Half Yearly Report

RNS Number : 5224L

Green Dragon Gas Ltd

05 September 2012

 



5 September 2012

GREEN DRAGON GAS LTD

("Green Dragon" or "the Company")

Interim results for the six months ended 30 June 2012 - Retail gas sales increase 12%

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 wholesale gas in China, is pleased to announce its unaudited interim results for the six months ended 30 June 2012.

FINANCIAL HIGHLIGHTS

§ Cash of US$69.9 million (US$86.3 million at 31 December 2011)

§ Capital expenditure increased to US$34.3 million (US$19.9 million in H1 2011)

§ Decrease in revenue of 1% to US$35.7 million (US$36.2 million in H1 2011) due to a large BHY (Beijing Huayou) customer temporarily closing a power facility for an upgrade

§ Retail gas sales increase 12% to US$8.6 million (US$7.7 million in H1 2011)

§ Reduced net loss from continuing operations of US$10.5 million (US$14.2 million in H1 2011); no share-based payment expenses incurred for the period (US$8.7 million in H1 2011)

§ Reduced loss per share of US$ 0.08 (US$0.11 in H1 2011)

OPERATIONAL HIGHLIGHTS

Upstream - Gas Production:

§ Total gas production at the GSS Production Block was 832.4 MMcf in the first 6 months of 2012 a 31% increase year-on-year (635.2 MMcf in H1 2011)

§ 34 additional wells drilled across all 6 blocks in H1 2012

§ 34,805 meters drilled at the GSS Production Block in H1 2012 (9,452 meters in H1 2011)

§ 15,325 meters were drilled in the exploration blocks meeting the minimum Capex requirements under all of the 6 PSCs (Production Sharing Contracts)

§ 50,131 total meters drilled in H1 2012, a 74% increase on H1 2011

§ 8,789 in-seam meters drilled in H1 2012, an 11% increase on H1 2011

§ 10 MW Power plant facility with Caterpillar engines completed and on-line

Midstream Wholesale Gas:

§ Gas sales volume through the distribution stations in ZPH (Zhengzhou Petro-China Hengran) and APH (Anhui Petro-China Hengran) increased 1.0% from 1.38 Bcf in H1 2011 to 1.39 Bcf in H1 2012

§ 9.4 km pipeline installed and completed to PetroChina Huabei from the GSS Production Block.

Downstream:

§ Gas sales volume at BHY (Beijing Huayou) decreased to 6.3 Bcf in H1 2012 from 6.57 Bcf in H1 2011 representing a 4% decrease over the same period last year due to a large BHY customer temporarily closing a power facility for an upgrade which is now back on line

§ In Beijing, BHY added an additional 12km of pipeline in H1 2012, bringing the total to 321km

§ Sales volume through the Company's retail stations increased from 95.8 MMcf in H1 2011 to 151.1 MMcf in H1 2012, an increase of 58% over the period

§ Industrial customers sales volume through Greka Gas Distribution increased from 166.5 MMcf in H1 2011 to 177.0 MMcf in H1 2012, an increase of 6% year-on-year

§ 3 additional retail stations are nearing completion; planning consents for a further 11 are approved and 9 have received partial applications and approvals

Technology and Manufacturing:

§ 2 well-head compressors were added onto GSS production wells, bringing the total to 11 

§ 5 additional SCADA systems were installed to the wells in GSS during the first half of 2012 bringing the total to 17, with 19 under construction

OUTLOOK

§ GSS gas production to 18 Bcf per year

§ Increase retail sales of GSS gas production

§ Evaluate a debt facility to continue Capex program into 2013

§ Achieving EBITDA breakeven

§ Expand third party customer base for Technology and Manufacturing Division

§ Selecting the next block to move in to commercial gas production

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

"The first half of this year was spent on materially increasing the drilling activity within the GSS Production Block and related planned infra-structure enhancements. The building blocks continue to fall into place for us to achieve our 18 Bcf production target at the end of our capex program from this block in southern Shanxi province."

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 Smith &Williamson - Nomad & Broker	[phone]
Paul Connolly / John Dwyer / Steve Baldwin Macquarie Capital (Europe) - Broker	[phone]
Richard Crichton / Andy Crossley Peel Hunt - Broker	[phone]
James Henderson / Phillip Dennis Pelham Bell Pottinger - Investor Relations	[phone]
Robyn Joseph Kreab Gavin Anderson - Public Relations	[phone]

Note

Mcf means thousands of cubic feet; MMcf means millions of cubic feet; Bcf means billions of cubic feet.

CHAIRMAN'S STATEMENT

The first half of this year was spent on materially increasing the drilling activity within the GSS Production Block and related planned infra-structure enhancements. The building blocks continue to fall into place for us to achieve our 18 Bcf production target at the end of our capex program from this block in southern Shanxi province. This half year witnessed the finalization of the installation of the 10 MW Caterpillar Power Plant and the pipeline completion from the GSS production facility to the PetroChina Huabei facility connecting onto the West East Pipeline infrastructure.

The Company is focused on moving GSS gas production through the Integrated Production Facility and on to our wholly owned retail stations. This is a vital part of demonstrating our vertically integrated model, and proving our ability to sell our in-house produced gas at market prices which continue to hold at US$16.2 per Mcf (RMB 3.55 per cubic meter).

The Company continued its transition from being an E (explorer) to a P (production) and thereafter S (gas sales) within the GSS Production Block. This EPS objective has driven the management team to be infra-structure focused.

This is an era of building infra-structure. The increasing GSS gas production is being complemented by gas gathering system enhancements so as to enable increased gas sales into the Company's retail gas sales network. The CNG station capacity expansion continues in preparation to distribute up to 50% of the targeted 18 Bcf.

In my view, our ability to meet our corporate targets and to monetize our production is within reach. It is worth noting that the target of 18 Bcf can be achieved from a little over 200 LiFaBriC wells and hence this is an achievable ask. We will continue to surround GSS with infra-structure enhancements and retail outlets to monetize the production growth in a timely fashion.

In Beijing, our jointly controlled entity Beijing Huayou saw a revenue decline due to a large customer closing a power facility for an upgrade. We are already seeing a return of that customer back to historical volumes and expect BHY to continue to grow revenues year-on-year.

The planned growth has kept us busy in the first half of the year and I expect that to be the same in the latter half. Our 18 Bcf objective focused organization is committed to achieving this goal. Once achieved, it provides the Company a sustainable growth trajectory with the continued conversion of the other blocks into commercial production from internally generated cash flow. I look forward to keeping you updated of our continued progress.

Randeep S. Grewal

Founder & Chairman

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2012

		Six months  ended 30 June 2012	Six months  ended 30 June 2011	Year ended  31 December  2011
	Notes	US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Continuing operations
Revenue	3	35,667	36,162	75,201
Cost of sales		(30,849)	(30,846)	(66,309)
Gross profit		4,818	5,316	8,892
Selling and distribution costs		(1,215)	(717)	(2,473)
Administrative expenses	4	(10,403)	(16,559)	(25,699)
Loss from operations		(6,800)	(11,960)	(19,280)
Finance income		850	3,044	3,559
Finance costs		(3,997)	(4,065)	(9,453)
Loss before income tax		(9,947)	(12,981)	(25,174)
Income tax (charge)/credit	5	(532)	(513)	(1,310)
Loss for the period from continuing operations		(10,479)	(13,494)	(26,484)
Discontinued operations
Loss for the period from   discontinued operations		-	(676)	(676)
Loss for the period		(10,479)	(14,170)	(27,160)
Other comprehensive income/(loss)
Exchange differences arising on   translation of foreign operations		(527)	2,652	10,529
Total comprehensive loss for the period		(11,006)	(11,518)	(16,631)
Loss for the period attributable to:
Owners of the company		(10,718)	(14,598)	(27,608)
Non-controlling interests		239	428	448
		(10,479)	(14,170)	(27,160)
Total comprehensive loss
attributable to:
Owners of the company		(10,918)	(12,085)	(17,361)
Non-controlling interests		(88)	567	730
		(11,006)	(11,518)	(16,631)
Basic and diluted loss per share arising from attributable to owners of the Parent (US$)	6	(0.080)	(0.110)	(0.205)
From continuing operations (US$)		(0.080)	(0.105)	(0.200)
From discontinued operations (US$)		-	(0.005)	(0.005)

Condensed Consolidated Statement of Financial Position

At 30 June 2012

		As at  30 June 2012	As at  30 June 2011	As at 31 December 2011
	Notes	US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Assets
Non-current assets
Property, plant and equipment	8	60,450	54,646	61,679
Gas exploration and appraisal assets		731,876	664,196	697,582
Other intangible assets		15,728	17,966	16,757
Payment for leasehold land held for   own use under operating leases		463	842	559
Deferred tax asset		2,014	1,651	1,949
Loan receivables	9	12,500	-	-
		823,031	739,301	778,526
Current assets
Inventories		6,561	1,419	1,548
Trade and other receivables	10	24,033	31,315	15,023
Other financial assets		10,033	25,096	50,255
Cash and cash equivalents		69,855	156,772	86,334
		110,481	214,602	153,160
Total assets		933,513	953,903	931,686
Liabilities
Current liabilities
Trade and other payables	11	37,853	37,814	25,136
Loans and borrowings		-	6,064	-
Current tax liabilities		404	434	728
		38,257	44,312	25,864
Non-current liabilities
Convertible notes		78,606	75,050	77,559
Other financial liabilities	12	13,000	13,000	13,000
Deferred tax liability		151,134	151,454	151,443
		242,740	239,504	242,002
Total liabilities		280,997	283,816	267,866
Net Assets		652,516	670,087	663,820

		As at  30 June 2012	As at  30 June 2011	As at 31 December 2011
	Notes	US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Capital and reserves
Share capital	13	14	14	14
Treasury shares	13	-	-	(427)
Share premium	13	703,917	705,195	704,344
Convertible note equity reserve	13	9,198	9,198	9,198
Share based payments reserve	13	12,743	12,743	12,743
Capital and surplus reserve	13	805	820	1,169
Other reserve		295	-	253
Foreign exchange reserve	13	8,672	1,436	9,170
Retained deficit	13	(102,973)	(79,089)	(92,577)
Total equity attributable to   equity holders of the Parent		632,671	650,317	643,887
Non-controlling interests		19,845	19,770	19,933
Total Equity		652,516	670,087	663,820

Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2012

	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 equity holders of the Company	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
Total comprehensive   income for the Period								2,513	(14,598)	(12,085)	567	(11,518)
Placement of new shares	1		49,246	-	-	-	-	-	-	49,247	-	49,247
Issue of  new shares by   conversion of   convertible note	-		15,788	(1,726)	-	-	-	-	-	14,062	-	14,062
Share-based payments	-		-	-	8,733	-	-	-	-	8,733	-	8,733
Exercise of employee   share options	-		12,695	-	-	-	-	-	-	12,695	-	12,695
Transfer to   capital reserve	-		-	-	-	26	-	-	(26)	-	-	-
Demerger of well drilling   services by means of   dividend	-		(77,944)	-	-	(101)	-	-	-	(78,045)	727	(77,318)
At 30 June 2011	14		705,195	9,198	12,743	820	-	1,436	(79,089)	650,317	19,770	670,087

Total comprehensive   income for the Period	-	-	-	-	-	-	-	7,734	(13,010)	(5,276)	163	(5,113)
Transfer to capital reserve	-	-	-	-	-	349	-	-	(349)	-	-	-
Transfer to other reserve	-	-	-	-	-	-	253	-	(129)	124	-	124
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

Total comprehensive income for the Period	-		-	-	-	-		(498)	(10,718)	(11,216)	(88)	(11,304)
Transfer from capital reserve	-	-	-	-	-	90	-	-	(90)	-	-	-
Utilisation of surplus Reserve	-	-	-	-	-	(454)	-	-	454	-	-	-
Transfer to other reserve	-	-	-	-	-	-	42	-	(42)	-	-	-
Cancellation of share bought back	-	427	(427)	-	-	-	-	-	-	-	-	-
At 30 June 2012 (unaudited)	14	-	703,917	9,198	12,743	805	295	8,672	(102,973)	632,671	19,845	652,516

Condensed Consolidated Statement of Cash Flows

Six months ended 30 June 2012

		Six months ended 30 June 2011	Six months ended 30 June 2011	Year ended  31 December  2011
		US$'000	US$'000	US$'000
	Notes	unaudited	unaudited	Audited
Operating activities
Loss before income tax		(9,947)	(13,657)	(25,850)
Adjustments for:
Depreciation		1,735	1,807	3,832
Amortisation of leasehold land held   for own use under operating leases		96	25	7
Amortisation for intangible assets		1,204	1,236	2,413
Share based compensation		-	8,733	8,733
Gain on disposal of property, plant   and equipment		-	36	9
Finance income		(850)	(3,044)	(3,559)
Finance costs		3,997	4,103	9,492
Foreign exchange differences		39	(268)	252
Cash flows before changes in working   capital		(3,726)	(1,029)	(4,671)
Increase in inventory		(5,013)	(1,056)	(1,185)
Decrease/(increase) in trade and other receivables		(9,010)	(15,406)	885
(Decrease)/increase in trade and   other payables		12,717	10,801	(1,876)
Net cash used in operations		(5,032)	(6,690)	(6,847)
Income tax paid		(1,230)	(859)	(1,485)
Net cash used in operating activities		(6,262)	(7,549)	(8,332)

		Six months ended 30 June 2011	Six months ended 30 June 2011	Year ended  31 December  2011
		US$'000	US$'000	US$'000
	Notes	unaudited	unaudited	audited
Investing activities
Interest received		850	3,044	3,559
Payments for exploration activities		(34,294)	(19,878)	(49,009)
Purchases of property, plant   and equipment		(506)	(1,526)	(9,874)
Payments for leasehold land held for   own use under operating leases		-	(596)	(282)
Purchase of held-to-maturity investment		(10,000)	(25,096)	(50,255)
Proceeds from disposal of   held-to-maturity investment		50,222	25,007	25,007
Proceeds from sale of fair value through   profit or loss financial asset		-	19,490	19,490
Loan to a related party		(12,500)	-	-
Repayment of loan		-	15,000	15,000
Payments for other intangible assets		(175)	(27)	-
Demerger of well drilling business	11	-	(56,300)	(56,300)
Cash paid on acquisition of subsidiary   Companies		-	(4,234)	(4,234)
Net cash used in investing activities		(6,403)	(45,116)	(106,898)
Financing activities
Proceeds from bank borrowings		-	4,419	4,419
Repayment of loans and borrowings		-	(1,062)	(7,146)
Proceeds from issue of share capital		-	61,943	61,942
Interest paid		(2,950)	(3,690)	(6,570)
Purchase of treasury shares		-	-	(1,278)
Net cash from financing activities		(2,950)	61,610	51,367
Net decrease in cash   and cash equivalents		(15,615)	8,945	(63,863)
Cash and cash equivalents   at beginning of period		86,334	148,317	148,317
		70,719	157,262	84,454
Effect of foreign exchange rate changes		(864)	(490)	1,880
Cash and cash equivalents   at the end of period		69,855	156,772	86,334

Notes to Condensed Interim Financial Statements

1     GENERAL INFORMATION

The condensed financial information for the six months ended 30 June 2012 and 30 June 2011 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 2011, 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 2011 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 2012and 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.

3     REVENUE AND SEGMENTAL INFORMATION

For the six months ended 30 June 2012

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$26,665,000 (30 June 2011 - US$28,037,000) 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.

For the six months ended 30 June 2012

	Continuing operations
	Sales of  CBM gas	Pipelined  gas distribution	Gas station sales	Gas filling   equipment sales	Transportation	Corporate	Sub-total	Eliminations	Consolidated
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited
Sale to external customers	-	26,665	8,642	360	-	-	35,667	-	35,667
Inter-segment sales	2,039	-	-	822	1,993	-	4,854	(4,854)	-
	2,039	26,134	8,642	1,182	1,993	-	40,521	(4,854)	35,667
Depreciation and amortisation	6	1,421	1,045	303	220	40	3,035	-	3,035
Profit/(Loss) from operations	(353)	2,506	(1,019)	(18)	(196)	(4,534)	(3,614)	(3,186)	(6,800)
Assets	201,474	63,937	44,553	5,065	20,187	770,111	1,105,327	(171,814)	933,513
Liabilities	29,438	15,533	21,365	1,739	16,118	432,368	516,561	(235,564)	280,997

For the six months ended 30 June 2011

	Continuing operations							Discontinued operations
	Sales of  CBM gas	Pipelined  gas distribution	Gas station sales	Gas filling   equipment sales	Transportation	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
	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited
Sale to external   customers	-	28,037	7,738	387	-	-	36,162	-	-	36,162
Inter-segment sales	823	-	-	114	2,499	-	3,436	4,872	(8,308)	-
	823	28,037	7,738	501	2,499	-	39,598	4,872	(8,308)	36,162
Depreciation and   amortisation	21	1,452	1,061	252	206	49	3,041	27	-	3,068
Profit/(Loss) from   operations	(910)	2,915	889	(37)	7	(12,200)	(9,336)	(954)	(2,308)	(12,598)
Assets	672,957	59,776	23,986	6,625	7,177	632,742	1,403,263	-	(449,360)	953,903
Liabilities	188,251	15,052	1,150	653	980	334,076	540,162	37,843	(294,189)	283,816

For the year ended 31 December 2011

	Continuing operations							Discontinued operations
	Sales of CBM gas	Pipelined gas distribution	Gas station sales	Gas filling equipment sales	Transportation	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
	audited	audited	audited	audited	audited	audited	audited	audited	audited	audited
Sale to external   customers	-	54,399	17,065	1,505	2,232	-	75,201	-	-	75,201
Inter-segment sales	2,229	-	-	634	1,812	-	4,675	4,872	(9,547)	-
	2,229	54,399	17,065	2,139	4,044	-	79,876	4,872	(9,547)	75,201
Depreciation and   amortisation	41	2,783	2,294	546	497	91	6,252	-	-	6,252
Profit/(Loss) from   operations	(1,932)	4,919	496	(85)	(277)	(17,301)	(14,130)	(954)	(4,833)	(19,917)
Assets	707,812	60,627	32,373	7,794	11,911	601,369	1,421,886	-	(490,200)	931,686
Liabilities	173,497	11,954	1,337	802	945	398,056	586,591	-	(318,725)	267,866

4     ADMINISTRATIVE EXPENSES

Administrative expenses for the period included an equity settled share based payment charge of Nil. (30 June 2011 - US$8,733,000, 31 December 2011 - US$8,733,000)

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 ended  30 June 2012	Six months ended  30 June 2011	Year ended  31 December 2011
	US$'000	US$'000	US$'000
	unaudited	unaudited	audited
Loss attributable to owners of the   Company arising from continuing   operations	(10,718)	(13,922)	(26,932)
Loss attributable to owners of the   Company arising from   discontinued operations	-	(676)	(676)
Loss attributable to owners of the   Company for the purpose of basic   and diluted loss per share	(10,718)	(14,598)	(27,608)
Weighted average number   of ordinary shares	134,556,389	132,493,117	134,556,389

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. 12,823,261 potential ordinary shares (30 June 2011 - 11,904,375 shares, 31 December 2011 - 12,823,261 shares) have therefore been excluded from the above calculations.

7     DIVIDEND

The directors do not recommend the payment of an interim dividend (2010: Nil).

8     PROPERTY, PLANT AND EQUIPMENT

During the period, the Group incurred approximately US$506,000 on additions to property, plant and equipment (30 June 2011 - US$1,526,000, 31 December 2011 - US$9,874,000).

9   LOAN RECEIVABLE

		As at  30 June 2012	As at  30 June 2011	As at  31 December 2011
		US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Loan to a related party		12,500	-	-

The loan receivable is denominated in United State dollars. The loan receivable bear interest at a rate of 8% per annum.

10   TRADE AND OTHER RECEIVABLES

		As at  30 June 2012	As at  30 June 2011	As at  31 December 2011
		US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Trade receivables		5,538	12,869	7,180
Other receivables		18,064	18,434	7,843
Amount due from related parties		431	12	-
		24,033	31,315	15,023

11   TRADE AND OTHER PAYABLES

		As at  30 June 2011	As at  30 June 2011	As at  31 December 2011
		US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Trade payables		12,351	8,113	9,117
Other payables		17,243	10,729	12,979
Amounts due to related parties		8,259	18,972	3,040
		37,853	37,814	25,136

The amounts due to related parties included an amount payable to the demerged well drilling services business for drilling services performed of US$8,259,000 (30 June 2011 - US$14,604,000, 31 December 2011 - US$3,040,000).

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 2011, ordinary   shares of US$0.0001 each	500,000,000	50,000	129,388,586	12,939
Placement of 3,360,000 shares	-	-	3,360,000	336
Employee share options exercised	-	-	1,953,125	195
Issue of shares by conversion of   convertible notes	-	-	1,975,000	198
At 30 June 2011, ordinary shares   of US$0.0001 each	500,000,000	50,000	136,676,711	13,668

Cancellation of shares bought back	-	-	(86,000)	(9)
Treasury shares acquired	-	-	(50,000)	(5)
At 31 December 2011and 30 June   2012, ordinary shares of US$0.0001 each	500,000,000	50,000	136,540,711	13,654

Nature and purposes of reserves

(i)            Treasury Shares

Where any group company purchases the company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the company's equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the company's equity holders.

(ii)    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.

(iii)   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.

(iv)   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.

(v)    Capital and surplus 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.

(vi) Other reserve

In accordance with the regulations of the State Administration of Work Safety, the Group's share of subsidiaries and JCEs has a commitment to provide reserve for enhancement of safety production environment and improvement of facilities ("Work Safety Cost"). In prior years, the work safety expenditures are recognized only when acquiring the fixed assets or incurring other work safety expenditures.

(vii)  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.

(viii)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 2012 up to the date of approval of these condensed financial statements.

15   RELATED PARTY TRANSACTIONS

Saved as disclosed in note 10 and 11, 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

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 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. 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 total 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 30 June 2012.

 

END

 

 

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