G3 Exploration Regulatory News (G3E)

30 September 2011

GREEN DRAGON GAS LTD

("Green Dragon Gas" or "the Company")

Interim Results to 30 June 2011 - 68% Increase in Revenues

Green Dragon Gas Ltd (AIM: GDG), one of the largest independent companies involved in the production of coal bed methane gas and the distribution and sale of gas in China, is pleased to announce its interim results for the six months ended 30 June 2011.

HIGHLIGHTS

Financials:

·; Revenues increased by 68% to US$36.2 million over same period in 2010

·; Gross profit increased by 41% to US$5.3 million over the same period in 2010

·; Current assets of US$214.6 million with US$156.8 million in cash

·; Total equity of US$670.1 million

·; US$50 million raised at US$14.88 per share

·; Sinoenergy stake sold for US$25 million

·; Successful demerger via a dividend in specie of AIM listed Greka Drilling

·; Increase in G&A expense due to non-cash share option charge of US$8.7 million

Upstream - Coal Bed Methane:

·; CBM gas production annual rate increased 32% to 1.66 Bcf from rate at year end and about 200% year on year - in line with targets set

·; 20 additional wells drilled across all six blocks taking the total well count to 258 wells

·; Infrastructure capacity, including power generation, compression and pipeline, in construction to meet gas production increases

·; Power output ratio improves from 39.7 kWh/Mcf to 104.9 kWh/Mcf

·; Gas in place of 25.5 Tcf, 3P of 2.6 Tcf with a NPV10 of US$12.3 billion (at year end) 

Midstream Wholesale Gas:

·; Gas sales volume increased 12% to 1.39 Bcf over the same period in 2010 and sales value increased 28% to US$13.5 million

·; Cost of transportation of CNG using Greka Transportation and Infrastructure fleet fell from US$0.46 to US$0.13 per 100 km, a 72% improvement in efficiency

·; First foreign company in China to have been awarded a CNG gas transportation licence

Downstream Sales of Gas:

·; Gas sales increased to 6.67 Bcf representing a 32% increase over the same period last year

·; 2 additional refueling stations added in Henan province resulting in 6 fully operational CNG retail stations

·; 10 km of additional pipeline added to the Beijing Huayou (BHY) distribution network bringing total to 294 km

Technology and Manufacturing:

·; Well-head compressors added to dispensers and SCADA as the main production and business lines

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

"Following a diligent and structured process and careful consideration, we concluded that our drilling services division would be better served as an independent business; while such services were required, ownership was not essential to a gas producer. Hence, we successfully created a separate listing for the Company's drilling division, which resulted in a dividend of shares in the now independently operated Greka Drilling, the demerged entity. The demerger has created clear operational advantages for both companies and concurrently provided our shareholders with an investment in the booming services industry in China.

Whilst our results are driven by current end user sales, the expected evolution is taking place in our upstream business. Coal bed methane is an annuity model and one that produces significant stable cash returns once the repeatability of the drilling process and resulting well production profile is understood. Now that we have reached this point, our aggressive production forecasts based on our US$250 million discretionary capital expenditure plan reflect our confidence in the repeatability of each new SIS well drilled.

The principal reason for the Company to engage in the initial acquisitions of mid and downstream assets was to put the necessary infrastructure in place to meet the expected uplift in our gas production. During the period under review, the Company also added senior staff and engineers that help ensure that our facilities are able to cope with these significant capacity increases. The level of certainty associated with each SIS well drilled allows us to match the integrated gas production facilities to fit the predictable output profile and knowing our customers in the last mile component through our mid and downstream assets will become increasingly important to the vertically integrated model.

Multiple options for selling gas are a vital component that will maximise the net profit at the well-head. Gas sales options have been expanded from purely selling gas through our wholly-owned retail gas outlets to one of building a pipeline to connect into the West-East pipeline and constructing a 10 MW powerplant that establishes the optionality of considering "gas-by-wire" or peak load powerplant sales of electricity generated by our produced CBM. The GSS-Integrated Production Facility (IPF) now demonstrates our vertically integrated strategy founded on creating the maximum options to capture the highest possible net margin per Mcf. The GSS-IPF shows how we could sell our gas as power, CNG or through the pipeline. Simply, the options provide us pricing leverage to achieve the highest margins. We intend to build several larger IPF's concurrent with the increasing gas production in the near future."

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

The information relating to gas reserves contained in this announcement has been prepared in accordance with guidelines approved by the Society of Petroleum Engineers and has been reviewed by Elton Dong, Chief Engineer and Vice General Manager Production, Bachelor of Science at Xi'an Petroleum Institute.

Definitions

CHAIRMAN'S STATEMENT

Successive 5-year plans by China's central planning authorities have contained targets for the production of CBM as a component part of the nation's energy supply. These targets have been repeatedly missed largely due to the lack of available technologies to monetise the vast CBM resource trapped in extremely complex coal seams. The original task set by the central Government and the aim of those original contracts awarded to the foreign companies was to provide capital and technology to unlock the potential reserves. The current 5-year plan contains another forward look at output. Green Dragon Gas has pioneered the "cracking of the code" which will enable the potential to be realised. This time the 5-year plan objectives are within reach. I certainly would not bet against them.

Upstream - CBM Production

Production of gas increased to an exit annual rate of 1.66 Bcf in June in spite of some delays resulting from the conversion of our drilling contractor's rig fleet to being capable of drilling SIS wells. Nonetheless we drilled 20 new wells in the first half across all our six blocks, bringing the total wells drilled to 258. However, the real growth in our discretionary well drilling schedule was always expected to begin ramping up in the latter half of 2011 and into 2012, once Greka Drilling had expanded its capacity with the addition of 25 new rigs.

Importantly the predictability of the gas output from our SIS wells ensures that the associated infrastructure is concurrently optimized to match the forecasted gas production profile. The successful implementation of our Technology and Manufacturing division's proprietary designed and purpose built and installed boosters (well-head gas compressors) which regulate and manage gas pressures has led to improvements in the gas produced and further complemented the drilling program. The GSS-IPF will have a processing capacity of 10,594 Mcfpd by the year end. Our infrastructure division successfully concluded significant upgrades to the GSS-IPF with substantially more advanced equipment. This resulted in efficiency improvements demonstrated by the power output ratio at GSS increasing from 39.7kWh/Mcf to 104.9 kWh/Mcf.

Midstream - Wholesale Gas Distribution

The Company implemented a successful strategy across its fleet of trucks to reduce the cost of transportation, which now stands at RMB 0.13 per 100 km compared to RMB 0.46 previously (6 months ended June 2010). The efficiency improvements were driven by an increase in the wholly owned CBM fueled transportation fleet and return of the leased diesel fueled vehicles. Concurrent with such economic efficiency improvements, a significant reduction in carbon pollutants was achieved.

Gas sales volume increased 12% to 1.39 Bcf over the same period in 2010 and sales value increased 28% to US$13.5 million. Wholesale gas sales recovered from the resistance seen in 2010 as end customers absorbed the price increases implemented by the Government.

In addition, Green Dragon became the first foreign company in China to have been awarded a gas transportation licence.

Downstream - Retail Gas Sales

BHY, the pipeline gas distribution joint venture located around Beijing's outer ring road, increased its installed pipeline infrastructure from 284 km to 294 km. Increased demand helped gas sales climb by 32% to 6.67 Bcf. The Company's strategy remains the organic expansion of this network through cash generated from sales.

Our wholly owned Compressed Natural Gas ("CNG") retail stations for fueling the exponentially expanding number of vehicles within Central China increased from 4 to 6. Our current expectation is to have an additional 10 CNG stations completed by yearend with an additional 15 new stations in commercial operation by early 2012. We are currently selling gas at these retail stations for in excess of US$16 per Mcf, which is required by regulation to be at a discount to the regulated prices of gasoline, the alternative transportation fuel. We expect such prices to be sustainable in the future.

Technology and Manufacturing

During the period, the focus was on developing well-head compressors which are expected to become a vital component part of our integrated solution in gas production. These proprietary designed and purpose built compressors facilitate the flow of variable pressured gas from different producing wells consistently enhancing the overall gas production materially. Currently, we are manufacturing compressors in two configurations of 50 MW and 75 MW. The division continues to demonstrate its unique value within the Group.

Financials

In the first half of the year, revenue increased 68% to US$36.2 million which reflects the growth in the midstream and downstream business. Gross profits increased by 41% to US$5.3 million.

The Company ended the period with a very strong balance sheet with over US$156 million in cash on hand. In these uncertain financial markets, the deliberate attempt to build up a strong balance sheet has been quite timely. We have a mandatory capital expenditure requirement of approximately US$11.75 million per year within our Upstream division which provides the Company substantial head room and flexibility. Our balance sheet strength demonstrates the disciplined approach we have maintained through our period of exponential growth and which we are committed to follow into the future.

Outlook

During the first half of the year, the Company continued its steady growth trajectory within all divisions, provided a dividend in specie to our shareholders, strengthened the balance sheet with the divestment of SInoenergy and concluded significant plans to expand the infrastructure with a focused expansion at the GSS gas processing facilities.

In our Upstream division, in the second half of this year we expect to more than double the number of contracted rigs from 8 to 17 by yearend with an additional 16 scheduled for early in 2012. This exponential increase in contracted drilling capacity will see us maintain at least 33 rigs running at the Company's six blocks for most of next year, an increase of over 300% in capacity over this year. We expect materially increased production from the SIS wells drilled in the GSS block and enhanced exploration activities in the other five blocks. We expect such activities to increase our reserve valuations.

The Midstream division expects to complete its GSS-IPF upgrade by yearend, adding a 10 MW CBM-fueled powerplant and a 17,644 Mcfpd compression facility connected to the West-East pipeline. This will provide for a 7,058 Mcfpd of initial sales capability. Concurrently the division is expected to increase its CBM-fueled transportation fleet to 20 trailers and 10 trucks. In addition, the division is concluding the design for a new IPF and pipeline to be built in 2012.

The Downstream division continues its focused task of developing 25 Greka branded CNG stations within the trucking radius of GSS, predominately in Henan and Shanxi. We expect these stations to be operational in the first half of 2012. Our joint-venture company BHY, is forecasted to maintain its steady distribution expansion along the Beijing outer ring road, focusing on the higher margin industrial users.

Our Technology and Manufacturing division will focus its efforts on meeting the significant demand from each of our operating divisions. The Upstream facilities and wells are being fitted with the proprietary SCADA systems and well-head compressors. Midstream requires each of the trucks to be monitored through a GPS system with video to enhance vigilance and safety. The Downstream division is installing our patented dispensers and SCADA systems in each of the new retail stations being built.

The Company has a strong balance sheet, a proven technology to extract our proven reserves of CBM, and an integrated business model to ensure maximum achievable margins for the ever increasing gas volumes being produced by us. We look forward to realising the potential from our long tenure in developing Green Dragon Gas into a unique integrated gas company in China's fast growing clean energy market.

I would like to thank my fellow shareholders and partners for their continued support, as well as our dedicated employees, whose relentless hard work enables Green Dragon Gas to continue its exponential growth in the world's largest growing economy.

Randeep S. Grewal

Founder & Chairman

29 September 2011

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2011

Condensed Consolidated Statement of Financial Position

At 30 June 2011

Condensed Consolidated Statement of Changes in Equity

Six month ended 30 June 2011

Condensed Consolidated Statement of Cash Flows

Six months ended 30 June 2011

Notes to Condensed Interim Financial Statements

1 GENERAL INFORMATION

The condensed financial information for the six months ended 30 June 2011 and 30 June 2010 is unaudited and unreviewed and does not constitute statutory financial statements. The consolidated unaudited interim financial information set out in this report is based on the consolidated financial statements of Green Dragon Gas Ltd. and its subsidiary companies (together referred to as the 'Group'). The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2010, which have been prepared in accordance with IFRSs as adopted by the European Union. The comparative financial information for the full year ended 31 December 2010 is not the Group's full annual accounts for that period but has been derived from the annual financial statements for that period. The auditors' report on those accounts was unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report.

2 ACCOUNTING POLICIES

The condensed set of financial statements has been prepared in accordance with IAS 34, "Interim Financial Reporting". These accounts have been prepared in accordance with the accounting policies that are expected to be applied in the Report and Accounts of Green Dragon Gas Ltd. for the year ending 31 December 2011 and are consistent with International Financial Reporting Standards adopted for use in the European Union. The annual financial statements of Green Dragon Gas Ltd. are prepared in accordance with IFRSs as adopted by the European Union.

Basis of preparation

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly condensed financial statements.

The financial statements are presented in United States Dollars and all values are rounded to the nearest thousand dollars (US$'000) except when otherwise indicated.

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an invested entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

3 REVENUE AND SEGMENTAL INFORMATION

For the six months ended 30 June 2011

The Group has six 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 period revenue of US$28,037,000 (30 June 2010 - US$16,252,000) was recognised by the Pipelined Gas Distribution segment in respect of customers representing 10% or more of the Group's total revenue for the period.

For the six months ended 30 June 2011

For the six months ended 30 June 2010

For the year ended 31 December 2010

4 ADMINISTRATIVE EXPENSES

Administrative expenses for the period included an equity settled share based payment charge of US$8,733,000 (30 June 2010 - Nil, 31 December 2010 - Nil).

5 TAX

Taxation for the Group's operations in the PRC is provided at the applicable current tax rate of 25% on the estimated assessable profits for the period.

6 LOSS PER SHARE

Loss per share is based on the loss attributable to ordinary equity holders of the Company of divided by the weighted average of ordinary shares in issue during the corresponding period.

Due to the loss arising during the periods the diluted loss per share is considered to be the same as the basic loss per share. 11,904,375 potential ordinary shares (30 June 2010 - 7,405,005 shares, 31 December 2010 - 12,823,261 shares) have therefore been excluded from the above calculations.

7 DIVIDEND

The directors do not recommend the payment of an interim dividend (2010: Nil).

8 PROPERTY, PLANT AND EQUIPMENT

During the period, the Group incurred approximately US$1,526,000 on additions to property, plant and equipment (30 June 2010 - US$1,098,000, 31 December 2010 - US$6,967,000).

9 TRADE AND OTHER RECEIVABLES

10 TRADE AND OTHER PAYABLES

The amounts due to related parties included an amount payable to the demerged well drilling services business for drilling services performed of US$14,604,000 (30 June 2010 - Nil, 31 December 2010 - Nil).

11 DEMERGER OF WELL DRILLING SERVICESBUSINESS

On 7 March 2011, the shareholders approved the demerger of its well drilling services business by means of a dividend in specie of shares in Greka Drilling Ltd. to shareholders of the Company.

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

12 OTHER FINANCIAL LIABILITY

The amount payable represents amount payable to China United Coalbed Methane Co., Ltd., which is a party to the production sharing contracts, in relation to exploration costs incurred on the properties. These amounts are only payable from revenue on production from the Shizhuang South Property.

13 SHARE CAPITAL AND RESERVES

Nature and purposes of reserves

(i) Share premium

The amount relates to subscription for or issue of shares in excess of nominal value. The application of the share premium account is governed by the Companies Law of the Cayman Islands. The articles of association of the Company prohibit distribution to equity holders of the Company through the share premium.

(ii) Convertible note equity reserve

The amount represents the value of the unexercised equity component of the convertible note issued by the Company recognised in accordance with the Group's accounting policy.

(iii) Share based payment reserve

The amount relates to the fair value of the share options that have been expensed through the income statement less amounts, if any, that have been transferred to the retained earnings/deficit upon exercise.

(iv) Capital reserve

The amount represents the Group's share of subsidiaries and JCEs statutory capital reserve. PRC rules and regulations require that 10 per cent of profits in each period be reserved for future capital expenditure. The amount is non-distributable.

(v) Foreign exchange reserve

The amount represents gains/losses arising from the translation of the financial statements of foreign operation the functional currency of which is different from the presentation currency of the Group.

(vi) Retained deficit

The amount represents cumulative net gains and losses recognised in consolidated profit or loss less any amounts reflected directly in other reserves.

14 EVENTS AFTER REPORTING DATE

There were no significant events that happened after 30 June 2011 up to the date of approval of these condensed financial statements.

15 RELATED PARTY TRANSACTIONS

Saved as disclosed in notes 9 and 10, there were no other related party transactions that are required to be disclosed. Transactions between the Company and its subsidiary undertakings, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

16 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 US$20 million to the Group towards exploration costs incurred to date and would also fund up to a total of US$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 US$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 US$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 welcome an arbitration hearing and are confident of a positive outcome for the Group.

The Directors' current treatment of the total US$42.6m that has been received from COPC is to allocate the amount against additions to the gas exploration cost pool.

Saved as disclosed above, the Group had no other significant contingent liabilities as at 30 June 2011.