G3 Exploration Regulatory News (G3E)

9 June 2014

GREEN DRAGON GAS LTD

("Green Dragon" or the "Company")

Annual results for the year ended 31 December 2013

Substantial increase in Upstream Gas Production and Revenues

Net Present Value of Year End Reserves: 1P US$898m, 2P US$2.81b, 3P US$16.12b

Green Dragon Gas Ltd (AIM: GDG), one of the largest independent companies involved in the production and sale of CBM gas in China, is pleased to announce its audited financial results for the year ended 31 December 2013.

FINANCIAL & CORPORATE HIGHLIGHTS

· Reported revenue of US$62.2m (US$32.4 GCZ 2010-2012)

· 2013 continuing operations revenue US$29.8m, (US$8.1m revenue in 2012), a 268% increase

· Sale of non-core assets for US$65m (Beijing Huayou United Gas Development Co. Ltd and Giant Power International Investment Limited), creating a gain on disposal of US$33.4m

· US$70m raised during the period under review through the issue of bonds and warrants:

· Issue of US$35m bond with warrants to Mandolin Capital Pte. Ltd.

· Raised US$35m through issue of convertible bond from GIC Private Limited

· Redeemed all outstanding Convertible Bonds , amounting to US$84.2m

· Cash of US$34.6m at 31 December 2013

· Greka Engineering & Technology Ltd dividend in specie to Green Dragon shareholders

OPERATIONAL HIGHLIGHTS

Upstream

· Reported gas production of 9.64 Bcf (4.78 Bcf GCZ 2010-2012)

· 2013 production of 4.86 Bcf (2012 1.78 Bcf), a 173% increase

· Binding MOU signed with PetroChina for participating interest in GCZ Block

· Binding agreement signed with CNOOC and CUCBM over GSS, GSN, GQY, GFC and GPX Blocks

· 1,867 wells drilled across all blocks

· 9 additional LiFaBriC wells drilled across all blocks - bringing total number to 71:

· 1,578 wells across GSS (inclusive of wells at GCZ as under same PSC)

· 289 wells were across the exploration blocks GFC,GQY GSN, GPX, GGZ

Gas Sales

Reported gas sales of 8.01 Bcf (GCZ 4.48 Bcf 2010-2012)

· Piped Natural Gas sales (PNG):

o GCZ gas sales via PNG of 2.0 Bcf

o GSS gas sales via PNG sales of 715MMcf

· Compressed Natural Gas (CNG) sales - retail station sales:

o 65% increase to 540 MMcf (15.3 million cubic meters) (2012: 327 MMcf ):

· 14.3% came from GSS block production (77 MMcf )

· 85.7% was acquired from third parties (463 MMcf )

· Compressed Natural Gas (CNG) sales - Industrial customers:

o Decreased 32.8% to 282 MMcf (7.99 million cubic meters), (2012: 419 MMcf / 11.89 million cubic meters) - reduction due to suspension of sales while the government concludes new permit policies which are expected to be completed in Q3 2014.

Commenting, Randeep S. Grewal, Founder & Chairman of Green Dragon Gas, said:

"One of the primary objectives in 2013 was to protect shareholder equity within the vast gas assets and eradicate the erroneous commentary and ambiguity over title to our assets. This was successfully achieved in July 2013 and duly documented by year-end in agreements with CNOOC/CUCBM and CNPC/PetroChina.

A consequence of resolving the title issues was the subsequent discovery of extensive work having taken place, including drilling and gas sales, on the Company's assets over the preceding years, by CNPC/PetroChina and CNOOC/CUCBM. With the support and over-sight of the Chinese government, Green Dragon signed agreements with both companies. This has secured our shareholders' rightful economic benefit in these activities, de-risked the assets and paved the way for the value of these assets to be fully realized in the future.

As mentioned in previous shareholder communications, while the title matters were being addressed, we elected to take a prudent approach to investment and capital expenditure, and as such we elected to suspend our discretionary 150 well drilling programme in GSS which we are now in the process of re-activating. Similarly, we elected to reduce the level of operational activity on all our PSCs somewhat during the period. With the title concerns now behind us we are once again focused and committed to drive our operational plans going forward enhancing our shareholder value into a new paradigm with funding expected to be via debt facilities."

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

Note

MMcf means millions of cubic feet; Bcf means billions of cubic feet.

CHAIRMAN'S STATEMENT

Introduction

The focus of 2013 was to put Green Dragon in a better position to be able to fully realize the economic benefit of its very sizable assets in the provinces of China. This was successfully achieved through a combination of resolving the title concerns over some of the Company's assets and streamlining the business towards that of a focused exploration & production ("E&P") company.

All concerns over title to the Company's assets were resolved in July with the reissue of the related licences to the Company by the Central Government and the subsequent withdrawal by CUCBM/CNOOC of the erroneous termination notices that had appeared on its own website in March 2011.

The subsequent discovery of significant operational activity by CNPC/PetroChina and CUCBM/CNOOC on the Company's licence areas during the intervening period led to the signing of agreements that have secured substantial economic value for the Company, both retrospectively and in the future, and secured strong partnerships with these companies and new management teams that will pave the way for shareholders to fully benefit from the inherent value of the assets.

Also, during the period, the Board and management team undertook a strategic review of the business. This was concluded in Q1 2013 and led to the streamlining of the Company to be a more focused pure play E&P. Consequently, the Company's non-core pipeline business, Beijing Huayou, was sold for US$65m, creating a profit on the sale of US$33.4m, and Greka Engineering & Technology Ltd was demerged, becoming an independently listed company.

The Company saw significant increases in production, gas sales and revenues during the year. With organic activity maintained, these increases are largely a reflection of the binding agreement signed with PetroChina in December. This secured the Company's 47% interest in gas being produced by PetroChina from the Company's GCZ block.

Operations

The Company elected to slow investment in capital expenditure, in accordance with the terms of its PSCs, while uncertainties remained over title to its assets. Although resolved in July 2013, further clarity was then needed as to the subsequent discovery of extensive activity by third parties on the Company's licence areas before investment could fully recommence.

As such, during the period under review, 9 additional LiFaBriC wells were drilled bring the total number to 71 across all blocks.

Our binding agreements with CNOOC, CUCBM, CNPC and PetroChina substantially de-risks the Company's assets, paving the way for us to rapidly build on existing production and sales and to fully realize the market potential for Green Dragon's gas in China. We now have well-capitalized, cooperative and supportive partners with management teams committed to developing our vast acreage and producing the substantial gas resource with us over the next 20 years.

The Company now has a direct equity interest in over 1,800 drilled wells. The equity interest varies between 47%-70% and the total invested capital exceeds US$1 billion and an additional US$250 million is budgeted to be deployed on infrastructure to market the gas resource developed. We have indeed migrated from an exploration company to a production company with a substantial proven reserve and a large acreage position to develop further.

Sales

Total sales inclusive of share of cumulative gas sold from GCZ amounted to 8.01 Bcf, of which 6.48 Bcf was attributable to the GCZ Block (2.0 Bcf in 2013 and 4.48 Bcf from 2010-2012) and 1.53 Bcf was attributable to the GSS Main Block. This represents a 424% increase over the prior year. 67.5% of the gas sold by the Company's distribution arm comes from the GSS block, with the remaining 32.5% being acquired from external parties. Gas is acquired from third parties in order to meet the increasing demand and over time will be replaced by gas produced from Green Dragon's assets.

Piped Natural Gas (PNG) sales during 2013 totaled 7.2Bcf. PNG Sales are from GCZ and GSS and deliver gas though the West East Pipeline infrastructure. GSS Sales are made under the 20 year agreement entered into in June 2011 with PetroChina. Additional sales from CNOOC and CUCBM into the west east pipeline will add to the gross gas sales in 2014 and beyond.

The Company also sells Compressed Natural Gas (CNG) for vehicle use through its series of Company-owned CNG retail stations located in and around its licence areas. In 2013, sales of CNG through these outlets amounted to 540MMcf, representing a 65% increase on 2012 and a 5% increase over the same period last year. This increase in sales is primarily due to the number of operating CNG stations increasing to 6 from 5 a year ago and the expansion of our fleet of distribution trucks. The Company hopes to be able to bring an additional three stations into operation during the remainder of this year.

Demerger of Greka Engineering & Technology and sale of non-core operations

We completed the demerger of Greka Engineering & Technology Ltd from Green Dragon. It was our second dividend in specie since our listing six years ago and is a reflection of the Company's successful strategy of demerging non-core mature businesses that have significant potential as standalone businesses. It has resulted in GDG becoming a far more streamlined and efficient business, focused purely on its core upstream E&P operations. Similar to the Greka Drilling Limited dividend, which created an independently successful operating enterprise whilst also providing Green Dragon shareholders an opportunity to monetize their returns at their discretion, we expect Greka Engineering & Technology will mirror this success, both operationally and in creating shareholder value. Each of these businesses were created from a technology and aptitude necessity by Green Dragon to develop the vast and complex CBM resource, the successful technology is now contracted by Green Dragon as is typical within the industry rather than service company ownerships.

During the period we successfully sold the non-core mid-stream gas pipeline interests for US$65m, at a respectable 14% IRR return, creating a US$33.5 m profit. These comprised the Company's 29% interest in the Beijing Huayou United Development Co and its 100% interest in Giant Power International Investment Limited; which included the Company's interests in the wholesale gas distribution pipeline network unrelated to the upstream CBM assets.

Financials

Reported revenue from continuing operations increased to US$62.2m (US$8.1m: 2012). The increase in revenue was primarily driven by the agreement with PetroChina signed in December, which allowed for the Company's cumulative share of the sale of gas by PetroChina from the GCZ block, amounting to US$48.2m (US$15.8m in 2013 and US$32.4m from 2010-2012) since commencement, recognized in 2013.

E&P capex was US$12.3m. This lower discretionary spend reflected the prudent approach taken by the Company to limiting investment while the final binding agreements were signed.

Finally, during the period, we also significantly strengthened our balance sheet, raising a total of US$135m from the disposal of non-core assets and the issuance of US$70m of bonds and warrants. US$84.2m was subsequently used to repay in full the outstanding Convertible Bonds.At 31 December 2013, the Group had cash of US$34.6m.

The Company is also pleased to announce that it has, since the year end, issued an additional US$50m of convertible bonds to GIC Private Limited following the full conversion of the entire US$35m convertible bond issued to GIC Private Limited during 2013. Green Dragon warmly welcomes its first sovereign wealth fund to the shareholder register as a result.

The arbitration tribunal relating to funds paid to the Company by ConocoPhillips China Inc (COPC) in relation to a farm-in deal entered into in 2009, awarded COPC US$42.6m plus costs during the period. The Company subsequently filed an appeal which focuses on the breach of natural injustice and lack of due process by the tribunal. Green Dragon will update its shareholders on this process as appropriate.

The non-cash fair value adjustment in relation to the US$35m bond issuance with warrants resulted in a charge of US$13.3m through yearend.

Outlook

Our results for 2013 demonstrate the significant value due to Green Dragon as a result of the agreement reached with PetroChina during the year. Subsequent to the year end, agreements were reached with CNOOC and CUCBM which will result in further increases in production as a result of their work performed on our GSS and GSN blocks. When combined with increases in production expected during 2014 from the Company's organic drilling programme, we look forward to another year of significant progress.

As part of our agreements with CNOOC and CUCBM, they have planned to spend a further US$250m on infrastructure at GSS on which we are being carried. As our existing wells are connected to this new infrastructure it is expected that the associated reserves will be recognised by NSAI with their audited reserve numbers and valuations migrating to those estimated by our in-house reservoir engineers in October 2013.

On every value matrix, this is an exciting time for Green Dragon and thus its shareholders. During the exploration period, GDG successfully provided two dividends, has over 1800 wells drilled with US$1 billion in capital deployed on the assets, a track record we are quite proud of. As we transition into production, sales and cash flow, we are committed to monetize our 17 years of efforts in the near term.

Finally, I would like to take the opportunity to thank all our shareholders and employees who have strongly supported our vision and have been a key ingredient to the realized successes.

Randeep S. Grewal

Founder & Chairman

Consolidated Statement of Comprehensive Income

# Refer to note 2 for details of the restatement.

 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

# Refer to note 2 for details of the restatement.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

~ Exchange differences on translating foreign operations may be recycled through profit in future periods if certain conditions or events arise.

#Refer to note 2 for details of the restatement.

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CASH FLOWS

ABRIDGED NOTES TO THE FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2013

1 PRINCIPAL ACCOUNTING POLICIES

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union("IFRSs"), that are effective for accounting periods beginning on or after 1 January 2013. The principal accounting policies adopted in the preparation of the consolidated financial statements are set out in the Group's full annual report and accounts for the year ended 31 December 2013.

2 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Group makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may deviate from these estimates and assumptions. The estimates and assumptions that have a significant risk or cause a material adjustment to the carrying amounts of assets and liabilities within the period after the year/period are as follows.

PetroChina GCZ block interest

Judgement has been required in the recognition of the Group's attributable share of the results and assets of the GCZ block as at year end. Further to the identification of drilling activities by third parties on the Group's blocks, the Group entered into a binding Memorandum of Understanding (MOU) with PetroChina Company Ltd ("PetroChina") during December 2013, confirming the Company's rights over the Chengzhuang block ("GCZ") under the pre-existing PSC. Under the MOU PetroChina continues to be operator of the block and the parties agreed to a third party audit process to verify the capital expenditure incurred to develop the block, the gas production, gas sales and related revenues and costs. This audited information is then used by the parties to establish the Group's attributable share of such production, revenues and expenditures. Subsequent to the audit, which has now been completed, the Group will enter final agreements defining the payments and future cooperation. The Group considers that, following the MOU, the Group's entitlement was established under the existing PSCs and the attributable share of revenues and expenditures can be reliably measured based on information obtained through the audit. Accordingly, the Group has recognised its attributable share of cumulative revenues, capital expenditure and operating costs in the year.

Litigation

The Group has recorded a provision of US$49.5 million in respect of litigation with ConocoPhillips China Inc ("COPC") arising from a dispute in respect of the farm-out agreement, and the findings of the arbitration tribunal. Whilst the Directors' remain confident of a successful appeal, a provision has been conservatively made in the financial statements. The original US$42.6 million received was set against the exploration assets and, consequently, this has been reversed. Full interest and penalties have been provided for and are shown in the Consolidated Statement of Comprehensive Income. The appeal is to be heard in the Singapore High Court in the coming months and should the appeal set aside the ruling, no payment would be made in respect of the provision.

Transfer of exploration and appraisal assets and depreciation of the gas production assets

The Group has exercised judgement in determining the relevant assets transferred from exploration and evaluation intangible assets to property, plant and equipment in respect of the producing GCZ block. The costs transferred included a portion of the fair value uplift on acquisition of the Group's licence interests as a whole considered attributable to the GCZ block, based on the relative acreage of the GCZ block and the total licence areas. The property, plant and equipment associated with GCZ has been depreciated on a units of production basis. Judgement was required in determining the reserves used in this calculation and the Group considers 2P reserves to be capable of extraction using the assets and therefore an appropriate estimate of the asset's life. It is noted that significant 3P reserves have been estimated to exist and such reserves would significantly extend the estimate useful life. However, 3P reserves are not included until such time as they are transferred to 2P reserves as part of the Group's independent reserves audit.

Impairment reviews

Exploration and appraisal costs are assessed for indicators of impairment using the criteria detailed in note 2 in the Group's full annual report and accounts for the year ended 31 December 2013. The assessment by the Board requires judgement and is dependent upon an assessment of the rights to the Group's assets and renewal of such rights, expected levels of expenditure, interpretation of exploration and appraisal activity in the year and future intentions. No impairment indicators were noted. These assessments are inherently judgemental and require estimation and therefore may change over time resulting in significant charges to profit or loss.

The Group tests its property, plant and equipment assets, which include oil and gas development and production assets for impairment when circumstances suggest that the carrying amount may exceed its recoverable value and in accordance with the policy detailed in note 2 in the Group's full annual report and accounts for the year ended 31 December 2013. This assessment involves judgement as to the level of reserves that are capable of being extracted commercially and which are technically viable with reference to the Group's independent competent person's report, estimates of future gas prices, operating costs, capital expenditure necessary to extract those reserves and the discount rate to be applied to such revenues and costs for the purpose of deriving a recoverable value. The Group uses proven (1P) and probable (2P) reserves in such impairment tests. The impairment tests on the Group's producing gas development and production assets were performed based on the GCZ block to which they related.

Fair values of convertible notes

The fair value of the liability component on initial recognition is the present value of the stream of future cash flows (including both coupon payments and redemption) discounted at the market rate of interest that would have been applied to an instrument of comparable credit rating with substantially the same cash flows, on the same terms, but without the conversion option. The applicable rates of interest, which are a matter of judgement, are disclosed in note 23 in the Group's full annual report and accounts for the year ended 31 December 2013.

Valuation of derivatives and warrants

The Group determined the value of derivatives and warrants (at inception and at year end) using valuation techniques. Those techniques are significantly affected by the assumptions used, including share price volatilities, discount rates, probabilities of warrant exercise or redemption, and assumptions regarding the behaviour of parties subject to contractual arrangements. In that regard, fair values based on estimates cannot always be substantiated by comparison to independent markets. Details of the significant estimates and assumptions are disclosed in note 23 and note 32.

Demerger of Greka Engineering and Technology Limited

As detailed in note 2 in the Group's full annual report and accounts for the year ended 31 December 2013, judgment has been applied in determining the Group's accounting policy for the demerger of GET and is subsidiaries in a transaction under common control. IFRS does not contain specific guidance on the accounting for common control transactions. Having considered the requirements of IAS 8 the transaction by which the Group demerged its controlling interest in GET has been accounted for by demerging the GET group at book value, with a reduction recorded against share premium. No fair value adjustments have been made. This is a material accounting policy selection.

3 REVENUE AND SEGMENT INFORMATION

The Group's 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$48,179,000 (2012: Nil ) was recognised by the Sale of CBM gas segment in respect of 1 (2012: Nil) customers representing 10% or more of the Group's total revenue for the year.

For the year ended 31 December 2013

For the year ended 31 December 2012

 4 LOSS FROM OPERATIONS

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

During the year the Group incurred other costs of US$6,937,000 in respect of interest and costs related to the litigation detailed in note 2. The amounts shown in 2012 relate to professional fees incurred in respect of fundraising and refinancing advice.

(b) Discontinued operations

Summary

On 30 September 2013, the shareholders approved thedemerger of the Group's engineering business by means of a dividend in specie of shares in Greka Engineering & Technology Ltd ("Greka Engineering" or "GET")) to Green Dragon Gas shareholders.

A summary of the assets and liabilities of GET distributed by the Company as a result of the demerger is as follows:

On 3 June 2013, the Company entered into a sale and purchase agreement for the sale of the Company's 29.11% effective interest in Beijing Huayou United Gas Development Co., Ltd ("BHY") and its 100% interest in Giant Power International Investment Limited ("GPI") which included the Company's interests in the wholesale gas distribution pipeline network in the Beijing Development Area and the wholesale gas stations in Zhengzhou and Wuhu, for a cash consideration of US$65 million, together with settlement of inter-company liabilities and contingent consideration. The Company acquired BHY in 2007 for US$27.1 million and GPI in 2008 for US$10.8 million.

Details of the carrying amount of identifiable assets and liabilities disposed of and sales consideration is, as follows:

Under the terms of the agreement, contingent consideration existed as the Group is entitled to the share of pre-disposal date dividends that are declared subsequent to the disposal by the acquirer. The contingent consideration has been determined based on estimated future receipts.

The revenue, results and cash flows of the discontinued operations are disclosed as follows: