G3 Exploration Regulatory News (G3E)

17 Aug 2006 07:01

Green Dragon Gas Ltd17 August 2006 This announcement is not for release, publication or distribution in or into the United States, Canada, Japan, Australia or South Africa. 17 August 2006 GREEN DRAGON GAS LTD. ("Green Dragon" or the "Company") DEALINGS COMMENCE ON AIM FOLLOWING US$25.1 MILLION PLACING MARKET CAPITALISATION - US$525 MILLION Green Dragon Gas Ltd., the Chinese coal bed methane business, today announcesthe placing of 4,513,413 new ordinary shares of US$0.0001 per share at a placingprice of US$5.56 per share, raising gross proceeds of $25.1 million, and itsadmission to trading on the AIM market of the London Stock Exchange, under thesymbol GDG. Green Dragon's market capitalisation will be US$525 million following admissionat the Placing Price. Green Dragon has interests in five coal bed methane ("CBM") production sharingcontracts covering a total of approximately 1.6 million acres in China withestimated total gas in place of approximately 16.6 trillion cubic feet. Smith & Williamson Corporate Finance Limited is nominated adviser and broker tothe Company. ADMISSION STATISTICS Placing Price per Ordinary Share US$5.56Number of Placing Shares 4,513,413Number of Ordinary Shares in issue following the Placing 94,513,413Market capitalisation of the Company at the Placing Price US$525 millionGross proceeds of the Placing US$25.1 millionNet proceeds of the Placing US$22.2 million Commenting on the placing and admission to AIM, Green Dragon's Chairman andChief Executive, Randeep Grewal, said: "2007 promises to be a landmark year for CBM and its contribution to the Chineseenergy supply. Green Dragon is a pioneer, one of the largest foreign partners ofthe Chinese government in CBM and ideally positioned to capitalise on thecountry's increasing demand for energy. This listing is an important and timelymilestone in our growth driven strategy. Green Dragon's vision is to be the leader in providing the Chinese populationwith environmentally friendly gas resources through the substantial commercialdevelopment of China's CBM resources." The Company's admission document (the "Admission Document") is available fromthe offices of Smith & Williamson Corporate Finance Limited. Further informationis available on the Company's website: www.greendragongas.com For further information, please contact: Randeep GrewalChairman and Chief Executive, Green Dragon Gas Ltd.+852 2166 8686 Tim Thompson/ Mark Edwards/ Nick MelsonBuchanan Communications0207 466 5000 Dr Azhic Basirov/ David JonesSmith & Williamson020 7131 4000 ABOUT GREEN DRAGON GREEN DRAGON'S BUSINESSGreen Dragon is the parent company of Greka Energy (International) BV ("Greka"),which was incorporated in 1992. Following Admission, Green Dragon will be 95.2per cent. owned by Randeep Grewal, Chairman and Chief Executive Officer. Greka, a pioneer in the appraisal and development of coal bed methane ("CBM")projects in China, has the benefit of five production sharing agreements ("PSC")with China United Coal Bed Methane Corporation Limited ("CUCBM") in relation toCBM blocks in China covering a total of approximately 6,700 km2 (approximately1.6 million acres). This represents one of the larger areas granted by CUCBM inChina operated by a foreign CBM company and was secured alongside US majorsincluding Texaco, Phillips and Arco. Each of the PSCs is for a term of 30 years comprising an exploration period, adevelopment period and a production period of up to 20 years, save in the caseof Shizhuang South which has a preparation period in place of the explorationperiod to take account of the work already conducted by CUCBM in exploring theblocks covered by the PSC. Information on the estimated gas in place (taken from Scott Pickford Limited'sreport which is contained in the Admission Document) and areas covered by thePSCs is set out in the table below: Gas in place Approximate areaPSC Bcf km2 acres (million)Shizhuang South 2,640 455 0.1Shizhuang North 2,660 375 0.1Fengcheng 1,566 1,541 0.4Qinyuan 8,580 3,665 0.9Panxie East 1,110 584 0.1 -------- -------- ------- 16,556 6,620 1.6 The projects at Shizhuang South and Fengcheng are at a more advanced stage interms of CBM reserves than the other three projects and the Company expects todrill over 20 wells at each of these sites by the end of 2007; gas is currentlybeing produced at Shizhuang South at a rate of over 265,000 cu ft per day on apilot basis. Greka is the operator of all the PSCs referred to in the table above and has a60% interest in all of the projects except Fengcheng where its interest is 49%.As operator of the projects, Greka controls the implementation of the workprograms agreed by the joint management committees and the cash flows. COAL BED METHANE Coal bed methane is methane which exists within the carbon lattice of coal at amolecular level; this differs from conventional gas fields where gas isgenerated by hydrocarbon source rocks/materials and then migrates through rockstrata before being trapped in a porous and permeable reservoir rock such as asandstone. CBM is generally held in place by water pressure. Extracting CBM involves drilling wells into the coal seam, perforating and thenfracturing the coal seams to increase local permeability. Water is then pumpedout of the coal seam reducing the pressure and allowing the gas to leave thecoal and migrate through fracture systems into the well. Historically methane produced by coal seams has been viewed as an unwelcomeby-product of coal mining and used to be treated as a hazardous waste product,however more recently the increased demand for natural gas, improved extractiontechnology and higher gas prices have led to the commercial exploitation of CBMreserves, for example in the United States where CBM accounted for approximately8% of domestic gas production in 2004. THE MARKET The Chinese economy has been growing strongly for a number of years and in 2005experienced GDP growth of 9.8%. This growth is expected to continue. The expansion of the Chinese economy has led to rapidly increasing demand forenergy resources which outstrips supply and the country is dependent on oilimports to meet its energy needs. Coal accounts for around 68% of China's energyconsumption and is expected to remain the most important source of energy. Gascurrently accounts for around 3% of demand in China. The Chinese CBM sector is dominated by state-owned firms and China's significantCBM resources are largely controlled by CUCBM. It has been estimated that totalCBM resources in China are in the range of 1,000 - 1,200Tcf. In 1998, CUCBM began to sign PSCs for selected blocks in order to attractforeign technology and expertise to assist in the development of China's CBM. Atotal of 26 such contracts have been signed by CUCBM with foreign companies todate. China's CBM activities accelerated in 2005 when over 300 wells weredrilled. The Company believes that there is a high level of demand for CBM in theprovinces where its blocks are situated or in adjacent provinces. For example,Nanchang city (the capital of Jiangxi province) is only approximately 50 km fromthe Fengcheng block and has been reported to be facing an energy shortage. DEVELOPMENT PLAN Green Dragon's well-drilling programme for 2006 and 2007 is focused on twoprojects: Shizhuang South and Fengcheng. In the case of Shizhuang South, theCompany is planning to submit an ODP for approval by the JMC by the end of 2006.When the ODP is approved by the JMC and the relevant state authorities, thedevelopment period will begin. In the case of Fengcheng future exploration willbe concentrated in the east of the block, the site of most of the area's coalmining activity. Appraisal work will continue at the other projects through2006. The drilling programme for 2007 will be determined when the results of theappraisal work have been evaluated. PLACING AND USE OF PROCEEDS The Company has raised approximately US$22.2 million (net of expenses) pursuantto the Placing. Green Dragon has 94,513,413 Ordinary Shares in issue and amarket capitalisation of approximately US$525 million at the Placing Price. The Placing is of new Ordinary Shares and no existing Ordinary Shares have beensold under the Placing. The net proceeds of the Placing will be applied principally towards theCompany's appraisal, exploration and development program under its five PSCs asdescribed in the section entitled "Development plan" above. The Company expectsto fund further appraisal and development work after 2007 from trading cashinflows, debt funding, farm-in(s) and/or the issue of further Ordinary Shares asappropriate in the circumstances. DIRECTORS AND SENIOR MANAGEMENT Directors Randeep Grewal (41), Chairman and Chief ExecutiveRandeep Grewal has been Chairman and Chief Executive Officer of Greka since2001. He is also Chairman and Chief Executive Officer of Greka Integrated Inc.,a US-based heavy oil and gas transportation, refining and real estate businesswith interests in oil and gas properties and refining assets valued atapproximately US$750 million. From April 1997 to September 1997, Mr Grewalserved as Chairman and Chief Executive Officer of Horizontal Ventures, Inc., anoil and gas horizontal drilling technology company. In August 1997, HorizontalVentures merged with Petro Union Inc. and Mr Grewal became Chairman and ChiefExecutive Officer of the reorganised company. This company merged in turn withSaba Petroleum Corporation in March 1999 to form Greka Energy Corporation. From1993 to 1996, Mr Grewal was Corporate Vice President for the Rada ElectronicIndustries Ltd with principal responsibility for its global expansion andrelated operations. He has also been involved in various joint ventures,acquisitions, mergers and reorganisations since 1986 in the United States,Europe and the Far East with a range of businesses. Mr Grewal has a BSc inMechanical Engineering from Northrop University. Chen Shong Woo (37), Chief Financial OfficerChen Shong Woo joined the Company in May 2006. From 2001 to April 2006, heserved as Chief Financial Officer of SHV Gas NV (China), where he led thefinance team in financial planning, budgeting and control. From 1999 to 2000, hewas Finance Director at CTA Makro Commercial Ltd in Beijing and from 1996 to1998 he was internal audit manager for Makro Cash & Distribution in Malaysia.From 1994 to 1996 he was Audit Junior/Audit Senior at KPMG Peat Marwick in KualaLumpur. Mr Chen is a Fellow of the Association of Chartered CertifiedAccountants, having qualified as an ACCA in 1993. He studied FinancialAccounting at Tunku Abdul Rahman College, Kuala Lumpur, graduating in 1993. David Turnbull (51), Non-executive DirectorDavid Turnbull is Executive Chairman of Allco Finance (Asia) Limited based inHong Kong specialising in asset based financing in shipping, rail, aviation,property and small ticket leasing. Prior to joining Allco Finance (Asia)Limited, Mr Turnbull spent 30 years, until January 2006, with the Swire Groupholding a variety of posts, including, more recently, Chairman of Swire PacificLimited, Cathay Pacific Airways Limited and John Swire & Sons (H.K.) Limited. MrTurnbull is non-executive Chairman of HAECO (Hong Kong Aircraft EngineeringCompany Limited) and a non-executive director of Pacific Basin Shipping Limited.Mr Turnbull has an MA in Economics from Cambridge University. Stewart John OBE (67), Non-executive DirectorStewart John has over 50 years experience in the aviation industry. He workedfor British Airways (BOAC/ BA) for 22 years, leaving in 1977 to join CathayPacific where he served as engineering director on the main board from 1980until 1994. Since 1994 he has been a non-executive director of a number ofcompanies including Rolls-Royce Commercial Aero Engines, British AerospaceAviation Services, Airlines of Britain Holdings and Newall Aerospace. Currently,he is a non-executive director of Taikoo (Xiamen) Aircraft Engineering CompanyLimited (which he founded in 1993), a board trustee of Brooklands Museum Trustand a director of Thrust Logistics Company Limited. Gong Da Bing (54), Non-executive DirectorGong Da Bing joined Greka in 1999 and has been Senior Advisor since 2001. Shehas 27 years of international business experience. From 1992 to 1999 she wasmanaging director of the Chinese office of Frontanic Co., a privateinternational trading organisation. From 1989 to 1992 she was the chiefrepresentative in China of Koor Trade Limited. From 1978 to 1989 she was themanager for joint venture operations and import and export business forMachinery & Equipment Import & Export Corporation. From 1975 to 1978 she was abusiness negotiator for the Beijing Foreign Trade Bureau, Department ofMachinery Import & Export. Madam Gong studied English at the Beijing SecondForeign Language University and has a Masters Degree in Comparative Law from theUniversity of Illinois, USA. Senior management Wai Ho (Terry) Siu (48), Business Development Director DesignateTerry Siu has served as Business Development Director of Greka Energy Ltd since2005 and acts as a consultant to Greka. It is intended that he will join Grekaas Business Development Director following Admission. He has 22 years ofexperience in the Chinese petrochemical, energy and industrial sectors. From1989 to 2003 he worked at Atofina (China) Investment Company Ltd as GeneralManager and Senior Project Manager. From 1984 to 1989 he was the AssistantManager in the Plastics Department of United Oversea Enterprises Ltd, Hong Kong.Mr Siu has a BSc in Chemistry from the University of Hong Kong, a Diploma inManagement Studies from the Hong Kong Management Association and a Mastersdegree in Financial Management from MGSM, Macquarie University. Mahmood (Mel) Lone (58), Operations DirectorMel Lone joined Greka Energy Corporation in 1999 and has been General Managerand Chief Representative of Greka in China since 2001. He has been activelyinvolved in the development of CBM at Greka. From 1995 to 1998 he worked in theUS and Indonesia for Saba Exploration Company and was Vice President of SabaExploration and Saba International Limited from 1997. From 1987 to 1995 heworked in international trading and real estate in Toronto, Canada. Mr Lone hasa BA in Economics and History from University of the Punjab, Pakistan. Zuo Kefeng (41), Chief EngineerZuo Kefeng has been chief engineer at Greka since May 2006. Mr Zuo has 23 years'experience in the oil sector. He worked for Huabei Petroleum AdministrationBureau for 18 years where his last position was Deputy Administration Manager.He joined Haubei Emirates Engineering LLC in 2002 and held the positions ofEngineer, Marketing Manager and General Manager. Mr Zuo was approved as an IADCWellCAP instructor in February 2005. Zhen An (49), Chief GeologistZhen An has worked as a senior geologist since 1994 and joined Greka in April2006 as chief geologist. Mr An has over 10 years experience in CBM exploration.He was appointed by the Geology Exploration Institution of Coal Field GeologyBureau in Sichuan Province as specialist consultant and project supervisor in2003. He has worked at the Geological Exploration Team No. 107 of Northeast CoalGeology Bureau in the roles of director of geological department and head ofgeological research department. Mr An received a bachelor degree from JiaozuoMineral Industry Institute in 1982. SUMMARY FINANCIAL INFORMATION The Grecogas group comprises the Company, its 100% subsidiary Grecogas Limitedand Greka, which is wholly- owned by Grecogas Limited. The Company was formed inMarch 2006 to acquire Grecogas Limited and is a holding company with no tradingactivity. Set out below is a summary of the financial record of Grecogas Limitedfor the three year period ended 31 December 2005 which has been extractedwithout material adjustment from the financial information set out in theadmission document. Year ended 31 December 2005 2004 2003 US$m US$m US$mProfit and loss accountRevenues - - -Loss after taxation 0.7 0.5 0.2 Balance sheetNon-current assets 29.4 24.5 20.2Current assets 0.3 0.2 0.1 -------- ------- -------- 29.7 24.7 20.3 -------- ------- -------- Non-current liabilities 29.5 23.2 20.5Current liabilities 1.7 2.3 0.0Equity (1.5) (0.8) (0.2) -------- ------- -------- 29.7 24.7 20.3 -------- ------- -------- This announcement does not constitute, or form any part of, any offer orinvitation to sell, allot or issue, or any solicitation of any offer to purchaseor subscribe for, any securities, nor shall it (or any part of it) or the factof its distribution form the basis of, or be relied upon in connection with, oract as any inducement to enter into, any contract or commitment for securities,which should only be made on the basis of information contained in the admissiondocument issued in connection with the Placing. The issuance of securities in the Placing has not been and will not beregistered under the applicable securities laws of the United States, Canada,Australia or Japan. The distribution of this announcement in other jurisdictionsmay be restricted by law and therefore persons into whose possession thisannouncement comes should inform themselves about and observe any suchrestriction. Any failure to comply with these restrictions may constitute aviolation of the securities laws of any such jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange