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Green Dragon hails asset quality as reserves rise again

At the end of 2015 estimated 1P or proved reserves, were 173Bcf, a 17% rise
Green Dragon hails asset quality as reserves rise again
Reserves rise for a tenth year in a row

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China-focused gas group Green Dragon (LON:GDG) has increased its two highest categories of commercially recoverable reserves for a tenth year running.

At the end of 2015 estimated 1P or proved reserves, were 173bn cubic feet (Bcf), a 17% rise,  while 2P reserves (proved and probable) jumped 29% to 549 Bcf.

3P, which includes possible reserves, rose 4% to 2,379 Bcf. Across of its blocks Green Dragon has total gas in place of 25.6 trillion cubic feet.

Randeep Grewal, chairman, said the consistency of this reserves migration highlighted the world class nature of the acreage held by Green Dragon. Consultant Netherland Sewell and Associates (NSAI) carried out the assessment.

While the amounts rose, the value of the reserves dipped slightly due to the decline in the value of the Chinese renminbi and a reduction in capital expenditure plans.

Using a 10% discount, their estimated value is now US$1.22bn (US$1.46bn) for the 1P category, US$4bn (US$4.3bn) for the 2P category and US$16.2bn (US$21.2bn) for the 3P category.

Development spending for the 1P, 2P and 3P prospects has been reduced by 32%, 20% and 12% respectively.

The company added it now has 1P reserves in three blocks: Chengzhuang (GCZ); Shizhuang South (GSS) and Shizhuang North (GSN) and 2P reserves in another, Fengcheng (GFC).

"I am particularly pleased that the reported 1P progression for 2015 includes the migration of initial reserve volumes for Coal Seam 15 (CS15) on both the GSS and GCZ blocks where, together with our partners, we have made significant investment in infrastructure in recent years, " Grewal said.

“The migration to 1P on CS15 in these blocks represents a significant step forward in demonstrating the prospective potential of this coal seam.

“CS15 is present within our four Shanxi blocks, namely GCZ, GSS, GSN and GQY.

"In addition to the success on CS15, the notable pace of reserve migration on GSN - following the 2014 sale of a 10% interest to CNOOC in return for a USD $200 million carry - clearly demonstrates the value proposition across our acreage in China."

NSAI’s report included all 2,037 wells operated by Green Dragon, CNOOC and PetroChina across all seven blocks in which the company has varying equity interests.

Prices at year-end used in the reserves evaluation were USD $11.5/Mcf at the production block, inclusive of government subsidies.

Grewal added: “2016 will be the best year financially Green Dragon has ever had".

“This is just the beginning of the hockey stick we can now see going forward.”

Green Dragon is bright spot in a dark commodity cycle, he said, explaining that China has been consistent in ensuring gas prices are passed through to the domestic producers.

“If did not drill another well our production, revenue, cashflow, EBITDA, would consistently compound based on the wells we have already.”

Shares rose 1.3% to 270p.

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Green Dragon Gas Ltd. Timeline

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April 27 2016

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