G3 Exploration Regulatory News (G3E)

21 Sep 2009 07:00



21 September 2009

GREEN DRAGON GAS LTD.

("Green Dragon" or "the Company")

Interim Results for the six months ended 30 June 2009

Green Dragon Gas Ltd (AIM: GDG), the Chinese coal bed methane business, today announces its unaudited interim results for the six months ended 30 June 2009.

Highlights:

Commenting on the results, Randeep S. Grewal, Chairman and Chief Executive of Green Dragon, stated:

"17 August 2009 marked the third anniversary of our admission to AIM and we are delighted that the Company continues to grow at a steady pace. Our revenue has increased approximately eight-fold, demonstrative of the Company's growth which currently comes predominately from our downstream business. All business segments continue to grow organically although the downstream revenue is expected to dominate revenues for the next couple of years. As upstream CBM sales come on line in 2010, the higher profit margins generated by these sales will add further value to the Group's profitability in 2011 and beyond."

"The upstream drilling team marked its first year anniversary with productivity improvements to our seven full time drilling rigs committed for the fourth quarter. Two of the seven rigs are dedicated to drill surface-to-inseam wells that are materially more cost effective for the Company."

"Importantly, we concluded a joint venture agreement in August 2009 with ConocoPhillips ("COP") following a seven month due diligence process ("the Joint Venture"). COP is one of the largest CBM producers in the world and I have great expectations for our Joint Venture. Their hands-on knowledge of monetizing a large resource is timely and will be beneficial as we start commercial gas sales at GSS next year. The mutually developed and agreed $30 million drilling programme has commenced in our Shanxi blocks and we expect to see results prior to this year end. This Joint Venture is expected to increase shareholder value and validates of our reserve base scale and potential," concluded Mr. Grewal.

 

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

Stephen Hill / Betty Cheung : Green Dragon Gas	+852 3710 0168
Dr Azhic Basirov/ David Jones : Nominated Adviser & Broker /Smith & Williamson Corporate Finance Limited	+44 20 7131 4000
Tim Redfern : Nominated Broker / Evolution Securities	+44 20 7071 4300
Tim Thompson / Christian Goodbody : Investor Relations / Buchanan Communications	+44 20 7466 5000

  CHAIRMANS STATEMENT

17 August 2009 marked the third anniversary of our admission to AIM and we are delighted that the Company continues to grow at a steady pace. Our revenue has increased approximately eight-fold, demonstrative of the Company's growth which currently comes predominately from our downstream business. All business segments continue to grow organically although the downstream revenue is expected to dominate revenues for the next couple of years. As upstream CBM sales come on line in 2010, the higher profit margins generated by these sales will add further value to the Group's consolidated profitability in 2011 and beyond.

The Company continues to expand each of its focused areas:

Technical Services. Greka Technical Services (GTS) upstream drilling team marked its first year anniversary with productivity improvements and a solid drilling plan for the seven full time drilling rigs for the fourth quarter of 2009. Two of the seven rigs are dedicated to drill surface-to-inseam wells that are materially more cost effective for the Company. The percentage of productive coal seam metres drilled as compared to the total metres drilled has increased from 13% in 2008 to 48% in 2009; a 35% improvement driven by a higher surface-to-inseam drilling meters ratio as compared to vertical wells which is more efficient. The new business segment is now in a position to expand further next year. The management team is planning its next phase of hiring additional crews and providing the necessary training.

Upstream. The Company continues its 2009 drilling programme across all six blocks, encompassing 7,566 sq km, with estimates in excess of 25TCF gas in place. The Shizhuang South block ("GSS") has been the area of concentration so far this year with a significant increase in the inseam metres drilled compared with our previous management target. We have already drilled over 5,000 metres in coal, so far, and expect to exceed this number before the end of the year. The COP joint drilling programme further enhanced and expanded our objectives for this year which we anticipate being reflected in our year end reserve report. As production from the SIS wells has exceeded our expectations, our employees are focused on confirming the infrastructure requirements in order to convert gas production into sales. While 7.5 km of pipeline has been built and the power plant expanded, additional pipelines and compression will be required to monetize the forecasted production by year end.

Midstream. The Giant Power International ("GPI") acquisition strategically established us within the midstream sector in Zhengzhou, Henan ("ZPH") and Wuhu, Anhui ("APH"). Both distribution centres have long term supply contracts from the CNPC west-east pipeline and a sales market that far exceeds current supply. Both distribution centres are profitable and accretive to the Company's earnings potential, with ZPH paying cash dividends to the Group for the 2008 full year. As ZPH and APH are regulated by the Chinese government, their profitability is assured and will continue in the future. Gross gas sales from GPI was 1.15 billion cubic feet (32.6 million cubic metres). ZPH initiated its plan to expand further into the downstream Compressed Natural Gas ("CNG") retail business in order to enhance its profitability. GPI received its first cash dividend, which was successfully expatiated from China to the parent, Green Dragon Gas.

Downstream. As the second major pipeline gas distributor in the Beijing metropolitan area, Beijing Huayou continues to grow its gas sales in the Beijing Development Area. The company sold over 5 billion cubic feet (143.8 million cubic metres) in the first half of 2009, a 13.8% increase over the same period last year. Additionally, the company successfully expanded its operations into Qihe in Shandong province. The division provides the majority of our revenue and will remain the main contributor in the short to mid term.

Technology & Manufacturing. Our information systems team continues its focus on developing a proprietary Supervisory and Control Data Acquisition ("SCADA") system for the Company's substantial operations. While the upstream well head and downstream CNG retail pilot systems have been working seamlessly, the group is now focused on expanding the technology to the drilling rigs and thereafter the transportation fleet to digitize the company's entire operation. The continued expansion of the gas industry provides an ideal environment for the increase in sales of our CNG dispensers which we are currently manufacturing in Zhengzhou.

Our mission to be a vertically integrated gas supplier providing optimum shareholder returns through the execution of an environmentally progressive niche business plan in China is materialising. The significant increase in revenues from our downstream business was complemented by the Joint Venture with ConocoPhillips to expedite the monetisation of our large Upstream gas resources. Growth drivers are in place, our employees' undeterred conviction to execute the growth maintains momentum and the leadership team is committed to the Group's ongoing performance. I look forward to providing further updates to Shareholders in due course, demonstrating the rapid expansion of Green Dragon Gas in its inner China focused niche gas business.

Randeep S. Grewal

Chairman & CEO

18 September 2009

 

 Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2009

		Six months	Six months	Year
		ended 30	ended 30	ended 31
		June 2009	June 2008	December  2008
	Notes	US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Revenue	3	18,723	2,379	24,649
Cost of sales		(16,102)	(2,319)	(21,073)
Gross profit		2,621	60	3,576
Distribution costs		(862)	(81)	(763)
Share-based payments expense	4	(2,884)	(3,821)	(7,921)
Other administrative expenses		(7,342)	(3,088)	(9,282)
Total administrative expenses		(10,226)	(6,909)	(17,203)
Loss from operations		(8,467)	(6,930)	(14,390)
Other gains and losses		-	-	(930)
Finance income	5	1,524	730	929
Finance costs		(3,944)	(6,787)	(13,189)
Loss before income tax		(10,887)	(12,987)	(27,580)
Income tax	6	170	90	(339)
Loss for the period		(10,717)	(12,897)	(27,919)
Other comprehensive income
Exchange differences arising on
translation of foreign operations		(320)	571	(294)
Total comprehensive income
for the period		(11,037)	(12,326)	(28,213)
Loss for the period attributable to:
Equity holders of the parent		(10,303)	(12,865)	(27,072)
Non-controlling interests		(414)	(32)	(847)
		(10,717)	(12,897)	(27,919)
Total comprehensive income
attributable to:
Equity holders of the parent		(10,757)	(12,317)	(27,366)
Non-controlling interests		(280)	(9)	(847)
		(11,037)	(12,326)	(28,213)
Basic and diluted
Loss per share attributable to equity holders of the parent (US$)	7	(0.096)	(0.134)	(0.269)

Condensed Consolidated Statement of Financial Position

At 30 June 2009

		As at	As at	As at
		30 June 2009	30 June 2008	31 December 2008
	Notes	US$'000	US$'000	US$'000
		Unaudited	unaudited	audited
Assets
Non-current assets
Property, plant and equipment	9	70,129	56,028	72,065
Gas exploration and appraisal assets		646,634	606,337	643,589
Other intangible assets		22,774	-	23,999
Payment for lease hold land held for own use under operating leases		301	-	233
Available for sale investment		-	429	-
Deferred tax asset		752	609	687
Other financial assets		-	5,383	-
		740,590	668,786	740,573
Current assets
Inventories		3,514	-	2,378
Trade and other receivables	10	5,590	7,780	3,196
Cash and cash equivalents		8,698	72,940	12,830
		17,802	80,720	18,404
Total Assets		758,392	749,506	758,977

Liabilities
Current Liabilities
Trade and other payables	11	22,292	18,386	22,237
Convertible notes	12	11,324	-	49,912
Derivative financial liability		-	-	1,500
Current tax liabilities		676	-	1,075
		34,292	18,386	74,724
Non-current liabilities
Convertible notes		38,789	83,197	-
Deferred tax liability		151,100	139,225	151,515
Other financial liabilities	13	13,000	13,000	13,000
		202,889	235,422	164,515
Total liabilities		237,181	253,808	239,239
Total net assets		521,211	495,698	519,738
Equity
Share capital	14	11	10	11
Share premium		529,702	477,525	520,076
Convertible note equity reserve		15,333	20,831	15,333
Share based payments reserve		9,073	3,821	6,189
Capital reserve		94	-	84
Foreign exchange reserve		(1,002)	294	(548)
Retained deficit		(50,408)	(25,804)	(40,095)
Total equity attributable
to equity holders of the Parent		502,803	476,677	501,050
Non-controlling interests		18,408	19,021	18,688
Total Equity		521,211	495,698	519,738

 

Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2009

		Share capital	Share premium	Convertible note equity reserve	Share based payment reserve	Capital reserve	Foreign exchange reserve	Retained deficit	Attributable to equity holders of the parent	Non-controlling interests	Total
	Notes	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Balance At 1 January 2008		9	440,737	20,831	-	-	(254)	(12,939)	448,384	-	448,384
Loss for the period		-	-	-	-	-	-	(12,865)	(12,865)	(32)	(12,897)
Exchange differences on translation of financial statements of foreign operations		-	-	-	-	-	548	-	548	23	571
Total comprehensive income for the period		-	-	-	-	-	548	(12,865)	(12,317)	(9)	(12,326)
Placement of new shares (net of issue costs US$943,000)		1	36,788	-	-	-	-	-	36,789	-	36,789
Share-based payments		-	-	-	3,821	-	-	-	3,821	-	3,821
Recognition of Jointly controlled entity		-	-	-	-	-	-	-	-	19,030	19,030
Balance at 30 June 2008   and 1 July 2008 (unaudited)		10	477,525	20,831	3,821	-	294	(25,804)	476,677	19,021	495,698
Loss for the period		-	-	-	-	-	-	(14,207)	(14,207)	(815)	(15,022)
Exchange differences on translation of financial statements of foreign operations		-	-	-	-	-	(842)	-	(842)	(23)	(865)
Total comprehensive income and for the period		-	-	-	-	-	(842)	(14,207)	(15,049)	(838)	(15,887)
Issue of new shares by conversion of convertible note		1	42,551	(5,498)	-	-	-	-	37,054	-	37,054
Share-based payments		-	-	-	2,368	-	-	-	2,368	-	2,368
Transfer to capital Reserve		-	-	-	-	84	-	(84)	-	-	-
Share of reserves of jointly  controlled entities		-	-	-	-	-	-	-	-	505	505
Balance at 31 December 2008 and 1 January 2009 (audited)		11	520,076	15,333	6,189	84	(548)	(40,095)	501,050	18,688	519,738
Loss for the period		-	-	-	-	-	-	(10,303)	(10,303)	(414)	(10,717)
Exchange differences on translation of financial statements of foreign operations		-	-	-	-	-	(454)	-	(454)	134	(320)
Total comprehensive income for the period		-	-	-	-	-	(454)	(10,303)	(10,757)	(280)	(11,037)
Right Issue of new shares	14	-	9,626	-	-	-	-	-	9,626	-	9,626
Share-based payments	4	-	-	-	2,884	-	-	-	2,884	-	2,884
Transfer to capital Reserve		-	-	-	-	10	-	(10)	-	-	-
Balance at 30 June 2009 (unaudited)		11	529,702	15,333	9,073	94	(1,002)	(50,408)	502,803	18,408	521,211

  Condensed Consolidated Statement of Cash Flows

Six months ended 30 June 2009

		Six months	Six months	Year ended
		ended 30	Ended 30	31 December
		June 2009	June 2008	2008
	Notes	US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Operating activities
Loss before income tax		(10,887)	(12,987)	(27,580)
Adjustments for:
Depreciation	9	2,508	78	2,611
Amortisation of leasehold land held
for own use under operating leases		12	-	16
Amortisation for intangible assets		1,225	-	457
Share based payment expenses	4	2,884	3,821	6,189
Loss on disposal of property,
plant and equipment		-	-	2
Change in fair value of
financial derivative	5	(1,500)	-	1,500
Loss in fair value of
convertible notes		-	-	732
Finance income		(24)	(730)	(929)
Finance costs		3,944	6,766	10,957
Accrued compensation		-	-	927
Movements in foreign exchange		(320)	531	(242)
Operating loss before changes
in working capital and provisions		(2,158)	(2,521)	(5,360)
Increase in inventory		(1,136)	-	(974)
(Increase)/decrease in trade and
other receivables		(2,722)	(4,483)	2,600
Increase in trade and other payables		55	3,362	3,139
Net cash used in operating activities		(5,961)	(3,642)	(595)
Income tax (paid)/credit received		(709)	-	430
Net cash used in operating activities		(6,670)	(3,642)	(165)

Investing activities
Interest received		24	730	929
Payments for exploration activities		(3,031)	(7,076)	(12,086)
Purchases of property
plant and equipment		(586)	(2,102)	(13,486)
Payments for leasehold land held
for own use under operating leases		(80)	-	(131)
Cash held in jointly controlled entity
at the date of acquisition		-	704	-
Cash paid in respect of acquisition
of subsidiary companies		-	(5,383)	(48,684)
Net cash used in investing activities		(3,673)	(13,127)	(73,458)
Financing activities
Repayments of borrowings		-	(1,410)	(3,684)
Proceeds on issue of shares		9,626	36,789	36,789
Repayment of convertible note
and interest		(2,590)	-	(737)
Other finance costs paid		(825)	-	(245)
Net cash from financing activities		6,211	35,379	32,123
Net (decrease)/increase in
cash and cash equivalents		(4,132)	18,610	(41,500)
Cash and cash equivalents
at beginning of period		12,830	54,330	54,330
Cash and cash equivalents
at end of period		8,698	72,940	12,830

 

Notes to Condensed Interim Financial Statements

1  GENERAL INFORMATION

The condensed financial information for the six months ended 30 June 2009 and 30 June 2008 is unaudited and does not constitute statutory financial statements. The comparative financial information for the full year ended 31 December 2008 is not the Company's full statutory accounts 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 annual financial statements of Green Dragon Gas Ltd. are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements has been prepared in accordance with IAS 34, "Interim Financial Reporting" 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 same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements, except as described below.

Changes in accounting policies

In the current financial year, the Group has adopted IAS 1, "Presentation of Financial Statements" (Revised), IFRS 8, "Operating Segments" and the amendment to IFRS 2, "Share-based payments: vesting conditions and cancellations". 

IAS 1 Presentation of Financial Statements (Revised) includes the requirement to present a Statement of Changes in Equity as a primary statement and introduces the possibility of either a single Statement of Comprehensive Income (combining the Income Statement and a Statement of Comprehensive Income) or to retain the Income Statement with a supplementary Statement of Comprehensive Income. The first option has been adopted by the Group. As this standard is concerned with presentation only it does not have any impact on the results or net assets of the Group.

  

IFRS 8, Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive Officer ("CEO"). By contrast IAS 14, "Segmental Reporting" required business and geographical segments to be identified on a risks and rewards approach. The business segmental reporting bases used by the Company in previous years are those which are reported to the CEO, so the changes to the segmental reporting for 2009 are in respect of the additional disclosure only. Comparatives have been restated. 

Amendment to IFRS 2, "Share-based payments: vesting conditions and cancellations" results in an immediate acceleration of the IFRS 2 expense that would otherwise have been recognised in future periods should an employee decide to stop contributing to the savings plan. Management has concluded that so far there has been no impact on the results of the Group as a result of this amendment.

3 REVENUE AND SEGMENTAL INFORMATION For the six months ended 30 June 2009

	Sales of CBM gas	Well Drilling	Pipelined gas distribution	Gas station sales	Gas filling equipment sales	Elimination/ unallocated	Consolidated
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited
Segment revenue
Sale to external customers	75	-	14,383	3,961	291	13	18,723
Inter-segment sales	-	3,687	-	-	-	(3,687)	-
	75	3,687	14,383	3,961	291	(3,674)	18,723
Depreciation	8	936	1,459	92	9	4	2,508
Profit/(Loss) before taxation	(261)	(1,492)	638	811	(189)	(10,393)	(10,887)
Assets	650,519	34,304	55,550	4,320	1,063	12,636	758,392
Liabilities	210,041	10,674	12,825	2,300	722	619	237,181

  

For the six months ended 30 June 2008

	Sales of CBM gas	Well Drilling	Pipelined gas distribution	Gas station sales	Gas filling equipment sales	Elimination/ unallocated	Consolidated
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited	unaudited
Segment revenue
Sale to external customers	7	-	2,372	-	-	-	2,379
Inter-segment sales	-	-	-	-	-	-	-
	7	-	2,372	-	-	-	2,379
Depreciation	8	24	42	-	-	4	78
Profit/(Loss) before taxation	(391)	(472)	(78)	-	-	(12,046)	(12,987)
Assets	647,248	14,622	57,283	-	-	30,353	749,506
Liabilities	191,174	1,219	12,847	-	-	48,568	253,808

For the year ended 31 December 2008

	Sales of CBM gas	Well Drilling	Pipelined gas distribution	Gas station sales	Gas filling equipment sales	Elimination/ unallocated	Consolidated
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	audited	audited	audited	audited	audited	audited	audited
Segment revenue
Sale to external customers	33	-	19,188	4,059	1,369	-	24,649
Inter-segment sales	-	2,856	-	-	-	(2,856)	-
	33	2,856	19,188	4,059	1,369	(2,856)	24,649
Depreciation	44	477	1,816	78	43	153	2,611
Profit/(Loss) before taxation	(745)	(2,348)	1,136	(243)	241	(25,621)	(27,580)
Assets	658,916	28,813	54,438	3,379	1,577	11,854	758,977
Liabilities	200,039	14,101	9,242	1,032	1,035	13,790	239,239

The Group is principally engaged in exploration, development and production of coal bed methane in the PRC, which is regarded as one geographical segment.

  4 SHARE BASED PAYMENT EXPENSES

Share based payment expenses represented the fair value of the options at the date of grant charged to the income statement over the vesting period with a corresponding increase in the "share based payment reserve" within equity. 

No share options were exercised during the 6 months ended 30 June 2009. No new share options were granted during the 6 months ended 30 June 2009.

5 FINANCE INCOME

Finance income for the period included a credit of change in fair value of derivative financial liability of US$1,500,000. (30 June 2008 - Nil, 31 December 2008 finance expenses of US$1,500,000).

6 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 year. 

Pursuant to the PRC Corporate Income Tax Law passed by the Tenth National People's Congress on 16 March 2007, the Corporate Income Tax rates for almost all enterprises established in the PRC are subject to a unified rate of 25%.

7 LOSS PER SHARE

	Six months	Six months	Year ended
	ended 30	ended 30	31 December
	June 2009	June 2008	2008
	US$'000	US$'000	US$'000
	unaudited	unaudited	audited
Numerator - earnings
Earnings for the purpose of
basic Loss per Share	(10,303)	(12,865)	(27,072)
Denominator - number of shares
Weighted average number of
ordinary shares	107,616,285	95,682,512	100,781,021

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.

  8 DIVIDEND

The directors do not recommend the payment of an interim dividend (2008: Nil).

9 PROPERTY, PLANT AND EQUIPMENT

 During the period, the Group incurred approximately US$586,000 on additions to plant and equipment (30 June 2008 - US$2,102,000, 31 December 2008 - US$13,486,000).

 

10 TRADE AND OTHER RECEIVABLES

		As at	As at	As at
		30 June 2009	30 June 2008	31 December 2008
		US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Trade receivables		3,815	49	1,360
Other financial assets		-	6,371	-
Other current assets		1,775	1,360	1,836
		5,590	7,780	3,196

		As at	As at	As at
		30 June 2009	30 June 2008	31 December 2008
		US$'000	US$'000	US$'000
		unaudited	unaudited	audited
Trade payables		5,896	7,022	6,355
Other current liabilities		13,168	11,364	12,351
Amounts due to related parties		3,228	-	3,531
		22,292	18,386	22,237

12 CONVERTIBLE NOTES

The company repaid the remaining outstanding principal and accrued interest of the US$50 million zero coupon convertible note due in 2009, in August 2009.

13 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.

  

14 SHARE CAPITAL

	Authorised		Issued and fully paid
	Number		Number
	of shares	US$	of shares	US$
At 1 January 2008
Ordinary shares of
US$0.0001 each	500,000,000	50,000	50,000 94,513	9,451
Placement of 4,728,356
new shares at
US$7.98 each
on 16 May 2008	-	-	4,728,356	473
At 30 June 2008
Ordinary shares of
US$0.0001 each	500,000,000	50,000	99,241,769	9,924
Issue of new shares by
conversion of convertible
note on 2 July 2008	-	-	6,654,676	665
At 31 Dec 2008
Ordinary shares of
US$0.0001 each	500,000,000	50,000	105,896,445	10,589
Right issue of 2,615,891 shares
at US$3.68 on 4 March 2009	-	-	2,615,891	262
At 30 June 2009	500,000,000	50,000	108,512,336	10,851

  

15 EVENTS AFTER BALANCE SHEET DAY (a) Farm out agreement signed with ConocoPhillips

In August 2009, a farm out agreement was entered into between the Group's wholly owned subsidiary Greka Energy (International) BV ("Greka") and ConocoPhillips (NYSE:COP). Under the terms of the farm out agreement, ConocoPhillips will make an initial payment of $20 million to Greka and will also fund up to a total of $30 million of the capital expenditures. ConocoPhillips can elect to continue with a second phase of development and pay $120 million to acquire 50% of Greka's interest in three of its six Chinese Coal Bed Methane Production Sharing Contracts ("PSC"). Under the terms of the agreement, the accrued cost recovery and Greka costs carried by ConocoPhillips will be solely for the benefit of Greka. Greka will continue to be the operator of the blocks while ConocoPhillips will appoint personnel to the projects and enhance the PSC development scale and efficiency through their extensive CBM experience.

The joint venture entails several options. In the initial phase, which will expire by year end 2010, ConocoPhillips has made an initial payment of US$20 million to Greka towards costs incurred to date and will fund up to a total of US$30 million of the capital expenditures towards the development of surface-to-inseam wells at the Shizhuang South, Shizhuang North and Qinyuan PSCs. In the event that ConocoPhillips elects not to proceed with the farm-out, all funds invested by ConocoPhillips will accrue to the benefit Greka. Upon ConocoPhillips decision to continue with acquiring 50% of Greka's interest in the three PSCs, the agreement (which will require approval from the Chinese authorities) provides for further payments of up to US$120 million, including carrying Greka's obligations under the PSCs. In addition, ConocoPhillips has an option until mid-2011 to evaluate participating in the Company's midstream and downstream businesses.

(b) Repayment of US$50 million zero coupon convertible note due 2009 The company repaid the remaining outstanding principal and accrued interest of the US$50 million zero coupon convertible note due in 2009, in August 2009.

16 RELATED PARTY TRANSACTIONS

There were no related party transactions 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.

17 CONTINGENT LIABILITIES

The Group had no significant contingent liabilities as at 30 June 2009 (30 June 2008 - Nil, 31 December 2008 - Nil).

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