This announcement follows an earlier announcement by GDG (15/09/17) of the approval of a Project Code for the Overall Development Plan (ODP) on the GCZ block by the China National Development and Reform Commission (NDRC), confirming its final approval. The Block is jointly operated by CNPC and GDG through a joint management team based in Jincheng, Shanxi. The development cost for GCZ will be c.US$53.8m over 2017 and 2018. CNPC will invest US$28.5m according to its 53% participating interest and GDG US$25.3m based on its 47% participating interest in the Block.
Our valuation of GDG at 221p per share, based on a risked valuation of 2P reserves and adjusted for Net debt/cash and capitalised corporate costs, is unchanged. These two recent announcements should increase investors’ confidence in GDG’s ability to realise this valuation, although we recognise, from the stock’s performance in recent months, that the perception gap has grown wider. We reckon that management should take the publication of 1H17 results later this month as an opportunity to inject more clarity in its communication in order to narrow the gap (Figure 1).Full report is available via Capital Network website