Half Yearly Report

RNS Number : 5855O

Green Dragon Gas Ltd

23 September 2013

 



23 September 2013

GREEN DRAGON GAS LTD

("Green Dragon" or "the Company")

Interim results for the six months ended 30 June 2013

Green Dragon Gas Ltd (AIM: GDG), one of the largest independent companies involved in the production of CBM gas in China, is pleased to announce its unaudited interim results for the six months ended 30 June 2013.

FINANCIAL HIGHLIGHTS

·    Revenue of US$6.9m (US$3.5m in H1 2012), a 98% increase

·    Net profit of US$9.4m, including gain from disposal (loss of US$10.5m in H1 2012)

·    Raised US$100m through:

o Sale of non-core assets for US$65m

o Issue of US$35m bond with warrants

·    Increased balance sheet strength through early repayment in full with interest of all outstanding Convertible Bonds (US$85.3m)

·    E&P capex of US$21.0m (US$34.3m in H1 2012)

·    Cash of US$20.7m (US$40.0m at 31 December 2012)

·    1P reserves increased 37% and 2P reserves increased 2%

OPERATIONAL HIGHLIGHTS

Upstream

·    Gas production in H1 2013 was 1.34 Bcf (37.8 million cubic meters), a 59% year on year increase

·    Quarter on quarter growth of 8.3% achieved in Q2 2013 with production of 697MMcf (19.8 million cubic meters) compared with 644MMcf (18.3 million cubic meters) in Q1 2013

·    3 LiFaBriC wells accepted at the Company's production block in Shizhuang South (GSS) and 4 LiFaBriC wells accepted at the Company's five exploration blocks

·    The total number of LiFaBriC wells across all blocks now stands at 67, a 66% increase on a year earlier

·    Re-issue of exploration permits by the Central Government

Downstream

·    PNG (Piped Natural Gas) sales were 218MMcf (6.18 million cubic meters) in Q2 2013, a 29% increase on the Q1 2013 (169 MMcf / 4.8 million cubic meters)

·    CNG station sales were 129 MMcf (3.676 million cubic meters) in Q2 2013, a 7% increase on Q1 2013 sales (121 MMcf / 3.441 million cubic meters) / a 71% increase over Q2 2012 (76 MMcf / 2.152 million cubic meters)

·    A total of 8 retail CNG stations completed, 6 of which were in operation compared with 5 a year earlier

Greka Engineering and Technology Ltd (GET)

·    Effective 1 January 2013, GET assumed the gas processing, transmission and power generation functions at the Integrated Production Facility (IPF). These activities are conducted on a per cubic meter delivered basis under a long term contract

·    GET continued to build its infrastructure by adding 2km of gas gathering pipeline in the first half. A total of 33km of well gas gathering pipelines are installed at GSS and operated by GET

·    GET added 14 additional third party customers for its various products during the 1H 2013, a 21% increase over the year end of 2012 and now has 90 external customers

·    Demerger of GET aimed at maximizing potential of this business and shareholder value

OUTLOOK

·    GET dividend in specie planned for 30 September 2013

·    Conclude financing for capex to execute the 18Bcf annual gas production exit target for 2014

·    Continue reserve progression and production within all six CBM blocks with specific attention to GSS

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

"The significant increase in revenue is a reflection of many years hard work and the Company's successfully transformation from  exploration to production, revenues and cashflows. It is also a function of our successful strategy of streamlining the business to focus increasingly on pure upstream operations.

In view of the significant funds spent over the last decade across our six blocks, we have been committed to protecting the shareholders interest in our entitlements within our bi-lateral PSC's, which form the material assets of the Company. As confirmed by us repeatedly, our six PSC's continue in full force and effect.Questions raised over the Company's title to its PSC's  have been an unwelcome distraction for both management and investors over the last few years. It has also had a significant impact on the Company's valuation which dropped by approximately US$1 billion and  remains well below the levels seen prior to these concerns arising, despite significant operational progress having been made in that time.

We welcome and look forward to refocusing our efforts on growing the business to our targeted 18Bcfpy gas production and market attention returning to the significant value we believe is inherent within the business."

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 & Broker	[phone]
Steve Baldwin / Charles Lesser Macquarie Capital (Europe) Limited - Broker	[phone]
Richard Crichton / Andy Crossley Peel Hunt - Broker	[phone]
James Henderson / Phillip Dennis Pelham Bell Pottinger - Investor Relations	[phone]

Note

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

CHAIRMAN'S STATEMENT

Introduction

The first half of the year has been characterized by a series of achievements that puts GDG in a strong position to continue to grow its production, revenues and profit in the years ahead. The question marks that have been raised over the validity of the PSC's  over the last few years has been an unwelcome distraction and we look forward to  refocusing our efforts on growing and  monetizing our production. We have set ourselves a target annual rate of production for the end of 2014 of 18Bcf. While there remains some way to go to achieve this, it is simply a function of drilling a sufficient number of LiFaBriC wells and we continue to see this as quite achievable.

Demerger of GET & Sale of Non-Core Operations

We announced a few days ago the timing of the GET dividend in specie. This represents the completion of the demerger of that company from Green Dragon. It will be our second dividend in specie since our listing six years ago and is a reflection of the Company's successful strategy of demerging non-core businesses, with the aim of GDG becoming a far more streamlined and efficient business, focused purely on its core upstream operation. Similar to the Greka Drilling dividend, which created an independently successful operating enterprise while providing an opportunity to many shareholders to monetize their returns at their discretion, we expect GET will mirror this success, both operationally and in creating shareholder value.

During the period we successfully sold the non-core gas pipeline interests  for US$65m, at a respectable 14% IRR return, creating a US$28.3m profit. These comprised the Company's 29% interest in the Beijing Huayou United Development Co and its 100% interest in Giant Power International Investment Limited; which included the Company's interests in the wholesale gas distribution pipeline network in the Beijing Development Area and two wholesale gas stations in Anhui and Henan.

These disposals follow changes that have taken place in the China gas industry over the last five years, which has eroded the potential of achieving gas swaps across markets and thus the ownership merits of our pipeline interests. The changes include the Chinese Government segregating the country's gas infra-structure among various entities such as Petrochina, Kunlun Gas, Sinopec, CNPC and many provincial enterprises.

Operations

Upstream

Over the course of the first half, gas production increased by 59% to 1.34Bcf. This increase was as a result of an increased number of wells coming onstream and achieving target production levels.

During the period we drilled an additional 5 LiFaBriC wells across all Blocks. The total drilled now stands at 67, a 66% increase from this time last year. As indicated above, while the PSC entitlement  issues remained outstanding, we took a prudent approach to investing additional shareholder funds, which included reducing the pace of our drilling programme. We have previously outlined the need for 200 LiFaBriC wells to achieve our near term target production of 18Bcfpy. Drilling these wells is something Greka Drilling has perfected over many years and we remain confident that, once contracted, it not only has the capacity but also the ability to be able to deliver on this programme in a timely fashion.

Downstream

Piped Natural Gas (PNG) sales during Q2 where 218 MMcf, representing a 29% increase over Q1 this year. PNG sales started on a controlled basis, while the Company's pipeline connecting the GSS block to the West East Pipeline was brought into service. Sales are made under the 20 year agreement entered into in June 2011 with PetroChina.

The Company also sells Compressed Natural Gas (CNG) for vehicle use through its series of Company-owned CNG retail stations located in and around its licence areas. In Q2, sales of CNG through these outlets amounted to 129MMcf, representing a 7% increase on Q1 and a 70% increase over the same period last year. This increase in sales is primarily due to the number of operating CNG stations increasing to 6 from 5 a year ago and the expansion of our fleet of distribution trucks.. The Company hopes to be able to bring an additional three stations into operation during the remainder of this year.

GET

From 1 January 2013, GET assumed control of the Company's gas processing, transmission compression and power generation functions under a long term contact, on a per cubic meter delivered basis.

During the period, GET added a further 2km of gas gathering pipeline, bringing the total network on the GSS block to 33km. This network gathers the gas from the various producing wells and transports it to the IPF on the block, where it is processed for ongoing transport and sale and power generation.

Financials

During the first half, revenue from continuing operations increased 98% to US$6.9m (US$3.5m: H1 2012). This increase is a reflection of the corresponding increase in gas production and sales as outlined above. The Company also recorded a record net profit for the period of US$9.4m; this number includes a profit of US$28.3m on the disposal of non-core operations, with the operating loss having increased to US$8.3m (US6.7m: H1 2012).

E&P capex during the period was US$21m, a significant reduction over the US$34m during the same period in 2012. This reduction was primarily as a result of the more prudent approach taken by the Company to investing shareholder money while the licence issue remained.

As previously outlined, the arbitration tribunal relating to funds paid to the Company by  Liberia registered ConocoPhillips China Inc (COPC) in relation to a farm-in deal entered into in 2009, awarded COPC US$42.6m plus costs. The appeal filed focuses on the natural injustice and lack of due process by the tribunal. The appeal is scheduled to be heard in the second half of November. While the original decision was clearly disappointing, it has reduced the uncertainty around this contingent liability, again allowing the management team to refocus on driving the core business forward.

Finally, during the period, we also significantly strengthened our balance sheet, raising a total over US$65m from the disposal of non-core assets, as mentioned above, and successfully issuing $US35m of bonds and warrants. US$85.3m of these funds was used to repay in full the outstanding convertible bonds; as at 30 June, the Company had cash of US$20.7m.

Outlook

Following the dividends of Greka Drilling, Greka Engineering and the sales of the various gas pipeline interests, Green Dragon efficiently becomes an Exploration & Production company within its niche in China CBM. Over the last sixteen years of pursuing CBM development in China, the sub-surface geological challenges pulled us into developing Greka Drilling. Following this success, and along the path to gas production, we were forced to develop Greka Engineering so as to enable the commercial gas being sold at market prices. Both businesses are unique and market leaders within their niches, however neither creates incremental shareholder value to Green Dragon by ownership. Being a pioneer, we were required to create both but both have very different business objectives when compared to a focused E&P company. Similarly, the significant market options available to us as a gas producer eliminated the necessity to own pipeline interest and thus facilitated a lucrative divesture at a respectable return.

I look forward to reporting on the progress Green Dragon continues to make as a pioneering E&P company exclusively within the China CBM niche focused on achieving 18 Bcfpy of gas production in the short term.

Randeep S. Grewal

Founder & Chairman

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2013

		Six months  ended 30 June 2013	Six months  ended 30 June 2012	Year ended  31 December  2012
	Notes	US$'000	US$'000	US$'000
Continuing operations		unaudited	unaudited	audited
Revenue	3	6,932	3,502	8,125
Cost of sales		(3,450)	(1,460)	(3,881)
Gross profit		3,482	2,042	4,244
Selling and distribution costs		(983)	(427)	(1,291)
Administrative expenses		(3,866)	(6,664)	(13,030)
Litigation interest and penalties	14	(6,912)	-	-
Administrative expenses		(10,778)	(6,664)	(13,030)
Loss from operations		(8,279)	(5,049)	(10,077))
Finance income		155	808	1,321
Finance costs		(9,104)	(3,994)	(8,087)
Gain on disposal of jointly-controlled  entities and subsidiaries		28,292	-	-
Profit / (loss) before income tax		11,064	(8,235)	(16,843)
Income tax credit	4	145	169	219
Profit / (loss) for the period from  continuing operations		11,209	(8,066)	(16,624)
Discontinued operations
Loss for the period from discontinued  operations	16	(1,827)	(2,413)	(2,798)
Profit / (loss) for the period		9,382	(10,479)	(19,422)
Other comprehensive income/(loss)
Exchange differences arising on   translation of foreign operations		2,316	(527)	2,594
Total comprehensive income / (loss) for the period		11,698	(11,006)	(16,828)
Profit / (loss) for the period attributable to:
Owners of the company		9,382	(10,718)	(20,649)
Non-controlling interests		-	239	1,227
		9,382	(10,479)	(19,422)
Total comprehensive income / (loss)
attributable to:
Owners of the company		11,698	(10,918)	(18,055)
Non-controlling interests		-	(88)	1,227
		11,698	(11,006)	(16,828)
Basic earning / (loss) per share arising from attributable to owners of the Parent (US$)	5	0.069	(0.080)	(0.151)
From continuing operations (US$)		0.082	(0.062)	(0.131)
From discontinued operations (US$)		(0.013)	(0.018)	(0.020)
Diluted earning / (loss) per share arising from attributable to owners of the Parent (US$)	5	0.062	(0.080)	(0.151)
From continuing operations (US$)		0.074	(0.062)	(0.131)
From discontinued operations (US$)		(0.012)	(0.018)	(0.020)

Condensed Consolidated Statement of Financial Position

At 30 June 2013

		As at  30 June 2013	As at  30 June 2012	As at 31 December 2012
	Notes	US$'000	US$'000	US$'000
		unaudited	unaudited	Audited
Assets
Non-current assets
Property, plant and equipment	7	3,980	60,450	47,373
Gas exploration and appraisal assets		831,228	731,876	767,641
Other intangible assets		3,877	15,728	14,343
Payment for leasehold land held for   own use under operating leases		184	463	719
Tax recoverable		505	-	-
Deferred tax asset		1,971	2,014	1,999
Loan receivable	8	-	12,500	-
		841,745	823,031	832,075
Current assets
Inventories		2,876	6,561	3,956
Trade and other receivables	9	7,225	24,033	21,011
Other financial assets		-	10,033	-
Cash and cash equivalents		20,716	69,855	39,971
Assets held for distribution to owners	16	28,097	-	-
		58,914	110,482	64,938
Total assets		900,659	933,513	897,013
Liabilities
Current liabilities
Trade and other payables	10	19,531	37,853	27,712
Provisions	14	49,536	-	-
Convertible notes		-	-	79,751
Current tax liabilities		-	404	344
		69,067	38,257	107,807
Non-current liabilities
Convertible notes		-	78,606	-
Bond		28,352	-	-
Derivative financial instrument		7,258	-	-
Other financial liabilities	11	13,000	13,000	13,000
Deferred tax liability		147,115	151,134	150,356
		195,725	242,740	163,356
Total liabilities		264,792	280,997	271,163
Net Assets		635,867	652,516	625,850

		As at  30 June 2013	As at  30 June 2012	As at 31 December 2012
	Notes	US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Capital and reserves
Share capital	12	14	14	14
Share premium	12	713,115	703,917	703,917
Convertible note equity reserve	12	-	9,198	9,198
Share based payments reserve	12	12,743	12,743	12,743
Capital and surplus reserve	12	-	805	1,325
Other reserve	12	81	295	391
Foreign exchange reserve	12	14,043	8,672	11,755
Retained deficit	12	(104,129)	(102,973)	(113,511)
Total equity attributable to   equity holders of the Parent		635,867	632,671	625,832
Non-controlling interests		-	19,845	18
Total Equity		635,867	652,516	625,850

Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2013

	Share capital	Treasury Shares	Share premium	Convertible note equity reserve	Share based payment reserve	Capital and surplus reserve	Other reserves	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 2012	14	(427)	704,344	9,198	12,743	1,169	253	9,170	(92,577)	643,887	19,933	663,820
Loss for the period	-	-	-	-	-	-	-	-	(10,718)	(10,718)	239	(10,479)
Other comprehensive  income for the period	-	-	-	-	-	-	-	(498)	-	(498)	(327)	(825)
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   buy back	-	427	(427)	-	-	-	-	-	-	-	-	-
At 30 June 2012	14	-	703,917	9,198	12,743	805	295	8,672	(102,973)	632,671	19,845	652,516
Loss for the period	-	-	-	-	-	-	-	-	(9,922)	(9,922)	988	(8,934)
Other comprehensive  income for the period	-	-	-	-	-	-	-	3,083	-	3,083	327	3,410
Total comprehensive   income for the period	-	-	-	-	-	-		3,083	(9,922)	(6,839)	1,315	(5,524)
Elimination on disposal on   dilution of stake in joint  venture	-	-	-	-	-	-	-	-	-	-	(21,142)	(21,142)
Transfer from capital   reserve	-	-	-	-	-	520	-	-	(520)	-	-	-
Transfer to other reserve	-	-	-	-	-	-	96	-	(96)	-	-	-
At 31 December 2012	14	-	703,917	9,198	12,743	1,325	391	11,755	(113,511)	625,832	18	625,850
Profit for the period	-	-	-	-	-	-	-	-	9,382	9,382	-	9,382
Other comprehensive  income for the period	-	-	-	-	-	-	28	2,288	-	2,316	-	2,316
Total comprehensive   income for the period	-		-	-	-	-	28	2,288	9,382	11,698	-	11,698
Disposal of jointly -controlled entities and  subsidiaries	-	-	-	-	-	(1,325)	(338)	-	-	(1,663)	(18)	(1,681)
Transfer to share premium	-	-	9,198	(9,198)	-	-	-	-	-	-	-	-
At 30 June 2013   (unaudited)	14	-	713,115	-	12,743	-	81	14,043	(104,129)	635,867	-	635,867

Consolidated Statement of Cash Flows

Six months ended 30 June 2013

			Six months ended 30 June 2013		Six months ended 30 June 2012	Year ended  31 December  2012
			US$'000		US$'000	US$'000
	Notes		unaudited		unaudited	Audited
Operating activities
Profit before income tax from continuing  operations			11,319		(11,518)	(22,728)
Loss / profit before income tax from discontinued  operations			(2,144)		1,571	4,264
Profit / (loss) before income tax			9,175		(9,947)	(18,464)
Adjustments for:
Depreciation			1,297		1,735	3,508
Amortisation of leasehold land held   for own use under operating leases			54		96	76
Amortisation for intangible assets			1,204		1,204	2,408
Loss on disposal of property, plant   and equipment			-		-	71
Finance income			(212)		(850)	(1,452)
Finance costs			9,104		3,997	8,094
Litigation interest and penalties				6,912	-	-
Gain on disposal of jointly-controlled  entities and subsidiaries				(28,292)	-	-
Foreign exchange differences			-		39	-
Cash flows before changes in working   capital			(758)		(3,726)	(5,759)
Increase in inventory			(2,456)		(5,013)	(1,420)
Decrease/(increase) in trade and other receivables			4,243		(9,010)	4,904
(Decrease)/increase in trade and   other payables			(1,685)		12,717	(3,534)
Net cash used in operations			(656)		(5,032)	(5,809)
Income tax paid			(627)		(1,230)	(1,772)
Net cash used in operating activities			(1,283)		(6,262)	(7,581)

		Six months ended 30 June 2013	Six months ended 30 June 2012	Year ended  31 December  2012
		US$'000	US$'000	US$'000
	Notes	unaudited	unaudited	audited
Investing activities
Interest received		212	850	1,452
Payments for exploration activities		(20,961)	(34,294)	(70,011)
Purchases of property, plant   and equipment		(964)	(506)	(8,820)
Payments for leasehold land held for   own use under operating leases		-	-	(387)
Purchase of held-to-maturity investment		-	(10,000)	-
Proceeds from disposal of   held-to-maturity investment		-	50,222	50,255
Proceeds from sale of fair value through   profit or loss financial asset		-	-	-
Loan to a related party		-	(12,500)	-
Repayment of loan		-	-	-
Payments for other intangible assets		-	(175)	-
Net proceeds on disposal of  jointly-controlled entities and  subsidiaries	16	59,367	-	-
Net cash from / (used in) investing activities		37,654	(6,403)	(35,251)
Financing activities
Proceeds from bond and derivative  issuance		35,000	-	-
Repayment of convertible notes		(84,200)	-	-
Interest paid		(4,047)	(2,950)	(5,902)
Net cash used in financing activities		(53,247)	(2,950)	(5,902)
Net decrease in cash   and cash equivalents		(16,876)	(15,615)	(48,734)
Cash and cash equivalents   at beginning of period		39,971	86,334	86,334
		23,095	70,719	37,600
Effect of foreign exchange rate changes		1,319	(864)	2,371
Cash and cash equivalents   at the end of period		24,414	69,855	39,971

Notes to Condensed Interim Financial Statements

1    GENERAL INFORMATION

The condensed financial information for the six months ended 30 June 2013 and 30 June 2012 is unaudited and un-reviewed 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 2012, 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 2012 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

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 2013 and are consistent with International Financial Reporting Standards adopted for use in the European Union, with the exception of IAS 34, "Interim Financial Reporting". 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 interim financial statements are presented in United States Dollars and all values are rounded to the nearest thousand dollars (US$'000) except when otherwise indicated.

The consolidated interim 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.

The Company has sufficient working capital to fund its overheads and capital programme for the next 12 months. The Company has a liability of approximately $50m arising from the findings of arbitration in connection to its dispute with a former farm in partner. The Company has lodged an appeal and the counterparty are not currently able to enforce the award. The Directors remain confident the appeal will be successful but have prudently recorded a liability. The Company does not currently have the liquid funds to settle this litigation should it fall due in the short term. A number of funding transactions are at an advanced state which if concluded would provide the necessary funds to settle the dispute if required. However, there can be no guarantee any of these transactions will conclude and they require the occurrence of events outside of the Directors' control.

As a consequence, in the event the Company losses its appeal and should further funding not be available the Company may not be able to realize its assets and discharge its liabilities in the normal course of business. These conditions indicate the existence of an uncertainty which may cast doubt about the Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.

3    REVENUE AND SEGMENTAL INFORMATION

For the six months ended 30 June 2013

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$16,462,000 (30 June 2012 - US$26,665,000) 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 2013

		Continuing	operations					Discontinued operations
	Sales of  CBM gas	Retailing gas station sales	Corporate	Sub-total		Pipelined  gas distribution	Wholsale Gas station sales	Gas filling   equipment sales	Transportation	Sub-total	Eliminations	Consolidated
	US$'000	US$'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	unaudited
Sale to external   customers	-	6,932	-	6,932		16,462	3,555	910	-	20,927	-	27,859
Inter-segment sales	3,482	-	-	3,482		-	-	89	985	1,074	(4,556)	-
	3,482	6,932	-	10,414		16,462	3,555	1,000	985	22,001	(4,556)	27,859
Depreciation and   amortisation	-	620	35	655		531	676	303	390	1,900	-	2,555
Profit/(Loss) from   operations	268	(1,459)	(607)	(1,798)		968	(244)	(296)	(544)	(116)	(909)	(2,823)
Assets	810,532	29,942	639,895	1,480,369		-	-	4,503	21,672	26,175	(643,761)	862,783
Liabilities	165,074	25,739	516,055	706,868		-	-	1,536	22,165	23,701	(503,117)	227,452

For the six months ended 30 June 2012

		Continuing	operations				Discontinued operations
	Sales of  CBM gas	Retailing gas station sales	Corporate	Sub-total		Pipelined  gas distribution	Wholesale gas station sales	Gas filling   equipment sales	Transportation	Sub-total	Eliminations	Consolidated
	US$'000	US$'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	unaudited
Sale to external   customers	-	3,502	-	3,502		26,665	5,140	360	-	32,165	-	35,667
Inter-segment sales	2,039	-	-	2,039		-	-	822	1,993	2,815-	(4,854)	-
	2,039	3,502	-	5,541		26,665	5,140	1,182	1,993	34,980	(4,854)	35,667
Depreciation and   amortisation	5	480	40	525		1,421	566	303	220	2,510	-	3,035
Profit/(Loss) from   operations	(353)	(1,667)	(4,534)	(6,554)		2,506	648	(18)	(196)	2,940	(3,186)	(6,800)
Assets	758,374	30,054	770,111	1,558,539		63,937	14,499	5,065	20,187	103,688	(728,714)	933,513
Liabilities	168,663	15,434	432,368	616,465		15,533	5,931	1,739	16,118	39,321	(374,789)	280,997

 For the year ended 31 December 2012

		Continuing	operations					Discontinued operations
	Sales of CBM gas	Retailing gas station sales	Corporate	Sub-total		Pipelined gas distribution	Wholesale gas station sales	Gas filling equipment sales	Transportation	Sub-total	Eliminations	Consolidated
	US$'000	US$'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	audited
Sale to external   customers	-	8,125	-	8,125		54,108	10,298	1,509	29	65,944	-	74,069
Inter-segment sales	4,721	1,020	-	5,741		-	-	1,106	3,380	4,486	(10,227)	-
	4,721	9,145	-	13,866		54,108	10,298	2,615	3,409	70,430	(10,227)	74,069
Depreciation and   amortisation	15	1,782	78	1,875		1,808	1,388	171	750	4,117	-	5,992
Profit/(Loss) from   operations	(1,432)	(3,226)	(8,650)	(13,308)		5,093	1,135	(168)	(744)	5,316	(3,830)	(11,822)
Assets	799,488	17,601	652,032	1,469,121		39,780	15,282	4,713	24,343	84,118	(656,226)	897,013
Liabilities	164,439	17,654	524,550	706,643		9,138	6,141	1,509	20,838	37,626	(473,106)	271,163

4    TAX

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

5    EARNINGS / (LOSS) PER SHARE

	Six months ended  30 June 2013	Six months ended  30 June 2012	Year ended  31 December 2012
	US$'000	US$'000	US$'000
	unaudited	unaudited	audited
Earnings /(loss) for the period attributable  to owners of the Parent arising from:
- Continuing operations	11,209	(8,305)	(17,851)
- Discontinued operations	(1,827)	(2,413)	(2,798)
Earnings / (loss) for the purpose of basic   and diluted earnings / (loss) per share	9,382	(10,718)	(20,649)
Weighted average number   of ordinary shares	136,540,711	134,556,389	136,540,711
Adjustment for assumed conversion   of share options and warrants	15,135,375	-	-
Weighted average number   of ordinary shares for diluted   earnings per shares	151,676,086	134,556,389	136,540,711

Earnings / (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 period ended 30 June 2012 and year ended 31 December 2012, the diluted loss per share is considered to be the same as the basic loss per share. 12,823,261 potential ordinary shares during the period ended 30 June 2012 and 12,823,261 potential ordinary shares during the year ended 31 December 2012 have therefore been excluded from the above calculations.

6    DIVIDEND

The directors do not recommend the payment of an interim dividend (2012: Nil).

7    PROPERTY, PLANT AND EQUIPMENT

During the period, the Group incurred approximately US$964,000 on additions to property, plant and equipment (30 June 2012 US$506,000; 31 December 2012 US$8,820,000).

8   LOAN RECEIVABLE

		As at  30 June 2013	As at  30 June 2012	As at  31 December 2012
		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.

9    TRADE AND OTHER RECEIVABLES

		As at  30 June 2013	As at  30 June 2012	As at  31 December 2012
		US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Trade receivables		1,707	5,538	5,647
Other receivables		5,518	18,064	15,336
Amount due from related parties		-	431	28
		7,225	24,033	21,011

10 TRADE AND OTHER PAYABLES

		As at  30 June 2013	As at  30 June 2012	As at  31 December 2012
		US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Trade payables		9,367	12,351	12,285
Other payables		5,794	17,243	12,178
Amounts due to related parties		4,370	8,259	3,249
		19,531	37,853	27,712

11 OTHER FINANCIAL LIABILITIES

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

12 SHARE CAPITAL AND RESERVES

	Authorised		Issued and fully paid
	Number		Number
	of shares	US$	of shares	US$
At 1 January 2012, 30 June   2012, 31 December 2012 and 30 June 2013 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 statement less amounts, if any, that have been transferred to the retained earnings/deficit upon exercise.

(v)   Capitaland surplus reserve

The amount represents the Group's share of subsidiaries and Jointly Controlled Entities (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.

13 RELATED PARTY TRANSACTIONS

Saved as disclosed in note 10and 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.

14 PROVISIONS

The Group has litigation with ConocoPhillips China Inc ("COPC") arising from a farm-out agreement. COPC paid US$ 42.6 million to the Group under the farm-out agreement.

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 demanded full repayment of the US$42.6 million

The dispute was subject to arbitration in Singapore and on 10 July 2013 the arbitration tribunal ruled in COPC's favour.

The arbitration tribunal has awarded US$42.6 million plus fees and interest of approximately US$6.9 million against the Group. The arbitration was anchored around the issue of the Group's ability to enforce title in its three Shanxi PSCs. The Group has always considered that it has valid title and this was confirmed by the Central Government of China. The arbitration tribunal was informed of such an expected ruling but they decided to close the arbitration proceedings, and proceeded to deliver their award without considering this significant development. The tribunal panel was informed of a material conclusion as to title which appears not to have been taken into consideration. The Directors consider this, among other matters, as a ground for a challenge against the award and to take all necessary steps for a potential filing to set aside the award.

On 3 September 2013, the Group successfully lodged an appeal against the tribunal ruling including a prevention order against COPC from enforcing settlement.

Whilst the Directors' remain confident of a successful appeal, a provision has been prudently made in the financial statements. The original US$ 42.6 million received was set against the exploration assets and, consequently, this has been reversed. Full interest and penalties have been provided for and are shown in the Consolidated Statement of Comprehensive Income.

15 EVENTS AFTER REPORTING DATE

Saved as disclosed in note 14 above, there were no other significant events that happened after 30 June 2013 up to the date of approval of these interim financial statements.

16 DISCONTINUED OPERATIONS

On 30 April 2013, the Company announced the proposed demerger of its engineering business by means of a dividend in specie of shares in Greka Engineering & Technology Ltd ("Greka Engineering") to Green Dragon shareholders. The demerger remains conditional upon the approval of Green Dragon shareholders in general meeting.

Details of the book value of identifiable assets and liabilities of Greka Engineering is, as follows:

			Book value
			US'000
Property, plant and equipment			22,880
Other intangible assets			2,890
Inventories			2,073
Trade and other receivables			1,362
Cash and cash equivalents			3,698
Trade and other payables			(4,088)
Current tax liabilities			(59)
Deferred tax liability			(661)
			28,097

Cash and cash equivalents of US$20.7 million in the Statement of Financial Position are net of cash and cash and cash equivalents attributable to the Greka Engineering assets held for sale.

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 had acquired BHY in 2007 for US$27.1 million and GPI in 2008 for US$10.8 million.

Details of the book value of identifiable assets and liabilities disposed of and sales consideration is, as follows:

				Book value
				US$'000
Property, plant and equipment				30,053
Other intangible assets				6,495
Payment for leasehold land held for own use  under operating leases				547
Inventories				1,462
Cash and cash equivalents				5,633
Trade and other receivables				8,177
Trade and other payables				(8,437)
Current tax liabilities				(163)
Deferred tax liability				(1,681)
Capital and suplus reserve				(1,324)
Other Reserve				(338)
				40,424
				US$'000
Consideration, satisfied by cash				65,000
Consideration, settled by other payable				3,716
Net assets disposed of				(40,424)
Gain on disposal				28,292

		US$'000
Cash flows in relation to the disposal:
-     Consideration received		65,000
-     Cash disposed of		(5,633)
Net cash inflow		59,367

 

END

 

 

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