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Green Dragon Gas readies new block in China

Green Dragon Gas is China-focused and specialises in extracting gas locked into the huge coal beds the run underneath the country.
picture of Chinese city
A growing need for gas to keep the lights on

Green Dragon Gas (LON:GDG) is China-focused and specialises in extracting gas locked into the huge coal beds the run underneath the country.

It has interests in seven producing and exploration blocks and is partnered by three heavyweights of China’s resources sector in CNOOC, CNPC and PetroChina.

 

GGZ latest off the block

The next development, its third, will seemingly be the Baotian-Qingshan (GGZ) block in Guizhou Provincem, which has just shifted from exploration to development status.

The block is a 60/40 joint venture between Green Dragon and PetroChina.

Seven coal seams are considered prospective for a coal bed methane development with total  gas-in-place estimated to be 4.55trn cubic feet.

Green Dragon added it has applied for approval of the Chinese Reserve Report (CRR) from the Ministry of Land Resources, which is a precursor to approval of the overall development plan (ODP) and expected to come through in 2017.

Randeep Grewal, Green Dragon’s chairman, believes GGZ ‘s  multiple prospective coal seams and location in Southern China, which is woefully short on gas production, makes it an attractive proposition.

 

More than 2,000 wells 

In total, Green Dragon and its partners have drilled 2,037 wells across its acreage of which 735 are connected to the grid, but this still may have only scratched the surface of the potential.

At the end of 2015 estimated 1P (proved) reserves were 173Bcf, 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 all of its blocks Green Dragon has total gas in place of 25.6 Tcf

 

Sales rising

Gas sales increased by 5.6% to 3.41 bcf (2015: 3.23 bcf) in 2016.

Sales from wells it operates on the Shizhuang South  production block (GSS) increased by 34% to 1.88 bcf (2015:1.41 bcf).

Production capacity across all licences increased by 9% to 11.22 bcf with an rate at the end of the year 12.05 bcf (2015: 12.12bcf).

 

China keen to boost use of gas

According to Grewal, China is a bright spot in a dark commodity cycle as it has been consistent in ensuring gas prices are passed through to the domestic producers.

China is acting to cut pollution and reduce its reliance on coal, which currently accounts for 70% of power generation, by switching to alternative fuels including natural gas.

Natural gas use is currently low in China compared with many developed economies in the West, but the country is actively seeking to increase the proportion of gas within its energy mix from 4-5% to 10% by 2020.

Grewal added he took huge comfort from the Chinese government's thirteenth five year plan published in 2016.

“As part of that plan, the Central Government has specifically identified our joint projects at GCZ, GSS, GSN and GGZ, where we partner with CNPC, CNOOC and PetroChina respectively, as priority CBM projects.”

 

Dual-listing a possibility

Grewal added it was also investigating a dual-listing in China to get access to additional capital to develop its portfolio of CBM fields.

Talks are already underway with a range of Chinese financial institutions over re-financing US dollar-denominated debt with renminbi debt.

There was a better understanding of the potential in Chinese CBM energy in local financial markets, he said.

“While we do not expect to issue any new shares, we hope this will help narrow the discount to our asset value and deliver increased value to all shareholders.”

A decision on whether to dual list will be announced with the annual results, he said.

 

2017 priorities

A development plan for the Chengzhuang production block (GCZ) is substantially complete with approval targeted for the first half of this year. State-owned giant CNPC is Green Dragon’s partner.

Later in 2017, Green Dragon also expects gas sales to start from the Boatian-Quingshan exploration block (GGZ).

Other priorities are to redeem the outstanding US$88mln Nordic bond and to complete the sale of the downstream operation. 

 

-- includes 2016 operational update --

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