CNOOC and CUCBM Agreement

RNS Number : 8273D

Green Dragon Gas Ltd

02 April 2014

 



2 April 2014

GREEN DRAGON GAS LTD

("Green Dragon", "GDG" or the "Company")

CNOOC and CUCBM Accelerate Green Dragon's Development via Binding Agreement

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 it has entered into a binding agreement with China United Coalbed Methane Corporation (CUCBM), a subsidiary of China National Offshore Oil Corporation (CNOOC), regarding five of its Production Sharing Contracts (PSCs) in China.

Highlights:

·        Interests of GDG and CUCBM now aligned with both companies to work together in order to maximise the value within the PSCs which continue in full force and effect

·        Secures interest and revenue share of the approximately 1,600 wells drilled by CUCBM in line with PSCs

·        CUCBM committed to invest a further US$100 million into GSN in return for an additional 10% working interest (in addition to an estimated US$100 million invested to date)

·        CUCBM committed to ongoing cooperation with GDG with full information sharing across wells drilled on PSCs and all local assistance

·        PSC exploration terms extended for a further 2 years

·        GDG expects US$250 million additional GSS infrastructure investment from CUCBM

Randeep S. Grewal, Founder and Chairman of Green Dragon Gas, commented:

"This agreement substantially de-risks the Company's assets, paving the way for us to rapidly build on existing production and sales and to fully realise the market potential for our gas in China. The agreement also allows the Company to open a cooperative and positive chapter in relations with CNOOC and CUCBM. We now have a well-capitalised, supportive partner committed to developing our vast acreage and producing the substantial multi-TCF gas resource with us over the next 20 years. While our GSS block is already in commercial and profitable production, we expect GSN to follow shortly. GDG can now look forward to the continued successful execution of our business plan as the pioneering CBM developer in China.

Nine months of continuous negotiations has resulted in a historic and materially accretive conclusion to the Company and its shareholders and opens a very rewarding chapter.  Green Dragon has delivered on its commitment to protect Shareholder value and rights. Throughout the negotiations this objective was adhered to and successfully delivered.

The Company has a direct equity interest in over 1,800 drilled wells. The equity interest varies between 47%-70% and the total invested capital exceeds US$1 billion. We have indeed migrated from an exploration company to a production company with a substantial proven reserve and a large acreage to develop. We expect to participate in cash flows from 2013 onwards from existing legacy wells and continue a robust development plan with our cooperative partner CNOOC and CUCBM.

Given the extent of the drilling already undertaken over the last two years, which had not been accounted for in our previous reserve audits, as previously estimated by our in-house engineers, we would expect to see a significant migration of reserves.  Following the audit of our reserves, we will focus on our 150 LiFaBriC well drilling programme at GSS, which will be drilled by Greka Drilling.

Finally, we thank all the Shareholders and employees who have supported the Company since inception. The Company has always been very consistent and clear of its bi-lateral treaty protected PSCs right, title and interest and are pleased to conclude this matter amicably in finality."

Details of Binding Agreement

Shizhuang South Block (GSS)

·     Under the agreement, operatorship of the GSS block will continue under the Company except for the wells drilled by CUCBM in Coal Seam 3

·     The circa 1,300 legacy wells drilled by CUCBM will be operated by them, with the remainder continuing to be operated by GDG

·     GDG equity participation in the entire block increases from 60% to 70% following the cost recovery to CUCBM of US$13 million (as provided by the PSC) which will be paid from the GDG operated wells

·     GDG and CUCBM to each be entitled to cost recovery at a preferential rate from wells they operate - percentage of gross profit to cost recovery, will increase from 75% to 90%

·     Option for GDG to deliver gas directly into CUCBM infrastructure

·     GDG to continue as Operator in the remaining block including the entire second Coal Seam 15 which is prevalent in the entire block below Coal Seam 3. Coal Seam 15 lies approximately 150 meters below Coal Seam 3. Legacy wells (as referred to above) have been confined to Coal Seam 3 as have the agreements relating to carried interest and non operated interest

·     The Government has approved two ODPs within the GSS Block

·     CUCBM expected to invest an additional US$250 million to complete offtake infrastructure, enabling gas sales - bringing the total estimated investment to US$700 million (subject to audit), inclusive of the 1,300 wells drilled

Shizhuang North Block (GSN)

·     CUCBM has committed to invest an additional US$100 million towards exploration and production in exchange for a further 10% interest in GSN, resulting in each company holding a 50% participating interest

·     CUCBM has already invested an estimated US$100 million in GSN to drill 250 wells and PSC extended by two years with additional period extensions subject to Government approval

Qinyuan Block (GQY)

·     Sub-divided into two equal sized blocks, A & B, under the original PSC framework, with each operator bearing all exploration expenses in their respective areas

·     Block A to be held 90% by CUCBM and 10% by GDG, with CUCBM as operator

·     Block B to be held 40% by CUCBM and 60% by GDG with GDG as operator

Fencheng (GFC) and Panxie East (GPX)

·     Status quo

·     GDG participating interest to remain unchanged for both PSCs

·     GDG to continue as operator with both parties agreeing to perform their respective obligations under both PSCs

GDG and CUCBM will convene JMC meetings for each of the five PSCs. Each party shall further disclose to each other all technical information and related Overall Development Plans under the PSCs, followed by a third party audit with respect to certain cost recovery aspects of the parties' respective investments in each of the PSCs.

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	[phone]
Dr. Azhic Basirov / David Jones Smith & Williamson - Nominated Adviser & Broker	[phone]
Steve Baldwin / Nicholas Harland Macquarie Capital (Europe) Limited - Broker	[phone]
Richard Crichton / Andy Crossley Peel Hunt - Broker	[phone]
James Henderson / Phillip Dennis Pelham Bell Pottinger - Investor Relations	[phone]

Note:

This release follows the announcement made on 29 October 2013 in relation to the Heads of Agreement executed with Overseas Oil and Gas Corporation, Ltd., a subsidiary of China National Offshore Oil Corporation (CNOOC).

The Company's PSCs are held by GDG's wholly-owned subsidiary Greka Energy (International) B.V. (Greka BV) and it is Greka BV which is the counterparty to the agreement with CUCBM described in this announcement and references to the Company in this announcement include references to Greka BV where the context requires.

Background Information and Notes to Editors

GREEN DRAGON

§ Unique PSCs signed with the Central Government at the Great Hall of the People

§ Company commitment to introduce methodologies to commercialize gas trapped in complex, highly faulted, under saturated coal seams

§ Pure play E&P focussed business in China

§ Six PSCs across the four provinces of Shanxi, Anhui, Jiangxi and Guizhou

§ Five PSCs with CUCBM

§ One PSC with PetroChina in Guizhou

§ Company's PSCs have not been modified from date of signing to alter bilateral agreements, operatorship and confer the ability to sell gas at market prices

§ Green Dragon achieved a global first in successfully being able to produce sustainable quantities of gas from under saturated, faulted anthracite coals in China

§ In July 2013, the Central Government confirmed the title issues relating to its PSCs, all of which were resolved in GDG's favour

§ Disclosures of material drilling activity, wells, production and gas sales by CNOOC  and CNPC (the parent entities of CUCBM and PetroChina)

§ Existing binding agreement for equity participation at GCZ with PetroChina with gas sales having commenced in March 2010

§ Gross audited original gas in place of 25.2 Tcf by Netherland Sewell & Associates Inc., audited annually for transparency to shareholders over the last seven years

§ Audited reserves (2012) of 2.2 Tcf valued at US$12.7 billion

§ Gross production of 7.2 Bcf for the year 2012 to be further augmented by this binding agreement

§ Cumulative capital expenditure by Green Dragon on production and exploration assets of over US$350 million as at the end 2013 that can be applied to preferential cost recovery under the terms of the PSCs

 

END

 

 

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