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08 October 2013

Significant Drilling Development


Green Dragon Gas Ltd. (AIM: GDG), one of the largest independent companies involved in the production and sale of CBM gas in China, is pleased to announce that following the reissue of the licences in July 2013, the Company has discovered that a number of wells were drilled on five of its six PSC blocks pre July 2013 by a number of Chinese CBM gas companies (the PSC in Guizhou was not the subject of such drilling). As stated in the Company’s announcement on 10 July 2013, the Chinese government has reissued the licences covering the Shizhuang North (Shanxi), Qinyuan (Shanxi), Fengcheng (Jiangxi) and Panxie (Anhui) exploration blocks, as well as the commercial production block Shizhuang South (Shanxi). The Company believes that revenue and reserves from the wells drilled by these companies  will accrue to the benefit of Green Dragon.
 
The Company has been in continuous dialogue with the PRC Government and its controlled entities China National Offshore Oil (CNOOC), CNPC, PetroChina and China United Coalbed Methane Corporation (CUCBM) regarding their drilling activities across the Company’s PSC blocks. Through such communications, it has been revealed that these companies drilled a total of c. 1,500 wells across these blocks. The Company has requested from these entities, as well as from the Ministry of Land and Resources, all information pertaining to these wells. Of the c. 1,500 wells drilled, it is estimated that c. 1,300 have been drilled across the Company’s Shizhuang South PSC (GSS), whilst the others have been drilled on the four other exploration blocks. The Company has been informed  that capital expenditure on these 1,500 wells exceeds US$500 million.
 
Once the Company is in receipt of the information requested, in accordance with its annual practice, an independent evaluation of the material accretive impact to the 1P, 2P and 3P reserves will be conducted and the results disclosed. The invested capital will also be audited and may be subject to the terms of the PSCs for cost recovery.
 
The Company’s licences on the impacted five PSC’s cover an area of 6,620 sq km and its operational focus has been to concentrate on proving up certain distinct areas of these licences. Consequently, the information about the scale of these third party wells only came to light as a result of the reissue of the licences and the subsequent on-going dialogue.
 
 
Randeep S. Grewal, Chairman and Founder of Green Dragon, commented:
 
“Our compliance with the contractual terms and adherence to Chinese law and  confidence in the Central Government was boosted by the re-issuance of the exploration licenses in July 2013. Significantly, these licences were backdated to account for the continuous period of the PSCs,  re-confirming that they were indeed in full force and effect. We have been steadfast in this position since inception.
 
However, we have been over-whelmed by the discovery of the number of the wells drilled. Whilst we had previously given notice of PSC violations to CUCBM for the wells they drilled on Green Dragon’s blocks, we were unaware of the extent of their actual activity as well as that of CNOOC, CNPC and PetroChina. Our field teams are diligent in the concentrated areas where we explore, develop, produce and sell the CBM in accordance with the terms of our PSCs. It is impossible to be vigilant over the entire 6,620 sq km (1,635,837 acres) of licence area. Once all the information is received as required by the re issuance of these licences, we will quantify the effect on our production, reserve progression and revenue. We expect the accretive impact to be material in each of these categories. Furthermore, until such information is ascertained, we will prudently suspend any aggressive drilling campaign or related financings, so as to absorb all of this material information. Additionally, our experienced technical staff will also account for the well type drilled in these campaigns and we will adjust our efficient and proven LiFaBriC wells patterns to accommodate the findings.
 
We are committed to amicably concluding the material impact within our PSC areas in various aspects and look forward to capitalizing on this accelerated development to significant commerciality. However, we stand ready to enforce our PSC rights in the event there is any procrastination on such a mutually beneficial conclusion.”
 
 
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
 
+852 3710 0108
Dr Azhic Basirov / David Jones
Smith & Williamson – Nominated Adviser & Broker
 
+44 20 7131 4000
Steve Baldwin / Nicholas Harland
Macquarie Capital (Europe) Limited - Broker
 
+44 20 3037 2000
Richard Crichton / Andy Crossley
Peel Hunt - Broker
 
+44 20 7418 8900
James Henderson / Phillip Dennis
Pelham Bell Pottinger - Investor Relations
+44 20 7861 3232
 
 
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