Interim Results

Green Dragon Gas Ltd 29 September 2006 GREEN DRAGON GAS LTD. ('Green Dragon' or 'the Company') Interim results for the period ended 30 June 2006 Green Dragon Gas Ltd (AIM:GDG), the Chinese coal bed methane business, today announces its interim results for the period ended 30 June 2006. Highlights: • Successful flotation onto AIM in August 2006, raising US$25.1 million in equity finance through a share placing with institutional shareholders- assuring financial resources required for exploration and production programme. • Portfolio consists of interests in 5 coal bed methane production sharing contracts ('PCSs'), covering a total of approximately 1.6 million acres in China. • Estimated gross Gas In Place of approximately 16.6 tcf* • Loss of £709,000 for the period to 30 June 2006, reflecting the pre-revenue exploration phase of the Company • Drilling contracts signed with Shandong Coal Geology Bureau ('SCGB') and Henan Yuzhong Geological Prospecting Engineering ('HYGP') to drill vertical wells in four of the Company's five blocks • Agreement executed with PetroChina Planning & Engineering Ltd ('CPPEI') to conclude the Company's Shizhuang South Block Overall Development Program ('ODP') and submit it to Beijing in Q4 2006. • Additional key technical and engineering personnel have been hired to strengthen the Company's ability to perform and grow. * Scott Pickford Competent Persons Report Commenting on the results, Randeep Grewal, Chairman of Green Dragon Gas, said: 'The past six months have been very significant in the development of the Company. I am happy to say that we are now in the position where progress is being achieved in all aspects of the business: we have an excellent portfolio of interests; we are well funded following the equity placing to execute our growth plan through next year; we secured contracts with drilling companies to carry out pilot drilling as part of the exploration and production programme; and we have in the PetroChina subsidiary a partner with huge expertise and local knowledge to help us conclude the Shizhuang South Block ODP. I look forward to reporting on Green Dragon's continued progress, moving from development to the production of gas in the months to come.' For further information on the Company and its activities, please refer to the website at www.greendragongas.com or contact: Randeep Grewal Chairman and Chief Executive, Green Dragon Gas Ltd. +852 2166 8686 Tim Thompson/ Mark Edwards/ Nick Melson Buchanan Communications + 44 (0)20 7466 5000 Dr Azhic Basirov/ David Jones Smith & Williamson Corporate Finance Limited +44 (0)20 7131 4000 Chairman's Statement These are exciting times for the Company and its shareholders. In just over a month since the Company was admitted to trading on AIM ('Admission'), the management has progressed operations, building on the foundation established prior to Admission. The Company signed contracts in September to drill pilot wells in all five blocks. Drilling operations are underway in Qinyuan (Shangxi province) and Fengcheng (Jiangxi province). Spud dates for Panxie, Shizhuang North and Shizhuang South are expected to be announced shortly. Additionally, agreements have been executed with Petrochina Planning & Engineering Institute ('CPPEI') to provide their expertise and local knowledge in compiling the Company's Shizhuang South Block Overall Development Programme ('ODP') targeted for delivery to the relevant authorities by the end of this year. The Company has hired additonal technical staff, including experienced drilling engineers, to support the increase in activities. It is anticipated that further recruitment will take place as the operations grow. These interim financial results reflect the period from 28 March 2006 to 30 June 2006. This period is pre-Admission and the Company's focus was on the acquisition of substantial gas resources in China. The acquisition of Greco Gas Limited, now a wholly owned subsidiary of the Company, has been reflected in compliance with International Financial Reporting Standards ('IFRS'). The assets and liabilities acquired have been recorded at their fair value in compliance with IFRS 3. On 17 August 2006, Green Dragon shares were admitted to trading on AIM, a market of the London Stock Exchange. The Company issued 4,513,413 ordinary shares, raising US$25.1 million before issuance costs. Following the fundraising in August, the Company is well funded to execute its growth plan through the next year. I look forward to reporting on Green Dragon's continued progress, moving from development to the production of gas in the months to come. Randeep S. Grewal Chairman and Chief Executive 28 September 2006 Consolidated Income Statement Unaudited Period to 30 June 2006 US$000 Revenue - Cost of sales - --------- Gross profit - Depreciation - Administration expenses (558) --------- Total operating costs (558) --------- Loss on ordinary activities before interest (558) Borrowing costs (152) Loss on ordinary activities before taxation (710) Taxation 1 Loss on ordinary activities after taxation and net loss for the period (709) --------- Loss per share Basic and diluted (US$) 6 (0.00787) --------- Consolidated Balance Sheet Unaudited 30 June 2006 US$000 Assets Non-current assets Gas exploration and appraisal assets 447,968 --------- Total non-current assets 447,968 Current assets Amounts receivable 8 260 Cash at bank and in hand 521 --------- 781 Creditors: amounts falling due within one year (759) --------- --------- Net current assets 22 --------- Total assets less current liabilities 447,990 Creditors: amounts falling due after more than one year 9 (31,206) Provisions for liabilities and charges (1,244) --------- Net assets 415,540 --------- Capital and reserves Called up share capital 9 Share Premium 416,240 Retained losses (709) --------- 415,540 --------- Unaudited Consolidated Cash Flow Statement Period to 30 June 2006 US$000 Net cash flow from operating activities Loss before tax for the period (709) Adjustments for: Borrowing costs 152 Increase in receivables (9) Increase in payables 483 Increase in provision for liabilities and charges 3 Foreign exchange (gain) /loss (28) --------- (108) Net cash flow from investing activities Deferred exploration expenditure (118) Cash held in subsidiary companies at the date of acquisition 132 --------- 14 Net cash flow from financing activities Proceeds from loan notes 615 --------- 615 Net increase in cash and cash equivalents 521 Cash and cash equivalents at 28 March 2006 - --------- Cash and cash equivalents at 30 June 2006 521 --------- Significant non-cash transactions are as follows: Investing activities Equity consideration for the acquisition of Grecogas Ltd: see Note 11 Statement of Changes in Equity for the Group For the period ended 30 June 2006 US$000 Balance at 28 March 2006 - Shares issued in the period 416,249 Losses after tax for the period (709) --------- Balance at 30 June 2006 415,540 --------- Notes to the interim financial statements 1 Accounting policies Basis of presentation Green Dragon Gas Ltd (the 'Company') is a company incorporated in Cayman Islands. The group financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group').These financial statements have been prepared under the historical cost convention and in accordance with applicable International Financial Reporting Standards. The principal accounting policies have been applied consistently in these financial statements. Basis of consolidation The consolidated financial information incorporates the results of the Company and its subsidiary undertakings (being entities in which the Company had significant control) using the principles of acquisition accounting. The results of subsidiaries are included from the date of acquisition. Business combinations During the period the Company acquired Grecogas Ltd. Grecogas Ltd and Green Dragon Gas Ltd are under common ownership and control before and after the transaction and as a transaction under common control not within the scope of IFRS 3 'Business Combinations'. However the Directors have voluntarily complied with IFRS and treated this as an acquisition. As a result the shares issued and the assets and liabilities acquired have been recorded at their fair value.' 2 Segmental analysis The Group operates in one business segment, the exploration for and production of gas. The Group has interests in one geographical segment being China. 3 Taxation on profit from ordinary activities The amount is related to a tax refund received by Greka Energy International B.V. in the Netherlands for the period. 4 Loss per share Loss per ordinary share has been calculated using the weighted average number of shares in issue during the period 28 March 2006 to 30 June 2006. The weighted average number of equity shares in issue for the period is 90,000,000. Due to the losses arising in the company during the period the diluted loss per share is considered to be the same as the basic loss per share. 5 Gas exploration and appraisal assets US$000 Cost Balance at 28 March 2006 - Acquisitions through business combinations 447,850 Capitalized costs 118 --------- Balance at 30 June 2006 447,968 --------- Amortisation Balance at 28 March 2006 - Amortisation for the period - --------- Balance at 30 June 2006 - --------- Net book value At 30 June 2006 447,968 --------- 6 Amounts receivable US$000 Deposits 48 Other debtors 212 --------- Balance at 30 June 2006 260 --------- 7 Creditors: amount falling due after more than one year US$000 Notes payable 18,164 Amount payable 13,042 --------- Balance at 30 June 2006 31,206 --------- During the period, Mr Randeep Grewal, CEO and Chairman of the Group, provided Grecogas Ltd with US$615,000 advances in the form of loan note to fund exploration work and administration expenses. Mr Randeep Grewal also provided advances to Grecogas Ltd prior to the acquisition of Grecogas Ltd. The following table summarises the loan notes covering advances by Mr Randeep Grewal. Repayment Amount Date of loan note Date HK$ Interest Rate 1 January 2004 1 January 2010 57,385,000 Hibor + 3% 1 January 2005 1 January 2011 21,140,800 Hibor + 3% 1 January 2006 1 January 2012 49,173,600 Hibor + 3% 30 June 2006 1 July 2012 13,208,700 Hibor + 3% The minimum interest charge on the loan notes is 4.5%; the loan notes are denominated in Hong Kong Dollars. The amount payable represents amount payable to CUCBM, who are a party to the production sharing contracts, represents exploration costs incurred on the properties. These amounts are only payables from revenue on production from the Shizhuang South Property in China exclusively. 8 Share Capital Authorised Allotted, called up and fully paid Number Number US$000 Ordinary Shares of $0.0001 each 500,000,000 90,000,000 9 ----------- ---------- --------- 500,000,000 90,000,000 9 ----------- ---------- --------- The Company was incorporated on 28 March 2006 with 1 Ordinary Share of US$1 issued. On 8 April 2006, 8,999 Ordinary Shares were issued to acquire Alexi Holdings Limited. On 6 June 2006, each Ordinary Share of US$1 was converted into 10,000 Ordinary Shares of US$0.0001 each. 9 Reconciliation of net cash flow to movement in net debt US$000 Net debt as at 28 March 2006 - Increase in cash in the period 521 Loan notes acquired through business combination (17,574) Loan notes advance in the period (615) Non cash advance by CUCBM acquired through business combination (13,042) Foreign exchange gain 25 --------- Net debt as at 30 June 2006 (30,685) --------- 10 Analysis of net debt As at Cash flow Non cash As at 28 March movements 30 June 2006 2006 US$000 US$000 US$000 US$000 Cash in hand and at bank - 521 - 521 Loan Notes - (615) (17,549) (18,164) Long Term Liabilities - (13,042) (13,042) --------- --------- --------- ------- Net debt - (94) (30,591) (30,685) --------- --------- --------- ------- 11 Acquisition of Subsidiaries On 8 April 2006, Mr Randeep Grewal, being the sole shareholder of the Company and of Alexi Holdings Limited, transferred 100% of issued shares in the capital of Alexi Holdings Limited, the holding company of Grecogas Ltd, Greka Energy International B.V and certain other companies, to the Company in consideration for the allotment of 8,999 ordinary shares of US$1 each in the capital of the Company. On 28 April 2006, Grecogas Ltd distributed 100% of the issued shares in the capital of Greka Energy (HK) Ltd to Alexi Holdings Ltd. On 2 May 2006, Alexi Holdings Ltd distributed 100% of the issued shares in the capital of Grecogas Limited to the Company and on 3 May 2006 the Company distributed 100% of the issued shares in the capital of Alexi Holdings Ltd to Mr Randeep Grewal. The resulting Group share ownership following the above transactions is that: Mr Randeep Grewal holds 100% of the issued shares in the Company which in turn holds 100% of the issued shares in Grecogas Ltd which in turn owns 100% of the issued shares in Greka Energy International B.V. The Company and Grecogas Ltd are holding companies with no trading activities. Grecogas Ltd and Green Dragon Gas Ltd are under common ownership and control before and after the transaction and as a transaction under common control not within the scope of IFRS 3 'Business Combinations'. However the Directors have voluntarily complied with IFRS and treated this as an acquisition. As a result the shares issued and the assets and liabilities acquired have been recorded at their fair value. The details of the fair value of identifiable assets and liabilities acquired are as follow: Book Value Fair Value Fair Value Adjustments US$000 US$000 US$000 Acquiree's net assets at the acquisition date: Gas exploration and appraisal assets 29,684 418,166 447,850 Trade and other receivables 250 - 250 Cash and cash equivalents 132 - 132 Interest loan notes and borrowings (17,574) - (17,574) Long term liabilities (13,042) - (13,042) Other liabilities (1,367) - (1,367) --------- --------- --------- Net identifiable assets and liabilities (1,917) 418,166 416,249 --------- --------- --------- No identifiable goodwill has arisen in respect of this transaction. The surplus of value of the consideration over the other separable net assets and liabilities of the acquired group has been attributed to the gas exploration and appraisal assets and represents the estimated recoverable gas reserves within the Grecogas Ltd group as at the date of acquisition. There was no cash element in the consideration. 12 Post balance sheet events On 17 August 2006, the Company listed its shares on AIM, a market of the London Stock Exchange, and 4,513,413 Ordinary shares were issued raising US$25.1 million before issuance costs. 13 Copies of the interim statement Copies of the interim statement will be available from the office of the Company's nominated adviser and broker, Smith & Williamson Corporate Finance Limited, 25 Moorgate, London EC2R 6AY and from the Company's website: www.greendragongas.com. This information is provided by RNS The company news service from the London Stock Exchange

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