G3 Exploration Regulatory News (G3E)

25 Oct 2006 10:27

Green Dragon Gas Ltd25 October 2006 For Immediate Release 25 October 2006 GREEN DRAGON GAS LTD. ("Green Dragon" or the "Company") GREEN DRAGON ANNOUNCES DRILLING SUCCESSES Green Dragon Gas Ltd (AIM:GDG), the Chinese coal bed methane business, todayannounces postive drilling results from its five blocks in central China,including the successful spudding of coal bed methane ("CBM") production wellsand the drilling of two pinnate horizontal pilot wells. Shizhuang South, Shanxi ("GSS") covers an area of 455 km(2), 2,640 BCF of gas inplace of which 48.5 BCF in P1 and 413.3 BCF in P2 reserves (Source: ScottPickford Competent Person's Report - August 2006). It is the most advanced ofthe Company's blocks as it has been producing gas from pilot wells for fiveyears. The drilling programme started on 6 October 2006 with a spud in ceremonyof well GSS001 by contractor Shangdong Coalfield Geological Bureau ("SCGB"). Thetarget coal seam No. 3 was successfully drilled, confirming a 6.5m thickness andthe well has been completed. The second well, GSS002, has been spud in alongwith the third well GSS003, spud with a second drilling rig which has been addedto further expand the production well drilling operations. Twenty five welllocations have been selected for drilling. The gas production from these wellswill be directed into the Company's existing gas gathering system and the Zayoancompressor station which is owned and operated by the Company. Under a farmout agreement signed by the Company with China United Coal BedMethane ("CUCBM") for a 67 km2 section of the GSS block, two pinnate horizontalwells (DS01-1 and DS02-1) were successfully drilled by Orion EnergyInternational. Well DS01-1 was drilled into coal seam No. 3 for a totaldisplacement of 5,506 metres and has current gas production of 7,000 cubicmetres per day and water production of 20 cubic metres per day. Well DS02-1 wasdrilled into coal seam No. 15 for a total displacement of 1,198 metres into thecoal seam and has water production of 12.5 cubic metres per day as is in thedewatering stage. Both wells are pilot test wells drilled to evaluate pinnatehorizontal well cost-efficiency and performance. Two additional horizontal wellsare expected to be completed by the end of this year resulting in a four wellpilot programme. Under the farmout agreement, CUCBM is the operator on thissection and bears all drilling risk, while the Company retains a 50% optionalinterest in the farmout. The Overall Development Programme continues to be compiled with cooperationbetween the Company's technical staff, CUCBM and PetroChina. This is a keymilestone towards commecialising the resource and is expected to be delivered tothe authorities for approval in the near future.. Shizhuang North, Shanxi ("GSN") covers an area of 375 km(2), 2,660 BCF of gas inplace of which 648.2 BCF in P3 reserves is contiguous to GSS with similargeological conditions (Source: Scott Pickford Competent Person's Report - August2006). Well GSN001 was spud in by drilling contractor Henan Yuzhong ("HYGPE") on16 October 2006. Drilling operations are proceeding as expected and targetedcoal seam No. 3 is expected to be reached at a depth of 686 metres. The currentprogramme is for five pilot wells to be completed by the end of 2006 while anadditional ten locations have been prepared for the next phase of drillingoperations. On 20 October 2006, the Company executed an agreement with CUCBM that willfurther enhance the current drilling operations. Under the terms of thisagreement, CUCBM will drill wells on an agreed portion of the block over thenext two years as a subcontractor to the Company. While all initial drillingcosts and the associated capital risks will be bourne by CUCBM, all successfulwells and related reserves resulting from the process will be included into theCompany's Overall Development Programme and approved costs reimbursed throughthe standard cost recovery agreement included within the terms of the ProductionSharing Contract. Qinyuan, Shanxi ("GQY") covers an area of 3,665 km(2), 8,580 BCF of gas in placeand is the largest block by acreage (Source: Scott Pickford Competent Person'sReport - August 2006). Drilling operations are being conducted by Shanxi CoalGeology Unit 114 ("SCG") and HYGPE. Well GQY001 was spud in by SCG on 26 July2006 and coring completed to a depth of 1,100 meters. Coring results arecurrently being compiled. Well GQY006 was spud in by HYGPE on 28 September 2006and target coal seams No's 3, 15 and 16 were successfully drilled confirming acombined thickness of 6m. The Company has also concluded the engineering workson ten well locations and twenty exploratory well locations throughout theblock, in preparation for the next phase of drilling. Coring and drillingresults from the existing drilling programme will support and enhance thecurrent development plan for operations in 2007. Fengcheng, Jianxi ("GFC") covers an area of 1,541 km(2), 1,566 BCF of gas inplace with 536 BCF in P2 reserves (Source: Scott Pickford Competent Person'sReport - August 2006). Drilling operations were started by contractor DadiTechnology Development Corporation ("DADI") spudding in well GFC003 on 11 July2006. The target coal seam was successfully drilled confirming a thickness of3.7m and the well has been completed. Two additional coal seams were alsodrilled with thicknesses of 1.15m and 1.9m, respectively. DADI encountered acavity in drilling well GFC010 and this has been abandoned temporarily until thecurrent drilling operation is concluded. Well GFC002 was spud in on 4 October2006 and drilling operations are proceeding as expected. The Company hascompleted the preparatory engneering works on 23 wells in the current drillingprogramme to complement the two wells drilled last year to consolidate into acentral gathering system. Panxie, Anhui ("GPX") covers an area of 584 km(2), 1,110 BCF of gas in place(Source: Scott Pickford Competent Person's Report - August 2006) Drillingoperations were started by contractor SCGB by spudding in well GPX001 on 29September 2006. The well successfully drilled target coal seam No. 13 andadditionally found seams No. 16 and No. 17 with total thicknesses confirmed of6m. SCGB spud in a second well, GPX002, on 21 October 2006 and currentlydrilling is progressing as expected. The Company has completed the preparatoryengineering works on 5 pilot wells to be completed by the current year end whichwill form the basis of the drilling program for 2007. Company Chairman and CEO, Mr Randeep S. Grewal, commented, "This macro overviewdemonstrates the ability of our China based management team to successfullyexecute the first stages of our growth and development plan. Years of geologicaland engineering studies, the hands on experience of our local technical staffand the strong support from our partner, CUCBM, have been key ingredients toadvancing the Company's development programme since its admission to trading onAIM in August 2006. In addition, the Company's strategic plan to be verticallyintegrated is being diligently worked on by the business development division.The Company has the gas resources and the capacity to be a significant gassupplier in central China." For further information on the Company and its activities, please refer to thewebsite at www.greendragongas.com which is frequently updated or contact: Randeep GrewalChairman and Chief Executive, Green Dragon Gas Ltd.+852 2166 8686 Tim Thompson/ Nick MelsonBuchanan Communications0207 466 5000 Dr Azhic Basirov/ David JonesSmith & Williamson Corporate Finance Limited020 7131 4000 This information is provided by RNS The company news service from the London Stock Exchange