G3 Exploration Regulatory News (G3E)

10 April 2012

GREEN DRAGON GAS LTD

("Green Dragon" or "the Company")

Annual results for the year ended 31 December 2011

Group Revenue increases 51%, Upstream Gas Production up 27%, 2P Reserves up 18%

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 audited financial results for the year ended 31 December 2011.

HIGHLIGHTS

Financials

·; Revenue increased 51.2% to US$75.2 million compared with US$49.7 million in 2010

·; Raised US$50 million through an equity placement at a share price of US$14.9

·; Repaid a total of US$37.9 million from Sinoenergy, representing a 13% return (annualised) on an initial capital investment of US$34.7 million

·; Entered 2012 with cash of US$86.3 million

Upstream - Exploration and Production

·; CBM Gas Production

§ Annualizedproduction exit rate for 2011 of 1.68 Bcf, an increase of 27% year-on-year (1.32 Bcf in 2010)

§ Annual production for 2011 of 1.5 Bcf, an increase of 150% (0.6 Bcf in 2010)

§ Annualized production target of 18 Bcf following discretionary US$250 million capex plan

·; Substantial increases in certified reserves and resources:

§ Original total gas in place of 25.5 Tcf

Reserves net to the Company

§ 1P, NPV10 increased by 5% to US$263.4m (43 Bcf)

§ 2P, NPV10 increased by 18% to US$1.8bn (307 Bcf)

§ 3P, NPV10 increased by 2% to US$12.6bn (2,513 Bcf)

·; 67 additional wells were drilled in 2011, a year-on-year increase of 131%

§ 53 of the wells were vertical and 14 were completed LiFaBriC wells

§ Drilling was focused in the GSS block at Shizhuang South with 53 wells drilled

§ 5 wells drilled at Guizhou (GGZ), 4 wells drilled at Qinyuan (GQY), 2 wells each drilled at Fencheng (GFC) and Panxie East (GPX) and 1 well at Shizhuang North (GSN) continuing the exploration program

·; A total of 295,289 feet were drilled in 2011, an increase of 185% on 2010

§ 62,096 feet of 'in coal seam' were drilled, an increase of 32% on 2010

§ Longest in seam well was 8,173 feet while the shortest was 833 feet

§ Deepest well drilled was 5,936 feet with a total measured depth of 10,111 feet

Midstream - Transport and Infrastructure

·; Wholesale gas sales of 2.8 Bcf, up 47.4% year on year

·; First commercial gas supply pipeline construction with initial daily transmission capacity of 2.6 Bcf expected to be completed in Q2 2012 to PetroChina

·; First 10 MW per hour power plant constructed and in service, adding the "gas-by-wire" option of gas sales to the state grid

Downstream - Retail Gas Distribution

·; Beijing Huayou sales increased 16% to 12.2 Bcf in 2011 from 10.5 Bcf in 2010

·; CNG gas sales in retail network increased 273% to 252.9 MMcf from 67.8 MMcf

·; CNG gas at our retail network achieving prices excess of US$16/Mcf

Technology & Manufacturing - SCADA System and CNG Equipment

·; Sales increased to US$2.1 million from US$1.3 million, an increase of 67%

·; A 30kW and 75kW well-head compressor designed and produced to significantly reduce casing pressures resulting in demonstrated increased well head production

·; Touch-screen dispensers with optimised interface designed and delivered to market with favorable feedback

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

"2011 was a transitional year with continued growth in each of the Group's businesses, all focusing on achieving the 18 Bcf gas production rate target.

The Company successfully distributed a dividend in specie to its shareholders creating an independent drilling service company - Greka Drilling Ltd ("GDL") with a listing on AIM. GDL continues to specialise in unconventional gas drilling and is growing exponentially while providing the Company with LiFaBriC (Lined Faulted Brittle Coals) wells, as planned. The GDL business, launched in November 2007 by the Company and developed over four years, has achieved a market capitalisation of over US$225 million.

Our upstream business has a dual focus. Transition management teams at our GSS block focus on production with a significant emphasis on gas delivery infrastructure while concurrently maintaining exploration programs at the other five blocks. We expect the exploration programs to yield sufficient results by the end of 2012 to enable another block to move into the production phase as we progress into 2013. GSS, the focused gas production block, remains our primary objective and the organisation is committed to our 18 Bcf target. Upon achieving this target, the forecast cash flow will provide comfortable headroom to support the continued growth objectives of the Company.

The midstream business is focused on developing distribution channels in compressed natural gas ("CNG"), pipeline and power. CNG capacity was enhanced to 3.8 Bcf with compression capacity increasing to 433.8 Mcf per hour. Construction is almost complete of a pipeline to PetroChina facilities, which will provide a sales capacity of up to 2.6 Bcf. Additionally, the division made a significant stride into power generation with the completion of a 10MW power plant. The CBM fueled power plant provides a clear pathway to a "gas-by-wire" market which is being developed concurrently with the other two sales channels enabling the maximization of returns.

The downstream gas retail business was significantly changed with its focus now being on CNG distribution stations in Henan and Shanxi provinces. The 25 retail station development continues with the objective of meeting the upstream gas production capacity. The organisation is pleased with the evolving regulatory requirements of local governments as CNG continues to become the fuel of choice provincially. The government incentivised fuel of choice is providing the Company with a sales channel at prices in excess of US$16/Mcf (current market price) thus justifying the pioneering decision by us three years ago to expand beyond an E&P company into an integrated gas supplier.

The technology and manufacturing business demonstrated its value to the Group with the prompt delivery of well head compressors. The upstream business' demand for reducing the well head casing pressures to produce higher gas flow rates from the wells was met by the design, manufacture and delivery of well head compressors that achieved this objective. The well head compressors are now being further enhanced to meet the pipeline's gas flow delivery objectives into the facilities. This division's capability continues to be a cornerstone to the Group's efficient growth and expansion.

Our three joint ventures continued to expand their gas distribution sales. Beijing Huayou sales grew to 12.0 Bcf and further expanded its sales network to 192 miles of pipeline distribution. It now provides gas to 66,971 households and 28 industrial customers. The Petro-China Hengran companies increased their wholesale CNG sales to 1.9 Bcf and 0.9 Bcf in Zhengzhou and Wuhu respectively.

Following the solid achievements of 2011, in 2012, the Year of the Dragon, the Company ought to move into a new paradigm of operations and cash flow. Our continuous tenure, hands-on knowledge, experience and conviction will combine to move us towards our 18 Bcf production target which is expected to provide sustainable cash flow for the Group's future growth."

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

In 2011 - the Year of the Rabbit - we achieved growth in gas distribution capacity and sales and saw material transitions resulting in optimum positioning for the realization of the Group's objectives for the Year of the Dragon, 2012.

The Company provided shareholders with a dividend in specie in March 2011 of its drilling services subsidiary, Greka Drilling Ltd (AIM: GDL); the admission to AIM of Greka Drilling enabled shareholders to maintain, increase or monetise their holdings in that company. Greka Drilling has achieved a market capitalization of over US$225 million and continues its exponential growth within its niche of unconventional gas drilling. The business was launched in November 2007 and developed its drilling methodology over four years, benefitting from the Group's knowledge of Chinese coals. GDL continues to provide LiFaBriC wells to the Company as planned. This dividend monetised a success and demonstrated the Company's potential within its niche - unconventional gas.

Upstream

Achieving positive cash flow from gas production is our focus. Our self-imposed target annual production rate of 18 Bcf (following a discretionary capital expenditure program of US$250 million) is expected to provide a self-sustaining cash flow net of continued growth capital expenditure. We are currently aiming for this short term target to be met entirely from production at GSS, where we have focused our efforts.

Whilst our previous decade of operations had focused on how to extract gas from severely faulted coal seams, 2011's task was to cope with the varying quantities of gas per well and the various associated pressures as they competed with each other for entry into the compression facility. In simpler words, infrastructure enhancements were developed to overcome the bottlenecks being created by the increasing gas production. A critical component of our solution was well head compression, designed and produced by the Group's Greka Technology and Manufacturing Company (GTM), which was added systematically.

Sufficient drilling was achieved at GSS to re-confirm the production profile from the LiFaBriC wells. On average the well costs are being maintained at US$1.5 million and are expected to yield in excess of 250 Mcfpd. Our first well GSS008 just passed its fourth production anniversary and it is maintaining steady production at the rate of 425 Mcfpd, having produced 0.397 Bcf to the end of the March 2012.

While GSS is the focus for gas production, exploration at the other five blocks continues. The Company drilled 14 wells across the other five exploration blocks. We expect to yield sufficient results from our current exploration programs to enable an additional block to move into the production phase during 2013.

Midstream

Upstream well head gas production increases were temporarily restricted from delivery into the compression facilities at GSS by capacity constraints which, once remedied, will challenge the midstream division to rapidly keep pace with the delivery targets. In preparation the midstream business has focused on developing distribution channels in CNG, pipeline and power.

CNG capacity was enhanced to 3.8 Bcf with increased compression capacity to 433.8 Mcf per hour. Two phase compression was established with the first phase being sufficient to supply the gas pipeline and power plant at 5 MPa, while the second phase provides CNG at 25 MPa. Extensive upgrades to the existing GSS - IPF (integrated production facility) were carried out in the second half of the year to achieve the targeted CNG capacity.

Favorable discussions with PetroChina enabled a committed pipeline connection from the GSS - IPF to their facilities for connection to the West-East Pipeline. Our organisation successfully planned, designed and constructed the pipeline providing a sales capacity of up to 2.6 Bcf. The pipeline has some final minor sections to complete the tie in, test the line and initiate the sales channel which is expected to come on-stream by mid-2012.

Additionally, the division made a significant stride into power generation with the completion of the first 10MW power plant. The CBM fueled power plant provides a clear pathway to a "gas-by-wire" market which is being developed concurrently with the other two sales channels enabling the maximization of returns. The existing completed power plant is sufficient to provide all the Group's needs at GSS through development and we now have the in-house knowledge base to increase capacity at the next IPF which is envisioned to have a two stage development of 50 MW each.

Our two joint-ventures with PetroChina Hengran continued the steady expansion of their wholesale CNG sales with revenue increases in Zhengzhou and Wuhu of 471% and 127% respectively. We expect these entities to maintain their steady sales growth and margins for years to come.

Downstream

The downstream gas retail division was significantly changed with its focus now being on CNG distribution stations in Henan and Shanxi provinces. The 25 retail station development continues with the objective of building sufficient capacity to meet the upstream gas production capacity. Being a little behind schedule in the construction turned out to be a blessing as the rapid truck fleet conversions to LNG may evolve into our stations providing LNG in addition to the CNG originally planned. The organisation is pleased with the evolving regulatory requirements of local governments as CNG continues to become the fuel of choice provincially. The government incentivised fuel of choice is providing the Company with a sales channel at prices in excess of US$16/Mcf (current market price) thus justifying the pioneering decision by us three years ago to expand beyond an E&P company into an integrated gas supplier.

Our joint venture with CNPC continues its steady growth in the important Beijing market. Beijing Huayou (BHY) now has a total of 192 miles of pipeline. BHY's footprint expanded to include an area which is currently designated to include the new Beijing Airport and it continued its expansion in Qihe, Shangdong province. This joint venture is a consistent profit generator and is expected to continue to grow in the years ahead as utilisation increases.

Technology and Manufacturing

The technology and manufacturing business demonstrated its value accretion to the Group with the prompt delivery of well head compressors. The upstream division's demand for reducing well head casing pressures to provide higher gas flow rates from the wells was met by the design, manufacture and delivery of well head compressors that achieved this objective. The well head compressors are now being further enhanced to meet the pipeline's gas flow delivery objectives.

The technology division is a mainstay of our vertically integrated business model. Whilst many Companies correctly are focused on the wage pushed inflation in China, the Group's commitment to our proprietary SCADA system enables us to scale the business efficiently without such material concerns. Our pioneering SCADA system allows the organisation to manage, direct, and monitor remotely all of our operations live 24/7 year round through the Operation Control Centre (OCC). The OCC is the Groups brain centre and has a dedicated Director leading the operations.

This division's capability continues to be a cornerstone to the Group's efficient growth and expansion.

Financials

The year ended well with revenues climbing over 50% year on year. We entered the Year of the Dragon with US$86 million in cash.

Outlook

2012 - The Year of the Dragon or simply the year of the Green Dragon.

Since the first signing of our first contract in 1998 and four more in 2003, the Company has stayed its course to commercialising the lucrative unconventional resource - CBM. Our path to success as a pioneer in commercialising CBM in China has proven to be as unconventional as the resource. Whilst the herd merely chose to follow in the technological footsteps of America and Australia, the Chinese geology did break the resolve of many large international and local E&P companies. Unlike any other, we are the only organisation that has worked each day since inception over a decade ago to solve the complex coal bed geological structures and have demonstrated the solution over the last three years. We have stood firm against head winds which might have derailed us. Our methodical progressive drilling approach has indeed been rewarded with LiFaBriC wells converting commercial volumes of gas into sustainable cash flow. It's time to do more of what's working.

The Group is focused on GSS with 25 drilling rigs from Greka Drilling committed to be drilling by mid-year onwards until the short term gas production target is achieved. I expect our pioneering integrated model economics will be demonstrated over the next 24 months with each of the Group's companies increasing in value.

Our continued expansion has been accomplished through the relentless dedication of a growing employee base which is expected to expand from 411 to 1,200 by the end of 2012. I thank each of the hard working employees whose efforts have enabled our tremendous achievements to date and welcome the new joiners to the team.

I look forward to keeping our fellow shareholders updated on our continued progress.

Randeep S. Grewal

Founder & Chairman

10 April 2012

Consolidated Statement of Comprehensive Income

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CASH FLOWS

Abridged notes to the financial information for the year ended 31 December 2011

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 2011. 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 2011.

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$32,146,000 (2010: US$22,883,000) was recognised by the Pipelined Gas Distribution segment in respect of 2 (2010: 2) customers representing 10% or more of the Group's total revenue for the year.

For the year ended 31 December 2011

For the year ended 31 December 2010