Final Results

RNS Number : 6038X

Green Dragon Gas Ltd

26 June 2008

 



26 June 2008

GREEN DRAGON GAS LTD.

('Green Dragon' or 'the Company')

Annual Results for the year ended 31 December 2007

Green Dragon Gas Ltd (AIM:GDG), the Chinese coal bed methane business, today announces its annual financial results for the year ended 31 December 2007.

YEAR 2007 HIGHLIGHTS

• Shareholder returns  The Company has seen its share price rise by 65% since its listing on AIM in August 2006. The Company continues to be one of the largest Chinese businesses listed on AIM by market capitalization.

• Record wells drilled  88 wells were successfully drilled through the target coal seams by the Company and its joint venture partner. Wells were deployed across all of its five large CBM blocks, providing a diversified resource growth.

• Technology enhancement  The first ever Dymaxion horizontal well was successfully drilled in China on the Company's Shizhuang South block ('GSS'). Dymaxion wells have been a catalyst in developing the CBM industry in Australia.

• Greka Technical Services launched ('GTS')  The Company launched its own drilling service division with the purchase of a five rig fleet and the hiring of 150 personnel. The rigs, manufactured in the US, are designed for the CBM industry and will provide unique capability to enhance efficiency, accuracy and productivity in drilling operations. The Company has successfully hedged its exposure to rising drilling costs, availability of skilled crews and drilling rigs with GTS.

• Acquisitions  The Company concluded its acquisition of a 49% equity stake in Kesi Hengrun (Beijing) Technology Co. Ltd. ('Kesi'). Kesi has a 59% equity stake in Beijing Huayou United Gas Development Co. Ltd. ('BJHY') that owns and operates a 189km pipeline network within the Beijing Development area. The network is supplied by the CNPC West-East pipeline and has a 4 billion m3 annual capacity. BJHY is profitable.

• Capital  The Company raised US$95million through the issuance of two separate zero coupon convertible bonds to institutions. The capital raises were specifically targeted to facilitate the Kesi acquisition and launch of GTS.

YEAR 2008 OBJECTIVES

• Resource progression to 1P, 2P & 3P  Commence pilot testing of the gas resource for the wells drilled during 2007. Enhance resources by implementing the planned drilling of up to 88 wells to complement the accomplishments in 2007.

• Gas sales  The Company aims to start gas sales from the Shizhuang South pilot development wells and begin its revenue stream. Continue emphasis on attaining an open market price for its gas as the Chinese domestic gas market continues to evolve.

• Revenue  Moving from exploration to production and gas sales should mark 2008 as a key turning point in the Company's progression. The revenues from the Company's equity interest in Kesi and other revenue generating acquisitions should complement the initial upstream revenue for years to come.

• Acquisitions  The strategic vision to be 'a vertically integrated gas supplier providing optimum shareholder returns through the execution of an environmentally progressive niche business plan in China' will be implemented through acquisitions. The disciplined business plan is being executed with niche acquisitions that provide us with the optimum foundation to grow exponentially year on year and solidify our value chain economics regionally. In 2008, the Company announced that it has agreed to acquire Pacific Asia China Energy Inc., a Chinese CBM business, and also Giant Power International Ltd, which owns compressed natural gas ('CNG') distribution stations.

• Organization  The Company's employees and a skilled cohesive management team provide the core to implement and realize the Company's exponential growth potential. Specific attention is being placed on personnel recruitment alongside organic growth and related acquisitions.

• Financing Growth  The Company's discretionary growth plan will require us to evaluate financing alternatives in 2008 in the form of secured debt, structured debt and/or equity. The Company raised US$37.7 million in a placing of new shares in May 2008 and may raise further capital in the latter half of the year.

Commenting on the results, Randeep Grewal, Chairman of Green Dragon Gas, said: 

'I am delighted with Green Dragon's diversified progress this year - we have maintained the aggressive growth strategy that we expect to continue for several years to come. Our strategic vision to become a substantial clean energy supplier within our niche of the inner provinces in China is being systematically realized. We saw solid foundations being laid with the GSS gas sales test deliveries, GTS launch, Kesi acquisition and the drilling of a Dymaxion well during 2007. Once again 2007 set a new record for wells drilled continuing to demonstrate the growing operations of the Company in its core business of CBM.'

'I am confident that following the significant growth in the Company's operations in 2007, 2008 should be the year that marks the start of Green Dragon's revenue generation. A well thought out niche focused vertically integrated gas supplier strategy is being implemented by some of the most diligent and hard working employees I have had the privilege of leading. The employees' performance demonstrates their conviction in Green Dragon's strategy and commitment to its successful realization'.

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

Randeep S. Grewal / Betty Cheung

Green Dragon Gas                                                       [phone]

Dr Azhic Basirov / David Jones

Nomad & Broker, Smith &Williamson                        [phone]

Tim Redfern

Broker, Evolution Securities                                        [phone]

Tim Thompson / Nick Melson / Susanna Gale

Investor Relations, Buchanan Communications            [phone]

  Chairman's Statement

This year's results marks the first full year of trading for the Company since its listing on AIM in August 2006. Green Dragon Gas, headquartered in Hong Kong, was incorporated in March 2006 and is the holding company of several operating subsidiaries within China namely, Greka China Ltd, Greka Technical Services and Greka Energy (International) BV.

2007, or the Year of the Pig, was a strategy setting year for Green Dragon Gas which has set the foundation for the Company's future.

VISION  A clear focused vision 'to be a vertically integrated gas supplier providing optimum shareholder returns through the execution of an environmentally progressive niche business plan in China' continues to drive a growing Green Dragon organization in each of our niches. 2007 will be marked as a year in which we made significant strategic decisions in defining the comprehensive nature of our business plan and set out to implement it.

DECISIONS  The Board decided to develop and implement a comprehensive vertically integrated business model to maximize returns. CBM sales are de-regulated in China generally however the utilization of any urban network results in CBM prices being regulated and the upside capped. Selling CBM through retail Compressed Natural Gas ('CNG') stations provides significant upside potential in terms of market prices and thus better potential returns. Hence we decided to focus within each segment of the full economic cycle synergistically namely, upstream (drilling, exploration and production), midstream (transport and infrastructure), and downstream (distribution to retail, industrial and commercial consumers).

CAPITAL  The Board's strategic decisions were complemented by a significant raising of capital through the issue of two zero coupon convertible bonds of $50 million and $45 million in June and October 2007 respectively. The proceeds of the bonds provided the Company with funds for acquisitions, the launching of the Company's drilling services company and working capital.

UPSTREAM DRILLING  Greka Technical Services was launched in November with the ordering of five truck-mounted specialized CBM drilling rigs manufactured in the US. These drilling rigs provide versatility and flexibility enabling better control over drilling operations. Zhang Bao Zhang, a 28 year veteran in the field, was appointed as Chief Operating Officer and has brought on board 150 technical field personnel concurrently with the rigs' delivery in June 2008 to successfully launch this important catalyst to the Company's growth.

UPSTREAM PRODUCTION  The 2007 drilling program commenced with the first well being spud at the end of July with a target of 80 wells. The program planned to complete at least one pilot program at each of our five large CBM blocks and additionally concentrated on drilling production wells on our most advanced block Shizhuang South (GSS). The resulting increase in gas production at GSS places the block in a position to commence sales in the third quarter of 2008. The Company successfully concluded the plan with 88 wells being drilled by Green Dragon and our partner CUCBM. Additionally, the Company successfully drilled China's first ever Dymaxion well which was put on production in the March 2008 and is currently producing gas at better than forecast rates. Dymaxion is a methodology of drilling horizontal wells widely used in Australia and is recognized as being largely responsible for the maturity and related viability of the Australian CBM industry.

MIDSTREAM  The Company started refining a comprehensive strategy which addresses the infrastructure requirements to take our CBM to market. The strategy focuses on each of the five blocks separately and includes the optimum use between CNG retail stations, dedicated industrial/power users, pipelines for swap potential and households within citigas applications. The acquisition of the Kesi equity interest was a successful execution of this strategy as the direct operating interest of 41% in Beijing Huayou is held directly within the CNPC group which owns the main West-East gas pipeline system which runs in proximity to four of our five blocks.

DOWNSTREAM  The Company concluded a strategy focusing on CNG retail stations adjacent to our blocks with an existing market. Specifically, three of our five blocks have optimum market conditions within trucking distance to our CBM production to facilitate a point to point delivery into CNG retail stations. Zhengzhou in Henan was selected as the first city for such an implementation and several opportunities are being pursued there.

ACQUISITIONS  To facilitate the execution of the strategy successfully, several acquisitions were launched and concluded. Specifically, the Company acquired a 49% equity in Kesi, a holding company which owns 59% of Beijing Huayou (BJHY). BJHY owns and operates a comprehensive network of gas distribution pipelines, a mother station, and a CNG retail station within the Beijing Development Area (BDA) with an exclusivity period of 30 years. BJHY successfully implemented its Midstream and Downstream strategy within this single acquisition. Additionally, the Company entered into an agreement to acquire Pacific Asia Canada Energy (PACE) in the February 2008, which upon closing in July 2008, will add one additional CBM block to our current five making us the largest CBM acreage holder in China with approximately 7,600 sq km. Additionally, the PACE acquisition synergistically provides us with a 50% joint-venture with Mitchell Drilling and the exclusive right to using their Dymaxion technology within China.  Furthermore, in June 2008, the Company announced that it has agreed to acquire Giant Power International Ltd, which owns compressed natural gas ('CNG') distribution stations.

I am delighted with Green Dragon's diversified progress this year - we have maintained the aggressive growth strategy that we expect to continue for several years to come. Our strategic vision to become a substantial clean energy supplier within our niche of the inner provinces in China is being systematically realized. We saw solid foundations being laid with the GSS gas sales test deliveries, GTS launch, Kesi acquisition and the drilling of a Dymaxion well during 2007. Once again 2007 set a new record for wells drilled continuing to demonstrate the growing operations of the Company in its core business of CBM.

I am confident that following the significant growth in the Company's operations in 2007, 2008 should be the year that marks the start of Green Dragon's revenue generation. Strategic progress was made on niches unique to the company's assets which was enhanced by the launching of the integrated value chain.  A well thought out niche focused vertically integrated gas supplier strategy is being implemented by some of the most diligent and hard working employees I have had the privilege of leading. The employees' performance demonstrates their conviction in Green Dragon's strategy and commitment to its successful realization.

Randeep S. Grewal

Chairman and CEO

  Consolidated Income Statement for the year ended 31 December 2007

			Year ended 31 December 2007		28 March 2006 to 31 December 2006
			US$'000		US$'000
Revenue			-		1
Cost of sales			-		(1)
Gross profit			-		-
Administrative expenses			(4,346)		(3,938)
Loss from operations			(4,346)		(3,938)
Finance income			1,694		392
Finance costs			(6,345)		(671)
Loss before income tax			(8,997)		(4,217)
Income tax			163		112
Loss for the period attributable to   equity holders of the parent			(8,834)		(4,105)
Basic and diluted loss per share (US$)			(0.093)		(0.045)

  Consolidated Balance Sheet as at 31 December 2007

			As at 31 December		As at 31 December
			2007		2006
			US$'000		US$'000
Assets Non-current assets
Property, plant and equipment			345		83
Gas exploration and appraisal assets			599,261		592,365
Available for sale investment			27,122		-
Deferred tax asset			486		296
			627,214		592,744
Current assets
Trade and other receivables			2,517		1,686
Cash and cash equivalents			54,330		19,031
			56,847		20,717
Total assets			684,061		613,461
Liabilities Current liabilities
Trade and other payables			7,021		3,986
			7,021		3,986
Non-current liabilities
Loan notes payable			-		19,875
Convertible notes			76,431		-
Other financial liabilities			13,000		13,779
Deferred tax liability			139,225		139,225
			228,656		172,879
Total liabilities			235,677		176,865
Total net assets			448,384		436,596
Equity
Share capital			9		9
Share premium			440,737		440,737
Convertible note equity reserve			20,831		-
Foreign exchange reserve			(254)		(45)
Retained deficit			(12,939)		(4,105)
Total equity attributable to equity   holders of the Parent			448,384		436,596

  Consolidated Cash Flow Statement for the year ended 31 December 2007

			Year ended 31 December 2007		28 March 2006 to 31 December 2006
			US$'000		US$'000
Operating activities
Loss before tax			(8,997)		(4,217)
Adjustments for:
Depreciation			78		-
Finance income			(1,694)		(392)
Finance costs			6,345		671
Initial public offering costs			-		2,519
Movement in foreign exchange			(974)		(392)
Operating loss before changes in working capital			(5,242)		(1,811)
Increase in trade and other receivables			(825)		(288)
Increase in trade and other payables			1,059		315
Cash used in operations			(5,008)		(1,784)
Income tax refund received			-		3
Net cash used in operating activities			(5,008)		(1,781)
Investing activities
Payments for purchase of property, plant and equipment			(377)		(83)
Deposit paid for property, plant and equipment			(1,150)		-
Payments for exploration activities			(4,883)		(1,547)
Cash held in subsidiary companies at the   date of acquisition			-		130
Interest received			1,694		392
Cash paid on acquisition of available for sale investment			(25,978)		(1,144)
Net cash (used in)/generated by investing activities			(30,694)		(2,252)
Financing activities
Proceeds from the issue of share capital			-		25,094
Initial public offering costs paid			-		(2,645)
Proceeds from loan notes			-		615
Repayment of loan notes and interest			(20,785)		-
Proceeds from issue of convertible note			95,000		-
Convertible note issue costs paid			(3,214)		-
Net cash generated by financing activities			71,001		23,064
Net increase in cash and cash equivalents			35,299		19,031
Cash and cash equivalents at beginning of year/period			19,031		-
Cash and cash equivalents at end of year/period			54,330		19,031

  Consolidated Statement of Changes in Equity for the year ended 31 December 2007

			Share capital		Share premium		Convertible note equity reserve		Foreign exchange reserve		Retained deficit		Total
			US$'000		US$'000		US$'000		US$'000		US$'000		US$'000
At 28 March 2006 (date of incorporation of the Company)			-		-		-		-		-		-
Exchange differences on translation of financial statements of foreign operation			-		-		-		(45)		-		(45)
Net expenses recognised directly in equity			-				-		(45)		-		(45)
Loss for the period			-		-		-		-		(4,105)		(4,105)
Total recognised income and expenses for the Period			-		-		-		(45)		(4,105)		(4,150)
Issue of shares			-		25,094		-		-		-		25,094
Acquisition of subsidiaries by issue of shares			9		415,769		-		-		-		415,778
Initial public offering costs			-		(126)		-		-		-		(126)
At 31 December 2006 and 1 January 2007			9		440,737		-		(45)		(4,105)		436,596
Exchange differences on translation of financial statements of foreign operation			-		-		-		(209)		-		(209)
Net expenses recognised directly in equity			-		-		-		(209)		-		(209)
Loss for the year			-		-		-		-		(8,834)		(8,834)
Total recognised income and expenses for the year			-		-		-		(209)		(8,834)		(9,043)
Recognition of equity component of convertible note			-		-		21,605		-		-		21,605
Convertible note issue costs			-		-		(774)		-		-		(774)
At 31 December 2007			9		440,737		20,831		(254)		(12,939)		448,384

  Abridged notes to the financial information for the year ended 31 December 2007

1. Basis of presentation

Green Dragon Gas Ltd (the 'Company') is a company incorporated in the Cayman Islands. This financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs and IFRIC interpretations) issued by the International Accounting Standards Board (IASB).

2. Publication of non-statutory accounts

The financial information for the periods ended 31 December 2007 and 31 December 2006 does not constitute the Group's statutory financial information but is extracted from the Company's audited financial statements for those periods.  The auditors have reported on the full accounts for both periods and their reports were unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports.

3. Copies of annual report

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

 

END

 

 

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