Last checked at 15 Sep 2010 07:00
GREEN DRAGON GAS LTD
("Green Dragon Gas" or "the Company")
Acquisition of Regional CNG Refuelling Network
Green Dragon Gas, one of the largest independent companies involved in the production of CBM gas, and the distribution and sale of wholesale gas in China, is pleased to provide the following update in relation to its gas retail operations in Henan Province.
The Company has entered into a binding agreement to add 25 new vehicle refuelling stations in 7 districts in Henan Province. The acquisition cost is USD 15m, with each station expected to cost a further USD 500,000 in construction related expenses. The new facilities are in Xinxiang, Kaifeng, Anyang, Luoyang, Xuchang, Hebi (including Sanmenxia and Jiaozuo) and Zhoukou. These stations are in addition to the two existing refuelling stations already established and operating in Henan's capital city, Zhengzhou and Jiyuan thereby increasing Green Dragon Gas's total retail network to 27 stations.
All stations are located within a 250km radius from the Company's production facility in Shanxi province or the midstream operation in Zhengzhou; the locations were selected based on market demand, population and fleet transportation hubs. They have a combined population of 21.5 million people. This acquisition is consistent with the Company's strategy to sell directly to the consumer. Retail CNG gas selling prices are currently in the region of USD 13 to USD 15 per Mcf. Regional cities are beginning to mandate that taxis and mass transport convert to dual use - petrol and CNG, adding to the fast growing market.
The Company anticipates that operations will commence in 2011 for the new stations, with an initial sales capacity of 2 BCF (70 million cubic meters) by the end of the first year of operations. This is expected to rise to 6 BCF (211 million cubic meters) annually thereafter, as all facilities/ stations come on line. Green Dragon Gas expects to be able to repeat this expansion in the downstream footprint in line with the upstream production growth.
To facilitate the growth in gas sales, the Company has completed the Integrated Production Facility (IPF) upgrade at its Shizhuang South (GSS) production block. This facility will be the primary source of gas for distribution to these refuelling stations via the Company's fleet of trucks, as well as the source for the Company's own power generation.
Green Dragon Gas's technology and manufacturing division is expected to be the supplier of the dispensing and ancillary equipment for these stations.
The Company's midstream operations in Zhengzhou will complement gas supplies to the refuelling station network as its own production levels are increased in line with the stated objectives. An additional IPF is planned next year to meet the growing levels of production and demand.
Randeep Grewal, Chairman, CEO and Founder, commented:
"Green Dragon Gas has a clear vision and strategy to build a significant China CBM upstream business complemented by a substantial gas retail network in China. Henan province is currently registering gas prices at refuelling stations in the region of USD 13 to USD 15 per Mcf. Capturing the additional value by selling directly to the consumer is earnings accretive and the cornerstone of the Company's vertically integrated strategy. This vital distribution expansion is timed to capture the expected upstream gas production from GSS that we have announced. We anticipate reporting additional accomplishments in line with our strategies in the months and years ahead."
15 September 2010
| Stephen Hill Green Dragon Gas | +852 3710 0168 |
| Dr Azhic Basirov / David Jones Nomad & Broker, Smith &Williamson | +44 20 7131 4000 |
| Robert Collins, Tim Redfern Broker, Evolution Securities | +44 20 7071 4312 |
| Judith Rawnsley Broker, CLSA | +852 2600 8203 |
| James Henderson, Phillip Dennis Investor Relations, Pelham Bell Pottinger | +44 20 7861 3800
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