Green Dragon Gas reports significant growth as China’s thirst for energy continues

China’s thirst for energy resources has continued with an increased focus on domestic supplies of gas, Green Dragon Gas (LON:GDG) chairman Randeep Grewal said today.

In the company’s interim results, Green Dragon told investors that it remains on-track to meet its ‘aggressive targets’ in 2010, after it increased gross profit by 44% in the first six months. The Chinese CBM (Coal Bed Methane) gas producer increased revenues by 15% to US$21.5m.
"Green Dragon Gas continued its organic growth in the first half of the year with each of the four divisions making solid progress ... As each division develops we are increasingly seeing the real benefits of a vertically integrated business,” Grewal commented.
“Each division continues to work with its partners, such as PetroChina and CNPC Kunlun, and each partnership in one segment is yielding synergies for the other segments."

The improved performance has allowed Green Dragon to cut net losses by 20%, to US$6.2m (H109:US$7.8m), and its net loss per share was 35% better off at US$0.045 (H109:US$0.069).

During the period, the company’s balance sheet was boosted by an US$8m farm-out payment from ConocoPhillips (NYSE:COP) and a US$50m convertible bond fund raising. At the 30th June, Green Dragon had total Equity of US$576.2m and current assets of US$92.3m, with US$77.6m in cash.

Two years after its inception, Green Dragon’s drilling division has continued to drive production growth. The company drilled 13 new wells in the first six months of the year, with 7 vertical wells and 6 horizontal SIS (surface-to-inseam) wells.
Grewal highlighted that the company’s drilling success at the GSS block has now defined the standard operating procedures and typical gas extraction process.
“We expect a continuous drilling program with significantly more rigs drilling in GSS next year to conclude this field's development. We expect GSS development to be completed within five years and continue producing gas for at least 20 years and thereafter."
In the six-month period, Green Dragon increased production from the GSS block to 2.3 million cubic feet per day (MMCFPD). The company said it is on target to reach its 1 billion cubic feet (Bcf) target by the end of the year.

At its Midstream Wholesale division Green Dragon increased gas sales by 4.28% to 1.2Bcf in the first half, while the Downstream division upped sales by 7%, selling 5.17Bcf.
Across all its blocks Green Dragon has 25.5 trillion cubic feet (Tcf) of gas-in-place, with a 2.3Tcf 3P (Proven, Probable and Possible) reserve, with a net present value (PV10) of US$9.3bn.

Additionally, the company highlighted that its joint venture business also performed positively.

"Our joint-ventures in gas distribution also continued their profitable growth ... This growth ought to be further enhanced by favorable pricing policies released by the government recently.”
Looking ahead, the chairman believes that any ‘remote possibility’ of China reducing its dependency on overseas energy supply must entail a material increase in domestic gas production. According to Grewal, this increase will include a significant amount of CBM production.
Grewal emphasised that Green Dragon remains on track to achieve the aggressive targets, and its foundations largely in place to grow CBM production, he expects to see the company develop real momentum in the years ahead.
Green Dragon also noted that its significant organic growth will be complemented by ‘niche acquisitive opportunities’.
In response to the positive results, Evolution Securities’ Keith Morris highlighted that Green Dragon is making “steady organic progress”.

Evo’s oil and gas expert said that key growth drivers remain.

Accordingly, Morris identified the 2nd phase of the ConocoPhillips farm-in; access to nearby rail infrastructure; and achieving ‘meaningful’ upstream CBM revenues as important milestones.