Cantor Fitzgerald TGT 952p10 Oct 2014 09:41
Imminent step-change in cash flow. Currently, GDG holds a 60% interest in producing block GSS (expected to increase to 70% in 2015) with a cost recovery preferential cash flow of 90%. As such, the company will recognise 96% (90% cost recovery plus 60% of the remaining 10%) of revenues arising from production until all historical capex is repaid in full. Given the significant capex spend projected (150 new wells on GSS at an estimated cost of c.US$225m) the 96% preferential cash flows will have a significant impact on GDG’s 2015 financials and beyond. The 2014 Interim results showed encouraging revenue from block GCZ. Net sales of CBM amounted to 2.8Bcf, of which 2.06Bcf was attributable to GCZ and revenue of US$8.4m was recognised. LiFaBriC wells become a manufacturing process. LiFaBriC methodology, an adaptation of traditional horizontal drilling methods, is mature, offers stable production with little decline, and the interference created by LiFaBriC wells is potentially able to aid de-watering and boost production from proximal vertical wells. All suitable wells are being systematically connected to infrastructure as they de-water. Close partnerships and secure title achieved, ambiguity eliminated. Firm agreements are now in place regarding title. GDG has settled its litigation matter with ConocoPhillips to the mutual satisfaction of both parties. The interests of partners PetroChina, CNPC, CNOOC and CUCBM are now aligned with GDG. The company is now looking to reserve-based lending (“RBL”) to progress a 150 LiFaBriC well drilling programme. GDG’s focus is the migration of its reserves towards 1P. In May 2014 Netherland, Sewell & Associates (“NSAI”) increased net 1P reserves by 113% to 126Bcf (59Bcf in 2012) and net 2P by 22% to 382Bcf (314Bcf in 2012). Move from AIM to LSE Main Market in October 2014. We believe this will enhance liquidity and the company’s profile, whilst potentially reducing share price volatility.
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