Guizhou Block Update

RNS Number : 7526K

Green Dragon Gas Ltd

26 September 2016

 

26 September 2016

GREEN DRAGON GAS LTD.

("Green Dragon" or the "Company")

Guizhou Block Update

Green Dragon Gas Ltd. (LSE: GDG), one of the largest independent companies involved in the production and sale of Coalbed Methane ("CBM") gas in China, is pleased to provide an update of the exploration and development activities for its Baotian-Qingshan ("GGZ") block in Guizhou Province, PRC.

Background to the block

GDG is the operator with a 60% interest in the GGZ block that covers a total area of 214,982 acres (870 km2) in Guizhou Province. PetroChina is the working interest partner with the remaining 40% interest. The Block is located within the Liupanshui coal field with coal bearing strata present in the Upper Permian Longtan Formation. There are a total of 30 coal seams present in the Block of which seven are currently considered prospective for development. Total net coal thickness for the prospective seamsin the areas testedis approximately 66ft (20.1 metres)with two of the seams (17 & 19) showing coal thickness in excess of 16.4ft (5 metres) each. The average gas content across the seams is approximately 458.65scf/tone (13 m3/tone). The total gas-in-place is estimated to be 4.55TCF (129.0BCM)¹.

Current status and objectives

The Company's focus for the GGZ block is to secure approvals for the Chinese Reserve Report (CRR) from the Ministry of Land Resources (MLR). CRR is a precursor to approval of the Overall Development Plan (ODP), expected to be in 2017.

The Company has acquired 219,827 feet (67 km) of 2D seismic over some of the prospective areasin the block which is the focused area for the initial CRR application. In addition, the Company has obtained selected slim-hole data for 585 wells previously drilled by the Coal Bureau. Using both the seismic and slim-hole data the Company has established 3D geological models over the block that will be used to determine future development plans and subsurface optimisation.

In the exploration phase the Company has drilled a total of 33 wells (21 vertical, 9 directional and 3 LiFaBriC) covering all seven of the prospective seams. Well testing and gas measurement analysis has been undertaken in pilot areas and forms the basis of the commercial assessment, and hence potential, of the gas bearing layers.

Nine of the 33 wells in GGZ, covering five of the seven most prospective seams, are currently connected to power and undergoing dewatering or producing gas. Of these, four wells have established commercial gas rates in accordance with the MLR guidelines.

Additional potential from shale

In addition to the CBM plays in Guizhou, both Sinopec and Chevron, among others, have announced shale gas finds in Guizhou province. Should these finds be confirmed as commercial they could indicate the potential for shale exploitation within the GGZ block. While the development of shale prospects is at an early stage in Guizhou initial exploration results in the region have been encouraging.

Commercialisation

The GGZ field is proximate to both the China Myanmar Oil & Gas pipeline and the Guizhou Natural Gas pipeline both of which could be used as a means to transport gas from the GGZ block to end users.

Guizhou Province is in southern China and currently sources the majority its gas needs by pipelines from other provinces. The development of gas resources within Guizhou itself is expected to realise enhanced margin as the city-gate pricing, which acts as a barometer for market price, includes a transportation premium to encourage delivery to Guizhou. Gas sourced and produced in Guizhou should benefit from this premium.

The August 2016 City-Gate prices (for provincial capital cities) published by the NDRC in respect of both industrial and residential gas are among the top ten highest city-gate prices in China at $17.43/mcf (4.0RMB/m3) and $13.95/mcf (3.2RMB/m3) respectively (based on an exchange rate of US$1 - 6.5RMB).

Mr.Randeep S. Grewal, Chairman and Founder of Green Dragon, commented:

"In accordance with our 2016 objectives announced at our 2016 Capital Markets Day, the GGZ block has progressed from an exploration block into our development portfolio.The block is an exciting prospect as it contains multiple prospective coal seams and is located in Southern China, which has historically been short on gas production.

"We see GGZ offering considerable additional value to our shareholders and will be progressing with the CRR and ODP accordingly during 2017. We believe this can be achieved without distracting us from our absolute focus on delivering production, sales and cash from our existing commercial assets in GSS and GCZ within Shanxi. Realising the potential of the GGZ block is an exciting objective for the Group in the medium term and one that I believe will achieve our dual aims of actively participating in the gas and clean energy revolution in China while providing strong returns to shareholders. GGZ will be our third commercial block, following our successes in GCZ and GSS."

Note (1): based on Netherland Sewell & Associates independent estimates

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

Instinctif Partners

David Simonson / George Yeomans

Tel: [phone]

Citigroup

Tom Reid / Luke Spells

Tel: [phone]

Peel Hunt

Richard Crichton / Ross Allister

Tel: [phone]

About Green Dragon Gas

Green Dragon Gas is a leading independent gas producer with operations in China and is listed on the main market of the London Stock Exchange (LSE: GDG). The Company has 549Bcf of 2P reserves and 2,379Bcf of 3P reserves across eight production blocks covering over 7,566km² of licence area in the Shanxi, Jiangxi, Anhui and Guizhou provinces. It holds six Production Sharing Agreements with strong, highly capitalised Chinese partners including CUCBM (CNOOC), CNPC and PetroChina, and has infrastructure in place to support multiple routes to monetise gas production.

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