G3 Exploration Regulatory News (G3E)

8 April 2010

GREEN DRAGON GAS LTD

("Green Dragon" or "the Company")

Annual results for the year ended 31 December 2010

Green Dragon Gas Ltd (AIM: GDG), one of the largest independent companies involved in the production of CBM gas and the distribution and sale of gas in China, is pleased to announce its annual financial results for the year ended 31 December 2010.

HIGHLIGHTS

Financials:

·; Revenues increased 6% to US $49.7 million compared with US $ 46.9 million in 2009

·; Loss per share narrowed to US $ 0.11 from US $ 0.28, a 60% improvement

·; EBITDA losses narrowed to US $4.9million from US $18.2 million, a 73% improvement

·; Raised a total of US $ 202.8 million through share and convertible bond placements in 2010

·; Entered 2011 with cash of US $ 148 million

·; Assets increased to US $ 963 million from US $ 764 million an increase of 26%

Upstream - Coal Bed Methane:

·; CBM gas production:

o 2010 exit production at 1.3 bcf , an increase of 110% over 2009 and 26% above forecasts

o Production drilling commenced at Shizhuang South (GSS) in 2010 with predictable gas per well drilled of 250-300 mcfpd following a 90-120 day dewatering period at each Surface to In Seam (SIS) well depending on length of lateral in-seam

o Production target at GSS of 18 bcf following a discretionary US $ 250 million capital expenditure program forecasted and on schedule

·; Substantial increases in certified reserves:

o Original total gas in place of 25.5 Tcf

o 1P increased by 24% to 41 bcf (NPV10 US $ 250 million)

o 2P increased by 4% to 273 bcf (NPV10 US $ 1.5 billion)

o 3P increased by 11% to 2.6 Tcf (NPV10 US $ 12.3 billion)

·; Drilling and Operations:

o Deployment of SIS horizontal drilling methodology at GSS block increased in seam drilling to 45% of meters drilled in 2010 as compared to 43% in seam in 2009 and 17% in seam in 2008

o Total meters drilled 31,608 of which 14,360 meters were in coal seam at GSS block

o 30 additional wells drilled bring total to 238 by year end, predominantly at GSS

o Producing wells increased to 163 in 2010 from 88 in 2009

o GSS wells drilled and dewatering increased to 124 in 2010 from 49 in 2009

·; Distribution Infrastructure:

o Well tie in to pipeline and infrastructure in GSS block for producing wells continues

o Upgraded Integrated Production Facility (IPF) on block GSS to handle 1.39bcf of gas Capacity

o CBM generated power at existing IPF was 3.05 Megawatt

o Added 5 trucks and 7 trailers for CNG distribution to retail stations

·; Sales

o Gas sales increased 140% to 159,837 mcf in 2010 from 66,677 mcf in 2009 (5,959 mcf in 2008)

o Well head prices increased by 33% to end 2010 at about US$6.86 per mcf

Midstream Wholesale Gas:

·; Sales:

o Acute supply shortages decreased sales to 1.9 bcf in 2010 from 2.4bcf in 2009 (2.1bcf in 2008)

o Average sales prices increased 12% to US $ 9.19 per mcf from US $ 8.19 per mcf

Downstream Retail Gas:

·; Sales:

o Total sales increased to 11.0 bcf in 2010 from 9.9 bcf in 2009 (9.4 bcf in 2008) within the Beijing Huayou Joint Venture (BHY)

o GSS gas being sold at US $14.80 per mcf on average through two wholly owned vehicle retail stations

o Planned access to an additional 28 retail stations in 2011 within niches in Henan and Shanxi provinces providing optimum proximity to GSS production.

·; Distribution Infrastructure:

o BHY increased an additional 63 km of distribution pipeline in 2010 bringing total to 284 km

o BHY added 8 CNG distribution locations to outer ring road of Beijing

Commenting, Randeep S. Grewal, Chairman and CEO of Green Dragon Gas said:

"Green Dragon transitioned successfully from 'research and development' drilling into 'production' drilling in GSS that launches the Company into a significant growth phase of its upstream CBM gas business. The Company has now successfully demonstrated the repeatability of its production methodology as it has deployed repeated successes with our SIS wells. We can now predict with a high degree of certainty SIS drilling and dewatering times, production rates and costs per well. Our focus at GSS has now moved onto logistics and scale."

"The Company invested time and resources in developing the optimum methodology to maximize commercial returns historically which simply need to be followed from hereon. The ability to demonstrate this repeatability resulted in the upgrade of our 3P reserves as certified by Netherland Sewell & Associates. The drilling footprint will transition north and north-west from Zaoyuan, the area that houses our Integrated Production Facility (IPF) at GSS. We fully expect to see continued movement in reserves from 3P to 2P and 2P to 1P in 2011 along with the resultant gas production as this transition accelerates. So far our drilling has concentrated on a very small 50 sqkm area and thus there has been limited migration of the reserves within the categories which we expect will be more apparent when we conclude our drilling outside this pilot area in 2011 and beyond. We upgraded the IPF at GSS to accommodate the increased production in 2010, we expect to further upgrade the IPF again in 2011."

"ConocoPhillips did not earn their option to farm into the Company's reserves in Shanxi Province, namely GSS, Qinyuan (GQY) and Shizhuang North (GSN). This favorably resulted in shareholders retaining 100% of the Company's reserves in these blocks."

"We also expect to see significant growth from our downstream distribution business in and around the Beijing development area. This growth will be driven by increased utilization of the existing pipeline, growth in the footprint of the business and the ongoing strong growth in gas demand."

"The wellhead price increase that occurred midyear 2010, was a positive for the upstream business. The lag effect of that increase being implemented through the value chain into mid and downstream, deferred some of the margins which will be realized in 2011 and beyond as the price has been implemented through the gas value chain. We continue to expect such increases in gas prices, in the years to come, per government policy to create parity within the domestic gas market to global prices on a delivered basis accounting for related costs of transportation and tariffs. Put simply, Green Dragon achieves a higher sales price per mcf than other producing companies that are delivering into China, a fact we expect to stay in place."

"We added significantly to the assets and cash of the Company over 2010 and continued to be a disciplined acquisitive gas related business consolidator in China. Subsequent to year end, we implemented a strategic demerger of the Company's drilling business, Greka Drilling Limited (AIM: GDL), which is now also quoted in London on AIM. The demerger allows Green Dragon to focus on the exploration and development of its gas assets and allows Greka Drilling to focus on drilling services to both Green Dragon and third parties. Both companies held significant cash balances following the demerger and we look forward to working with Greka Drilling as we enter the growth phase of our gas production."

For further information on the Company and its activities, please refer to the website at www.greendragongas.com or contact:

The resource estimates in this announcement have been prepared in accordance with definitions and guidelines set forth in the 2007 Petroleum Resources Management System (PRMS) approved by the Society of Petroleum Engineers. The information in this announcement pertaining to Green Dragon's China resources has been reviewed by Nathan Shahan of Netherland, Sewell & Associates, Inc. He is a registered Professional Engineer in the State of Texas and is a member of the Society of Petroleum Engineers.

Definitions

CHAIRMAN'S STATEMENT

Introduction

2010 - The Year of the Tiger concluded with Green Dragon Gas validating its pioneering surface to inseam drilling methodology as the most efficient means of commercializing coal bed methane production within the highly faulted coal seams in China.

The Company had another very successful year and has now progressed to the point at which it will be able to see significant growth in its CBM upstream gas business over the coming years. We now have an extremely good understanding of how to best exploit our significant gas resources in GSS, as anticipated by the previously announced competent persons report dated December 2010, and have made good progress in the development of the infrastructure needed to transport the gas produced to the end user.

Green Dragon remains in a unique position within the Chinese energy market and one that in today's world would be extremely difficult to replicate. The Company's current position of six very substantial CBM blocks located in and around areas of significant gas demand and with close proximity to national pipelines is as a result of being a first mover and consistently committed to the commercial production of CBM within these blocks since inception.

The Production Sharing Contracts (PSC's) form a key integral part of the value of the underlying asset. They were awarded by the State at a time when China was seeking foreign participation and input in the form of capital and technology. Whilst a few others who were also awarded the original bilateral PSC's faltered and passed on these lucrative opportunities, our continued commitment over the past decade has been successful in developing the SIS methodology which has demonstrated a viable large commercial resource worthy of development.

The very substantial and growing demand for gas as an energy source in China is fueled by the domestic economic growth and government commitments for such growth to be achieved with a clean energy source. One particularly rewarding result to Green Dragon is regional governments mandating the use of CNG as a vehicle fuel source across their own fleets and supporting the infrastructure to be built for wider CNG use as the standard alternative to expensive and polluting diesel and petrol. This is especially the case in Henan province, the location of our operational headquarters and key province of focus in gas distribution from our upstream gas production in Shanxi.

Upstream - CBM Production

Green Dragon's focus is at GSS. Exit year end production from the field was 3,483 mcf per day, which exceeded our forecasts of an exit rate of 1 BCF by 26%. This increase was as a result of a greater number of Surface to Inseam (SIS) drilled wells producing gas as well as greater productivity from individual wells.

After a challenging 10 year period, we have concluded that Chinese coal beds with their characteristic sub surface structural faulting require SIS wells to produce commercial gas in sufficient quantity at the right cost. This conclusion follows an extensive R&D phase during which we drilled using fracced vertical wells, short radius horizontal wells and multi lateral pinnate horizontal wells. We demonstrated all these results at GSS. Even though throughout our entire acreage the structural faults arise in varying degrees, we expect our conclusions to be the same.

I am pleased to report that the systematic, logical and progressive drilling and completion approaches complemented with significant capital availability during the research and development phase allowed us to arrive at the optimum result which can now be implemented repeatedly during the production phase. Simply put, there isn't another drilling technique that provides the returns that SIS does in China coal seams. Another pioneering conclusion by Green Dragon Gas.

We completed the facilities upgrade at the Integrated Production Facility at GSS and it can now process 1.3 Bcf a year and plans are already in place for a further upgrade to more than double it.

For the years ahead we have set targets for increases in CBM gas production. These targets are also under pinned by the planned drilling programme this year and the deployment of the SIS drilling methodology, which has been proved to substantially increase both our in seam drilling efficiency and the productive potential of the wells drilled.

In the last year, through the use of the SIS drilling methodology within the GSS block, a distance of 14,360 meters was successfully drilled in-seam within 30 wells. As such, productive drilling within the block (in-coal seam) improved to 45% of total meters drilled in 2010 from 43 % in 2009 (17% of total meters drilled in 2008). The SIS wells drilled successfully also demonstrated better than anticipated production rates with faster de-watering times. Additionally, our Chinese crews drilled the required vertical wells and lateral top holes along-side our expat international crews drilling the in-seam sections of the SIS wells throughout the year. This co-existing and cooperative drilling operation has provided a baseline to develop more crews to volumetrically increase our SIS well drilling capacity. The SIS technology will be the standard drilling methodology in the GSS block.

We continue to evaluate the applicability of the SIS methodology on the other blocks. Notably we have done so at our Qinyuan and Guizhou blocks. The latter being in cooperation with Petrochina.

Sales of CBM gas are currently relatively small and being sold through vehicle retail stations in proximity to the GSS block. In 2010, CBM sales increased to 159,837 mcf (66,677 mcf in 2009 and 5,959 mcf in 2008). Sales of CBM gas in China are not subject to pricing restrictions. Gas through the Company's two wholly owned retail stations, is sold at US$ 14.80 per mcf on average. The well head price for our CBM is currently US$ 6.86 per mcf and as such the Company gains substantial advantage from being fully integrated, including upstream, midstream and downstream operations. In the year ahead, Green Dragon has plans to gain access to an additional twenty-eight retail stations. These stations are predominately located in the Henan, China's most populous province with over 100 million people increasing demanding gas as their fuel source.

The voluntarily conducted annual competent persons report compiled by Netherland Sewell & Associates, Inc, done to provide a transparent report card of the Company's activities to our shareholders, results showed a 32% increase in the 3P valuation over last year to US $12.3 billion. This material increase was reflective of the successful implementation of the SIS methodology and gas price increases.

Midstream - Wholesale Gas Distribution

The Company's midstream operation consists of two commercial CNG distribution stations located near to the national gas pipeline network at Zhengzhou, Anhui and a CNG transportation fleet. These operations are based on achieving a margin on gas acquired and the resold as CNG for distribution by road into areas of the country not serviced by the national pipeline network; effectively it is a wholesale gas distribution business.

Sales through the two industrial CNG stations reduced to 1.9 bcf in 2010 from 2.4bcf in 2009 (2.1bcf in 2008) due to acute shortages of gas supply. Average prices of gas sold increased 12% to US $ 9.19 per mcf in 2010 over 2009.

Downstream - Retail Gas Sales

During the year, total sales from the Company's Beijing based pipeline distribution business increased to 10.8 bcf from 9.9 bcf in 2009 and 9.1 bcf in 2008. This increase was as a result of expanding the pipeline network and the ever increasing demand for gas in and around the Beijing Development Area.

The Company increased the footprint of the network again by adding an additional 63 km of pipeline; bringing the total pipeline network to 284 km. Sales are expected to be in the region of 11 bcf in 2011 with consumers absorbing the sales price increases implemented upstream during 2010.

This profitable business continues a targeted approach to industrial users for the higher net margin sales, whilst also supplying the current 56,303 residential consumers. This pipeline network is currently highly under-utilized due to gas supply shortages and will have a compounding benefit when supplies increase meeting both existing demand and new demand from industry migrating into its catchment area. The potential for organic growth of this business remains substantial as the nations gas supply increases to meet demand.

Technology & Manufacturing - SCADA and CNG Equipment

SCADA (Supervisory and Control Data Acquisition) will be the cornerstone of the Company's significant scalable business model. By housing the Company's senior engineers in one location in Zhengzhou, we avoid the need for costly duplication at each of our exponentially growing business segments and regions. This will become a cornerstone of the Company's approach in scaling its business significantly and the early effects of that were noticeable in 2010.

The division's continued commitment to the production of a high quality product with the highest safety standards was rewarded and acknowledged by Petrochina ordering our CNG Dispensers and SCADA system, mirroring Green Dragon's approach. Deliverability of gas into a vehicle in less than five minutes with varying tank pressures of 0.5 to 20 Mpa requires unique technology. We manufacture such high quality equipment under two patents owned by the Group. We expect continued growth in this business concurrent with the exponentially growing demand for this high quality product as CNG retail stations become more common throughout China.

Financials

Loss per share declined to US $0.11 from US $ 0.28. Green Dragon remains well positioned financially, with US $ 148 million cash on hand for operations and growing gas sales.

Outlook

While the year of the Tiger (2010) was very good for the Company, the year of the Rabbit (2011) ought to be one where we should see significant organic growth in gas production and sales complemented by continued acquisitive growth opportunities. 2011 should also be the year when shareholders will be able to see upstream gas production double over last year.

Speed of execution has already been demonstrated in 2011 with a dividend in specie of our drilling business and a US $ 50 million capital raise at an all time high share price of US $ 14.88 per share, all within the first quarter of the year.

I thank fellow shareholders and the Board in supporting the launch of the Greka Drilling business in 2007, its successful execution and growth over the last three years and now the rewarding spin off. I expect we all acknowledge the technological commitment Green Dragon has made to overcoming the geological hurdle to commercializing CBM in China. The cornerstone to our commercial success will be this key decision which mirrors the leaps made by majors within their respective technology divisions. Green Dragon doing so as a small independent was a challenge which we successfully overcame. In conclusion, Greka Drilling is poised to be a rewarding dividend to each of us as an independent unconventional gas drilling service provider both to Green Dragon and to the remainder of this expanding market.

Finally, a warm thank you to my fellow shareholders for your continued support, as well as to our dedicated employees, who work extremely hard to maintain the ongoing successful rising trajectory of this business.

Randeep S. Grewal

Founder & Chairman

8 April 2011

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Abridged notes to the financial information for the year ended 31 December 2010

1 BASIS OF PREPARATION

Green Dragon Gas Ltd. ("the Company") is incorporated in the Cayman Islands. The financial statements have been prepared in accordance with IFRSs as adopted by the European Union, that are effective for accounting periods beginning on or after 1 January 2010. The principal accounting policies adopted in the preparation of the financial statements are disclosed in the Group's full annual report and accounts for the year ended 31 December 2010.

2 REVENUE AND SEGMENT INFORMATION

The Group has seven reportable segments as set out below. The operating results of each of these segments are regularly reviewed by the Group's chief operating decision makers in order to make decisions about the allocation of resources and assess their performance.

During the year revenue of US$22, 883,000 (2009: US$23, 857,000) was recognised by the Pipelined Gas Distribution segment in respect of 2 (2009 - 2) customers representing 10% or more of the Group's total revenue for the year.

For the year ended 31 December 2010

For the year ended 31 December 2009

3 LOSS FROM OPERATIONS

Loss from operations is stated after charging/(crediting):

During the year the Group incurred transaction costs of US$1,508,000 (2009: US$1,782,000) which relate to professional fees incurred in respect of fundraising and refinancing advice.

4 FINANCE INCOME

5 FINANCE COSTS

During the year ended 31 December 2009, the Company agreed to repay the US$45 million convertible note in accordance with its terms and conditions. This accelerated a finance charge of US$12,189,000. On 7 December 2009 all outstanding principal and interest was repaid to the noteholder.

6 STAFF COSTS

7 TAXATION

8 LOSS PER SHARE

Loss per share is based on the loss attributable to ordinary equity holders of the Company of US$13,231,000 (year ended 31 December 2009 - US$30,015,000) and the weighted average of 121,048,178 ordinary shares in issue (31 December 2009 - 108,857,034) during the year.

Due to the loss arising in the group during all periods presented the diluted loss per share is considered to be the same as the basic loss per share 122,855,245 potential ordinary shares (31 December 2009 - 116,425,836) have therefore been excluded from the above calculations.

9 DIVIDENDS

No dividend has been paid or declared by the Company during the year (2009: Nil).

10 CONTINGENT LIABILITIES

During the year ended 31 December 2009 the Group entered into a joint venture arrangement with ConocoPhillips China Inc ("COPC"). Under the terms of the farm-out agreement, COPC made an initial payment of $20 million to the Group towards exploration costs incurred to date and would also fund up to a total of $30 million of the future surface-to-inseam wells at the Shizhuang South, Shizhuang North and Qinyuan PSCs. COPC could elect to continue with a second phase of development and pay $120 million to acquire 50% of Group's interest in these three Chinese Coal Bed Methane PSCs.

In the event that COPC elected not to proceed with the farm-out, all funds invested by COPC accrued to the benefit the Group.

On 8 November 2010 the Group terminated the farm-out agreement as COPC had not made the required payments under the funding arrangements. COPC have made total payments of $42.6m to the Group since inception of the agreement and have demanded full reimbursement of this amount. After taking legal advice the Board have refuted this claim and are strongly of the opinion that no amounts are repayable under the terms of the farm-out agreement. In the event of a dispute the agreement is subject to arbitration. The Board welcomes an arbitration hearing and is confident of a positive outcome for the Group.

The Directors' current treatment of the $12.6m (2009 - $30m) that has been received from COPC during the year is to allocate the amount against additions to the Gas exploration cost pool.

11 EVENTS AFTER THE REPORTING DATE

On 7 March 2011 the shareholders approved the demerger of its drilling services business by means of a dividend in specie of shares in Greka Drilling Limited ("Greka Drilling") to Green Dragon Shareholders. Dealings in Greka Drilling Shares on AIM commenced on 8 March 2011. The separation was effected by a demerger of Greka Drilling, the holding company of Green Dragon's Chinese drilling business. As a result of the demerger dividend, the conversion price of the Company's convertible bonds was adjusted from US $9.10 to US $8.00 per ordinary share.

On 7 March 2011 the Group raised an additional $50 million through the issuance of 3,360,000 ordinary shares of US$0.0001 each in the Company . The new shares were placed at $14.88 per share.

Subsequent to the reporting date the Company's 49% jointly controlled entity Kesi Hengrun (Beijing) Technology Co., Ltd. transferred 10% of its 59% effective equity interest in Beijing Huayou United Gas Development Co., Ltd back to its joint venture partner China National Petroleum Corporation.

12 PUBLICATION OF NON-STATUTORY ACCOUNTS

The financial information for the years ended 31 December 2010 and 31 December 2009 set out in this announcement does not constitute the Group's statutory financial information but is extracted from the Company's audited financial statements for those years. The auditors have reported on the full accounts for both periods and their reports were unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports.

13 ANNUAL REPORT

The Company's Annual Report and copies of this announcement will be available in due course on the Company's website at www.greendragongas.com and from the office of the Company's nominated adviser, Smith & Williamson Corporate Finance Limited at 25 Moorgate, London, EC2R 6AY, United Kingdom.