorable pricing policies released by the government recently, with gas sales prices at CNG stations in Henan Province increasing to US$15 per Mcf. Notwithstanding inflation, the group's strategy of being vertically integrated with significant in-house capability provides a relatively stable cost structure whereby the benefits of such price increases should be accretive to earnings in the future on a consolidated basis."

"Finally, our strong balance sheet gives us the capability to be opportunistic in capturing synergistic distribution capabilities to achieve another of our year end objectives of an additional 20 CNG retail distribution stations within the GSS block trucking radius."

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

Stephen Hill Green Dragon Gas	[phone]
Dr Azhic Basirov / David Jones Nomad & Broker, Smith & Williamson	[phone]
Robert Collins, Tim Redfern Broker, Evolution Securities	[phone]
Judith Rawnsley CLSA	[phone]
James Henderson, Phillip Dennis Investor Relations, Pelham Bell Pottinger	[phone]

The information contained in this announcement has been reviewed by Elton Dong, Chief Engineer and Vice General Manager Production, Bachelor of Science at Xi'an Petroleum Institute.

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 GSS	compressed natural gas Shizhuang South
Mcf MMCFPD MW	thousands of cubic feet Millions of Cubic Feet Per Day Megawatts
NPV 10	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
SIS	surface-to-inseam
Tcf SCADA	trillions of cubic feet Supervisory Control and Data Acquisition

CHAIRMAN'S STATEMENT

China continued its thirst for energy resources globally with an increased focus on domestic supplies of gas. Any remote possibilities of reducing energy dependency from overseas must entail a material increase in domestic gas production with significant production of CBM among other unconventional resources. Green Dragon Gas, alongside a handful of large enterprises, plays an integral part in increasing domestic gas supplies. As a significant foreign partner to the Chinese government we are committed to being part of that solution.  

Green Dragon Gas' progress in the first half of 2010 was in line with expectations and objectives established for the year. Each of the segments demonstrated organic growth in the first half with each of the four divisions making progress within their operating segments. Our exclusive China gas industry focused vertical integration strategy showed early signs of synergies across segments, with the operating partner in one segment reaching out to conduct business with other segments and their respective partnership.

The two year anniversary of our drilling division was complemented by continued successful drilling in the GSS block. GSS008, our first SIS well in the field, has been online for 833 days and produced a total of 141,600 Mcf (5 million cubic meters) through June 2010 and continues to produce gas at a stable rate. Similar successes from an additional 11 SIS wells drilled have enabled the block to proceed into a production phase.

Our joint-ventures in gas distribution continue to grow profitably. This growth ought to be further fueled by favorable pricing policies announced recently by the government recently, with gas sales prices at CNG stations in Henan Province increasing to US$15 from US$13 per Mcf. Notwithstanding inflation, the group's strategy of being vertically integrated with significant in-house capability provides a relatively stable cost structure whereby the benefits of such price increases should be accretive to earnings in the future on a consolidated basis."

Upstream - CBM Production

Green Dragon Gas' first half focus was on the GSS block, where the Company successfully drilled 4 vertical wells and 5 SIS wells. In preparation of the forecast production increases the GSS integrated production facility (IPF), which includes the gas gathering, pipeline and related infrastructure, was upgraded and the processing capacity increased to 3.8 MMCFPD (108,000 cubic meters) in compression and generates 2.8 MW. This expansion meets our production target of 1 Bcf for the year. The IPF will further be enhanced by a pipeline connection. The Company plans to build an additional IPF next year to meet the increased production target of 18 Bcf and beyond.

Further development drilling proceeded in each of the other five blocks, with the technology and experience gained during the development phase of GSS being systematically applied in the other blocks. While the other blocks are behind GSS in development, we expect a quicker pace in the development to the production phase. With the foundations now largely in place, we expect to see rapid growth in the Company's upstream CBM gas production this year and in proceeding years.

We expect further growth in the year end independent reserve report as a result of the successful drilling in GSS. The 2009 year end reserve and resource report by Netherland Sewell & Associates, Inc, indicated total gas in place of 25.5 Tcf with a 3P NPV10 valuation of  US$9.35 billion, representing less than 10% of the Gross Gas in place. GSS accounted for a net 3P of 1.08 Tcf with a NPV 10 of US$ 4.3 billion of its 3.4 Tcf of total gas in place.

Midstream - Wholesale Gas Distribution

The Company's midstream operation expanded during the first half of the year with the addition of the first fleet of five CNG wholesale transport vehicles. Maintaining our environmentally progressive objectives concurrent with achieving economic returns, the fleet is uniquely fueled by the Company's CBM. The test fleet met the performance standards and will be continuously expanded concurrent with the GSS block gas supplies.

The two commercial CNG distribution stations performed as expected and continued sales at the allocated and budgeted capacities. We expect this business to continue to pay dividends to the group as it has done since its inception two years ago.

Downstream - Retail Gas Sales

The pipeline gas distribution joint-venture, located around Beijing's outer ring road, continued to grow with a 7% increase over the same period last year to 5.17 Bcf. However, gas shortages continued to dampen the pipeline sales ultimate potential with the largest power plant customer being restricted to expand onto an additional phase which could materially increase the gas sales.  

Green Dragon Gas has plans to gain access to an additional 20 retail stations this year in accordance with its target. These stations will be located in Henan Province, China's most populous province with over 100 million people.

Technology and Manufacturing

PetroChina significantly increased its purchases of our proprietary CNG dispensers. An order of 140 units was received in the period as compared to 39 unit sales in the entire previous year, reflecting the China wide roll out of CNG stations nationally. Increasing and repeat orders from one of the largest operators in the world is reflective of the quality of the product and service the division is delivering. We expect the division to continue to be one of the key proprietary equipment manufacturers within the CNG market.

The division's proprietary SCADA system developed to automate, manage, enhance safety vigilance and efficiency is being pursued by third parties. The first such system was ordered by a major gas transmission pipeline customer.

Financials

Revenues increased by 15% from the comparative period of 2009 to US$21.5m. This increase was in accordance with expectations and continues to demonstrate the organic growth potential within the group. We expect such growth to continue with 2011 being able to record a significant contribution from upstream gas production.

The Company successfully placed US$50 million convertible unsecured debt with GLP Partners LLP and its co-investors. The debt is convertible at US$9.10 per share, a 56% premium to the prevailing share price as at the placing date, reflecting investor confidence and Green Dragon Gas' determination to dilute at accretive values to our existing shareholders.

Green Dragon Gas continues to be well positioned financially, with cash on hand and strong partnership funding for operations, no secured debt and growing gas sales. We concluded the period with a strong balance sheet, which provided us the capability to be opportunistic in capturing synergistic distribution capabilities to achieve our year-end objectives of 20 additional CNG retail distribution stations.

Outlook

In the year of the Tiger (2010), the Company remains on track to achieve the aggressive targets set and, with the foundations now largely in place for CBM gas production growth, we can expect to see this division of the business, in particular, develop real momentum  in the years ahead. The Company's significant organic growth will be complemented by niche acquisitive growth opportunities.

I would like to thank my fellow shareholders and partners for their continued support, as well as our dedicated employees, whose relentless hard work enables Green Dragon Gas to continue its growth story in the world's largest growing economy.

Randeep S. Grewal

Founder & Chairman

1 September 2010

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2010

		Six months	Six months	Year ended
		ended 30	ended 30	31 December
		June 2010	June 2009	2009
	Notes	US$'000	US$'000 (restated)	US$'000
		unaudited	unaudited	audited
Revenue	3	21,463	18,723	46,906
Cost of sales		(17,692)	(16,102)	(37,059)
Gross profit		3,771	2,621	9,847
Selling and distribution costs		(614)	(862)	(1,461)
Depreciation and amortisation		(4,493)	(3,745)	(8,453)
Other administrative expenses		(4,540)	(3,597)	(10,029)
Total Administrative expenses		(9,033)	(7,342)	(18,482)
Loss from operations		(5,876)	(5,583)	(10,096)
Finance income	4	89	1,524	1,556
Finance costs		(507)	(3,944)	(20,292)
Loss before income tax		(6,294)	(8,003)	(28,832)
Income tax	5	25	170	(1,011)
Loss for the period		(6,269)	(7,833)	(29,843)
Other comprehensive income
Exchange differences arising on
translation of foreign operations		595	(320)	(114)
Total comprehensive income
for the period		(5,674)	(8,153)	(29,957)
Loss for the period attributable to:
Equity holders of the parent		(5,467)	(7,419)	(30,015)
Non-controlling interests		(802)	(414)	172
		(6,269)	(7,833)	(29,843)
Total comprehensive income
attributable to:
Equity holders of the parent		(5,185)	(7,873)	(30,096)
Non-controlling interests		(489)	(280)	139
		(5,674)	(8,153)	(29,957)
Basic and diluted
Loss per share attributable to
equity holders of the parent (US$)	6	(0.045)	(0.069)	(0.276)

Condensed Consolidated Statement of Financial Position

At 30 June 2010

				As at
		As at	As at	31 December
		30 June 2010	30 June 2009	2009
	Notes	US$'000	US$'000 (restated)	US$'000
		unaudited	unaudited	Audited
Assets
Non-current assets
Property, plant and equipment	8	65,446	70,129	67,622
Gas exploration and appraisal assets		628,524	646,634	625,244
Other intangible assets		20,915	22,774	21,743
Payment for lease hold land held
for own use under operating leases		327	301	282
Deferred tax asset		914	752	828
		716,126	740,590	715,719
Current assets
Inventories		4,622	3,514	2,370
Trade and other receivables	9	10,099	5,590	7,107
Cash and cash equivalents		77,566	8,698	38,753
		92,287	17,802	48,230
Total Assets		808,413	758,392	763,949
Liabilities
Current Liabilities
Trade and other payables	10	20,672	22,292		17,527
Loans and borrowings Convertible notes		4,064 -	- 11,324		4,054 -
Current tax liabilities		519	676		847
		25,255	34,292		22,428
Non-current liabilities
Convertible notes	11	43,371	38,789		-
Deferred tax liability		150,608	151,100		151,939
Other financial liability	12	13,000	13,000		13,000
		206,979	202,889		164,939
Total liabilities		232,234	237,181		187,367
Total net assets		576,179	521,211		576,582
Capital and reserves
Share capital	13	12	11		12
Share premium	13	604,701	529,702		604,701
Convertible note equity reserve	13	5,271	15,333		-
Share based payments reserve	13	4,010	1,835		4,010
Capital reserve	13	570	94		570
Foreign exchange reserve	13	(347)	(1,002)		(629)
Retained deficit	13	(56,376)	(43,170)		(50,909)
Total equity attributable
to equity holders of the Parent		557,841	502,803		557,755
Non-controlling interests		18,338	18,408		18,827
Total Equity		576,179	521,211		576,582

Condensed Consolidated Statement of Changes in Equity

Six month ended 30 June 2010

								Equity
								attributable
			Convertible	Share based		Foreign		to equity
	Share	Share	note equity	payment	Capital	exchange	Retained	holders of	Minority
	capital	premium	reserve	reserve	reserve	reserve	deficit	the Company	interests	Total
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
At 1 January 2009 (restated)	11	520,076	15,333	1,835	84	(548)	(35,741)	501,050	18,688	519,738
Total comprehensive income for the period	-	-	-	-	-	(454)	(7,419)	(7,873)	(280)	(8,153)
Right issue of new shares	-	9,626	-	-	-	-	-	9,626	-	9,626
Transfer  to capital reserve	-	-	-	-	10	-	(10)	-	-	-
At 30 June 2009	11	529,702	15,333	1,835	94	(1,002)	(43,170)	502,803	18,408	521,211
Total comprehensive income for the period	-	-	-	-	-	373	(22,596)	(22,223)	419	(21,804)
Transfer of Reserve upon Repayment of Convertible notes	-	-	(15,333)	-	-	-	15,333	-	-	-
New issue of ordinary shares	1	74,999	-	-	-	-	-	75,000	-	75,000
Share-based payments	-	-	-	2,175	-	-	-	2,175	-	2,175
Transfer to capital reserve	-	-	-	-	476	-	(476)	-	-	-
At 31 December 2009	12	604,701	-	4,010	570	(629)	(50,909)	557,755	18,827	576,582
Total comprehensive income for the period	-	-	-	-	-	282	(5,467)	(5,185)	(489)	(5,674)
Issue of US$50 million convertible notes	-	-	5,271	-	-	-	-	5,271	-	5,271
At 30 June 2010 (unaudited)	12	604,701	5,271	4,010	570	(347)	(56,376)	557,841	18,338	576,179

Condensed Consolidated Statement of Cash Flows

Six months ended 30 June 2010

		Six months	Six months	Year ended
		ended 30	Ended 30	31 December
		June 2010	June 2009	2009
		US$'000	US$'000	US$'000
	Notes	unaudited	(restated) unaudited	audited
Operating activities
Loss before income tax		(6,294)	(8,003)	(28,832)
Adjustments for:
Depreciation		3,275	2,508	5,955
Amortisation of leasehold land held
for own use under operating leases		14	12	26
Amortisation for intangible assets		1,204	1,225	2,472
Share based compensation		-	-	2,175
Gain on disposal of property, plant and equipment		-	-	(47)
Change in fair value of financial derivative		-	(1,500)	(1,500)
Finance income		(89)	(24)	(56)
Finance costs		507	3,944	20,292
Foreign exchange differences		-	(320)	18
Cash flows before changes in working capital		(1,383)	(2,158)	503
Increase in inventory		(2,252)	(1,136)	8
Decrease in trade and other receivables		(2,993)	(2,722)	(3,596)
Increase/(decrease) in trade and other Payables		1,500	55	(2,198)
Net cash used in operations		(5,128)	(5,961)	(5,283)
Income tax paid		(1,720)	(709)	(956)
Net cash used in operating activities		(6,848)	(6,670)	(6,239)
Investing activities
Interest received		89	24	56
Payments for exploration activities		(11,367)	(3,031)	(11,554)
Purchases of property
plant and equipment		(1,098)	(586)	(2,291)
Payments for leasehold land held
for own use under operating leases		(59)	(80)	(72)
Payments for intangible assets Proceeds from disposal of property,   plant and equipment		(376) -	- -	(27) 397
Net cash used in investing activities		(12,811)	(3,673)	(13,491)
Financing activities
Proceeds from bank borrowings		10	-	1,542
Proceeds from issue of share capital		-	9,626	84,626
Proceeds from issue of convertible notes	11	50,000	-	-
Repayment of convertible notes
and related interest		-	(2,590)	(69,861)
Other interest paid Proceeds from strategic farm-out		(220) 8,087	(825) -	(343) 30,000
Net cash from financing activities		57,877	6,211	45,964
Net increase/(decrease) in
cash and cash equivalents		38,218	(4,132)	26,234
Cash and cash equivalents
at beginning of period		38,753	12,830	12,830
Effect of foreign exchange rate changes		595	-	(311)
Cash and cash equivalents at the end of period		77,566	8,698	38,753

Notes to Condensed Interim Financial Statements

1    GENERAL INFORMATION

The condensed financial information for the six months ended 30 June 2010 and 30 June 2009 is unaudited and unreviewed and does not constitute statutory financial statements. The consolidated unaudited interim financial information set out in this report is based on the consolidated financial statements of Green Dragon Gas Ltd. and its subsidiary companies (together referred to as the 'Group'). The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2009, which have been prepared in accordance with IFRSs as adopted by the European Union. The comparative financial information for the full year ended 31 December 2009 is not the Group's full annual accounts for that period but has been derived from the annual financial statements for that period.  The auditors' report on those accounts was unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report.

2    ACCOUNTING POLICIES

The condensed set of financial statements has been prepared in accordance with IAS 34, "Interim Financial Reporting". These accounts have been prepared in accordance with the accounting policies that are expected to be applied in the Report and Accounts of Green Dragon Gas Ltd. for the year ending 31 December 2010 and are consistent with International Financial Reporting Standards adopted for use in the European Union. The annual financial statements of Green Dragon Gas Ltd. are prepared in accordance with IFRSs as adopted by the European Union.

Basis of preparation

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly condensed financial statements.

The financial statements are presented in United States Dollars and all values are rounded to the nearest thousand dollars ($'000) except when otherwise indicated.

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an invested entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Prior period restatement

As noted in the 2009 Annual Report, in accordance with IFRS 2 'Share Based Payments', the Group has restated the share based payment charge in prior periods to recognise a charge over the vesting period from the date of award of the relevant tranche of allocated shares.  This change has no effect on the reported consolidated net assets but results in a reduction of the reported Loss for the period to 30 June 2009, a decrease in the reported share based payment reserve at 30 June 2009 and an increase in the consolidated retained earnings of US$7,238,000 at 30 June 2009.

(i) New and amended standards adopted by the Group. The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010.

IFRS 3 (revised), 'Business combinations', and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates', and IAS 31, 'Interests in joint ventures', are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. During the period, there have been no transactions whereby an interest in an entity is retained after the loss of control of that entity; there have been no transactions with non-controlling interests.

(ii) Standards, amendments and interpretations to existing standards effective in 2010 but not relevant to the Group:

IFRIC 17, 'Distributions of non-cash assets to owners', effective for annual periods beginning on or after 1 July 2009. This is not currently applicable to the Group, as it has not made any non-cash distributions.

IFRIC 18, 'Transfers of assets from customers', effective for transfer of assets received on or after 1 July 2009. This is not relevant to the Group, as it has not received any assets from customers. 

'Additional exemptions for first-time adopters' (Amendment to IFRS 1) were issued in July 2009. The amendments can be applied for annual periods beginning on or after 1 January 2010. This is not relevant to the Group, as it is an existing IFRS preparer.

3    REVENUE AND SEGMENTAL INFORMATION

For the six months ended 30 June 2010

The Group has six 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 period revenue of US$16,265,000 (30 June 2009 - US$14,383,000) was recognised by the Pipelined Gas Distribution segment in respect of customers representing 10% or more of the Group's total revenue for the period.

					Gas filling
	Sales of	Well	Pipelined gas	Gas station	equipment
	CBM gas	Drilling	distribution	sales	sales	Corporate	Eliminations	Consolidated
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited
Segment revenue
Sale to external customers	-	-	16,265	4,738	460	-	-	21,463
Inter-segment sales	117	13,343	-	-	-	-	(13,460)	-
	117	13,343	16,265	4,738	460	-	(13,460)	21,463
Depreciation and amortisation	5	1,175	1,955	1,304	8	46	-	4,493
Profit/(Loss) from operations	(329)	(1,848)	1,051	1,024	(96)	(6,588)	910	(5,876)
Assets	637,905	28,826	20,051	4,707	1,162	335,451	(219,688)	808,414
Liabilities	161,442	19,119	14,737	1,962	824	186,680	(152,530)	232,234

For the six months ended 30 June 2009

					Gas filling
	Sales of	Well	Pipelined gas	Gas station	equipment
	CBM gas	Drilling	distribution	sales	sales	Corporate	Eliminations	Consolidated
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited
Segment revenue
Sale to external customers	75	-	14,383	3,961	304	-	-	18,723
Inter-segment sales	-	3,687	-	-	-	-	(3,687)	-
	75	3,687	14,383	3,961	304	-	(3,687)	18,723
Depreciation and amortisation	8	939	1,465	1,320	9	4	-	3,745
Profit/(Loss) from operations	(262)	(1,421)	715	795	(189)	(5,221)	-	(5,583)
Assets	650,519	34,304	55,550	4,320	1,063	297,041	(284,405)	758,392
Liabilities	210,041	10,674	12,825	2,300	722	201,744	(201,125)	237,181

For the year ended 31 December 2009

					Gas filling
	Sales of	Well	Pipelined gas	Gas station	equipment
	CBM gas	Drilling	distribution	sales	sales	Corporate	Eliminations	Consolidated
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	audited	audited	audited	audited	audited	unaudited	unaudited	audited
Segment revenue
Sale to external customers	2	-	36,693	8,362	1,849	-	-	46,906
Inter-segment sales	228	14,337	-	-	-	-	(14,565)	-
	230	14,337	36,693	8,362	1,849	-	(14,565)	46,906
Depreciation and amortisation	44	1,894	3,780	2,087	511	137	-	8,453
Profit/(Loss) from operations	(616)	(1,792)	2,938	(291)	(552)	(8,776)	(1,007)	(10,096)
Assets	688,151	47,924	59,017	25,236	6,137	314,264	(376,780)	763,949
Liabilities	173,497	11,191	6,408	6,492	1,914	166,593	(178,728)	187,367

4    FINANCE INCOME

Finance income for the period included a credit of change in fair value of derivative financial liability of Nil. (30 June 2009 - US$1,500,000, 31 December 2009 finance expenses of US$1,500,000).

5    TAX

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

6    LOSS PER SHARE

	Six months	Six months	Year ended
	ended 30	ended 30	31 December
	June 2010	June 2009	2009
	US$'000	US$'000 Restated	US$'000
	unaudited	unaudited	audited
Earnings for the purpose of
basic Loss per Share	(5,467)	(7,419)	(30,015)
Weighted average number of
ordinary shares	120,512,336	107,616,285	108,857,034

Loss per share is based on the loss attributable to ordinary equity holders of the Company of divided by the weighted average of ordinary shares in issue during the corresponding period.

Due to the loss arising during the periods the diluted loss per share is considered to be the same as the basic loss per share. 7,404,505 potential ordinary shares (30 June 2009 - 7,976,000 shares, 31 December 2009 - 1,910,000 shares) have therefore been excluded from the above calculations.

7    DIVIDEND

The directors do not recommend the payment of an interim dividend (2009: Nil).

8    PROPERTY, PLANT AND EQUIPMENT

During the period, the Group incurred approximately US$1,098,000 on additions to plant and equipment (30 June 2009 - US$586,000, 31 December 2009 - US$2,291,000).

9    TRADE AND OTHER RECEIVABLES

				As at
		As at	As at	31 December
		30 June 2010	30 June 2009	2009
		US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Trade receivables		4,038	3,815	3,883
Other receivables		6,061	1,775	3,125
Amount due from related parties		-	-	99
		10,099	5,590	7,107

10 TRADE AND OTHER PAYABLES

				As at
		As at	As at	31 December
		30 June 2010	30 June 2009	2009
		US$'000	US$'000	US$'000
		Unaudited	unaudited	Audited
Trade payables		6,221	5,896	6,984
Other payables		12,347	13,168	10,543
Amounts due to related parties		2,104	3,228	-
		20,672	22,292	17,527

11 CONVERTIBLE NOTE

On 7 June 2010 ("Issue Date"), the Company issued a five year convertible note having a face value of US$50,000,000 with a maturity date of 7 June 2015 ("Maturity Date"). The note bears interest at 7% per annum, payable on a semiannual in arrear basis on 31 March and 30 September. At the Maturity Date, the total sum of 100% of the outstanding principal amount of the convertible note and the accrued interest shall become payable, unless previously converted or redeemed in accordance with the following conditions.

The convertible note can be converted into ordinary shares of the Company at the noteholder's option at any time from 19 July 2010 to the seven days prior to the Maturity Date at US$9.10 per share.

At any time on or after third anniversary of the Issue Date, the Company will have the right at its option, to repurchase all but not some of the convertible note at 100% of its principal amount, together with accrued but unpaid interest.

On the third anniversary of the Issue Date, the noteholder will have the right at its option, to require the Company to redeem all or some of the convertible note at 100% of its principal amount, together with accrued but unpaid interest.

On initial recognition, the fair value of the liability component of this instrument has been determined using the prevailing market interest rate of similar debts without conversion option and early redemption options. The rates considered to be comparable were 10%. The fair value of the liability components of the convertible note as at 30 June 2010 amounted to approximately US$43,371,000. The equity element arising from the conversion options of the convertible note, being the residual value at initial recognition, is presented in equity heading "convertible note equity reserve", as disclosed in note 13 to the financial statements.

Transaction costs amounted to approximately US$1,645,000 incurred in relation to the issue of this convertible note. They are allocated to the liability component, equity element and the derivative financial instruments in proportion to the allocation of proceeds. The amount attributable to the liability component, approximately US$1,466,000, is amortised to the consolidated income statement over the period of the convertible notes and is carried in the consolidated statement of financial position net of the balance of the convertible note under non current liabilities. The amortisation is included in finance costs. An amount of approximately US$179,000 is attributable to the equity element is charged to equity directly.

12 OTHER FINANCIAL LIABILITY

The amount payable represents amount payable to China United Coalbed Methane Co., Ltd., which is a party to the production sharing contracts, in relation to exploration costs incurred on the properties. These amounts are only payable from revenue on production from the Shizhuang South Property.

13 SHARE CAPITAL AND RESERVES

	Authorised		Issued and fully paid
	Number		Number
	of shares	US$	of shares	US$
At 1 January 2009
Ordinary shares of
US$0.0001 each	500,000,000	50,000	105,896,445	10,589
Right issue of 2,615,891 shares
at US$3.68 on 4 March 2010	-	-	2,615,891	262
At 30 June 2009
Ordinary shares of
US$0.0001 each	500,000,000	50,000	108,512,336	10,851
Placement of 12,000,000 shares
on 7 December 2009	-	-	12,000,000	1,200
At 31 Dec 2009
Ordinary shares of
US$0.0001 each	500,000,000	50,000	120,512,336	12,051
At 30 June 2010 Ordinary shares of   US$0.0001 each	500,000,000	50,000	120,512,336	12,051

Nature and purposes of reserves

(i)    Share premium

The amount relates to subscription for or issue of shares in excess of nominal value. The application of the share premium account is governed by the Companies Law of the Cayman Islands. The articles of association of the Company prohibit distribution to equity holders of the Company through the share premium.

(ii)   Convertible note equity reserve

The amount represents the value of the unexercised equity component of the convertible note issued by the Company recognised in accordance with the Group's accounting policy.

(iii)  Share based payment reserve

The amount relates to the fair value of the share options that have been expensed through the income instatement less amounts, if any, that have been transferred to the retained earnings/deficit upon exercise.

(iv)  Capital reserve

The amount represents the Group's share of subsidiaries and JCEs statutory capital reserve. PRC rules and regulations require that 10 per cent of profits in each period be reserved for future capital expenditure. The amount is non-distributable.

(v)   Foreign exchange reserve

The amount represents gains/losses arising from the translation of the financial statements of foreign operation the functional currency of which is different from the presentation currency of the Group. The reserve is dealt with in accordance with the accounting policy set out in note 2 to these financial statements.

(vi)  Retained deficit

The amount represents cumulative net gains and losses recognised in consolidated profit or loss less any amounts reflected directly in other reserves.

14 EVENTS AFTER REPORTING DATE

There were no significant events that happened after 30 June 2010 up to the date of approval of these condensed financial statements.

15 RELATED PARTY TRANSACTIONS

Saved as disclosed in note 9 and 10, there were no other related party transactions that are required to be disclosed. Transactions between the company and its subsidiary undertakings, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

16 CONTINGENT LIABILITIES

In 2009 the Group entered into a joint venture arrangement with ConocoPhillips China Inc ("COPC"). Under the terms of the farm-out agreement, COPC has made an initial payment of $20 million to the Group towards exploration costs incurred to date and will also fund up to a total of $30 million of the future surface-to-inseam wells at the Shizhuang South, Shizhuang North and Qinyuan PSCs. COPC can elect to continue with a second phase of development and pay $120 million to acquire 50% of Group's interest in these three Chinese Coal Bed Methane PSCs. In the event that COPC elects not to proceed with the farm-out, all funds invested by COPC will accrue to the benefit the Group. Upon COPC's decision to continue with acquiring 50% of the Group's interest in the three PSCs, the agreement (which will require approval from the Chinese authorities) provides for further payments of up to US$120 million, including carrying some of the Group's future obligations under the PSCs. The agreement is subject to certain regulatory approvals which need to be met in accordance with the agreed time period. The current treatment of the $38 million that has been received from COPC up to 30 June 2010 is to allocate it against the Gas exploration cost pool. Approximately $2.2 million will become payable to the financial institution, who provided services in relation to this transaction, upon the successful exercise of the option by COPC to continue with the second phase of development.

Saved as disclosed above, the Group had no other significant contingent liabilities as at 30 June 2010 (30 June 2009 - Nil).

 

END

 

 

IR UGUUGBUPUUAG