G3 Exploration Regulatory News (G3E)

18 September 2018

G3 Exploration LTD.

("G3E", "G3 Exploration" or the "Company")

Interim Results for the Six Months Ended 30 June 2018

Financial and Operational Highlights

G3 Exploration

· Guizhou Block exploration programme was successfully accomplished, next phase being discussed with PetroChina.

· Jiangxi, Anhui, Shanxi exploration blocks' development potential re-assessed with non-prospective acreage identified.

· Composition of board of directors enhanced with the addition of Bryan Smart and Zhao LiGuo.

 Green Dragon Gas (Held for sale disposal group)

· Revenue of US$13.7 million (H1 2017 - US$11.2 million).

· Gross revenue of US$8.7/mcf (H1 2017 - US$7.2/mcf).

· Of the 200 G3E operated wells, 130 wells are online with 105 connected to sales infrastructure.

· EBITDA of US$8.7 million (H1 2017 - US$6.0 million).

· Substantial infrastructure progress with 1,063 wells of 1,453 connected to pipelines.

2018 OUTLOOK

Recapitalise balance sheet. Increase production cash flow. Drive development programme.

Divest main producing assets (blocks GSS and GCZ) into a new Hong Kong listed company.

G3 Exploration

· Expect to repay two bond creditors from debt and equity issuance in Green Dragon Gas.

· Conclude evolution to exploration and development business.

· Finalise dividend in specie for producing assets.

· First gas in Guizhou Block.

· Expand into additional geography.

Green Dragon Gas (Held for sale disposal group)

· Infrastructure focus to monetise invested capital.

· Work alongside Chinese partner CNOOC on GSS block for the connection of all existing 1,139 drilled wells to the sales infrastructure.

· Increase gas sales volumes on GSS block from GDG existing producing wells through better compression management infrastructure.

· Launch GSS LiFaBriC drilling programme to further increase sales volumes.

· Commence GCZ ODP to drill 147 wells through yearend 2019.

CHAIRMAN'S STATEMENT

I am pleased to report continued operational progress across our two producing commercial blocks in Shanxi as well as our six exploration blocks in Anhui, Guizhou, Jiangxi and Shanxi.

Most notably is the progress being made in the GSS block since the conclusion of the Supplementary Agreements with CNOOC which were accepted with determined cost recovery amounts by the Joint Management Committee at March end. Since the signing of the agreements, the parties are working closely together into rapidly advancing the producing wells and are focused on monetising the gas sales within the GSS commercial producing block. This focus has seen gas sales increase 63% at CNOOC operated wells from January to the end of August. Of the total 1,139 existing drilled wells by CNOOC, 889 or 78% have been connected to the newly built pipeline infrastructure while 330 of the wells are already contributing to the gas sales, in addition to the 105 operated by us. We expect the connected wells to be a foundation of increasing gas sales for many years to come as wells successfully dewater the coal seam and convert to gas production. At our flagship GSS block, of the total 1,453 drilled wells, we now have 1,063 or 73% connected to a pipeline network spanning 586.8 km across the 388sqkm gas block with three operational gas gathering compressor stations.

Our producing GCZ block with CNPC continued its commercial gas sales while the collaborative Joint Operating Team concluded its Overall Development Plan. The plan previously approved by CNPC received the NDRC Energy department approval in August and is expected to have final NDRC approval this month. This ODP commits the drilling of 147 wells by yearend 2019, with drilling anticipated to start in the fourth quarter. The expected gas production following this ODP execution forecasts production in GCZ to be 6 BCFPY which will counter the current decline curve as no wells have been drilled on the block since 2010.

In addition to our CNOOC and CNPC partnership on the two producing blocks, we continue to progress our PetroChina partnership in the Guizhou (GGZ) exploration block. The team is focused on concluding the production and completion plan on the twelve successful wells drilled by 2017 yearend. We expect to commence test gas sales this year so as to progress the asset into development next year.

Our exploration teams re-evaluated all the acreage within the six exploration blocks. This targeted task specifically delineated the prospective development acreage and identified non-prospective acreage within the vast exploration area. The technical teams are progressing discussions on their conclusions with our partners CNOOC and PetroChina. We expect to collaboratively establish the exploration plans over the six vast blocks during the fourth quarter and launch the programmes in 2019.

Concurrent to the operational progress, the management team has stayed focused on the balance sheet re-vitalisation. A structured process is underway, led by an energy specialist investment bank to conclude up to $200m financing over Green Dragon Gas assets. We expect to conclude such financing so as to progress the dividend in specie of Green Dragon Gas shares to our shareholders and conclude a full deleveraging of G3 Exploration. We look forward to a full repayment of all our bonds timely.

I look forward to monetising the value in our producing assets, developing our exploration assets and committing to incremental geographies where our deep knowledge in CBM is of accretive value to our shareholders.

Randeep S. Grewal

Founder & Chairman

About G3E

G3E is a leading independent gas producer with operations in China and is listed on the main market of the London Stock Exchange (LSE: G3E). The Company has 559Bcf of 2P reserves and 2,386Bcf of 3P reserves across eight production blocks covering over 7,566km² of license area in the Shanxi, Jiangxi, Anhui and Guizhou provinces. It holds six Production Sharing Agreements with strong, highly capitalised Chinese partners including CNOOC, CNPC and PetroChina, and has infrastructure in place to support multiple routes to monetise gas production.

The Company is committed to an exploration and appraisal focused business plan in coal bed methane development across three geographies concurrently. It has a well-established track record and demonstrated perseverance in going the distance to monetise shareholder value through the below key basic principles:

· Focus on core intellectual aptitude in developing coal bed methane

· Develop assets in an environmentally and socially prudent manner

· Protect accreted shareholder value

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2018

* Certain amounts shown here do not correspond to the 2017 financial statements and reflect adjustments made in respect to assets held for sale, refer to note 5.

Condensed Consolidated Statement of Financial Position

At 30 June 2018

Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2018

Condensed Consolidated Statement of Cash Flows

Six months ended 30 June 2018

Notes to Condensed Interim Financial Statements

1 GENERAL INFORMATION

The condensed financial information for the six months ended 30 June 2018 and 30 June 2017 is unaudited and does not constitute a set of statutory financial statements. The consolidated unaudited interim financial information set out in this report represents the consolidated financial statements of G3E 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 2017, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The comparative financial information for the full year ended 31 December 2017 presented here 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 includes reference to a matter to which the auditors drew attention by way of Material uncertainty related to going concern paragraph on the Group's ability to continue as a going concern without qualifying their report.

2 ACCOUNTING POLICIES

IFRS 9 'Financial Instruments'

IFRS 9 (2014) - as issued in July 2014 reflects the final version of the IASB's work on the replacement of IAS 39 and will be effective for annual periods beginning on or after 1 January 2018. Early application is permitted but the Group has not early adopted IFRS 9. IFRS 9, Financial Instruments, covers mainly: i) the classification and measurement of financial assets and financial liabilities, ii) the new impairment model for the recognition of expected credit losses, and iii) the new hedge accounting model.

The Group adopted IFRS 9 in the financial reporting period commencing 1 January 2018. IFRS 9 determines the measurement and presentation of financial instruments depending on their contractual cash flows and business model under which they are held. The impairment requirements are based on an expected credit loss ("ECL") model that replaces the IAS 39 incurred loss model. The Group made an assessment of all the account receivables specifically relating to credit risk and expected credit losses; the Group has not found significant impact on adoption of IFRS 9's impairment requirements.

For financial liabilities, the existing classification and measurement requirements of IAS 39 are largely retained by IFRS 9. The accounting treatment of the group's current financial liabilities (notes 13, 14) is based on IAS 39.

Therefore, the Group does not have a significant impact on adoption of IFRS 9's financial assets and liabilities.

IFRS 15 'Revenue from Contracts with Customers'

IFRS 15, Revenue from Contracts with Customers, outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 Revenue from Contracts with Customers replaces IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations and will be effective for annual periods beginning on or after 1 January 2018. It applies to all entities that enter into contracts to provide goods or services to their customers, unless the contracts are in the scope of other IFRS, such as IAS 17 Leases. The standard also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property or equipment. Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset; and liability account balances between periods and key judgments and estimates.

The Group has applied this new standard for the contracts that are currently booked. The transfer of control natural gas sold by the group usually coincides with title passing to the customer and the customer taking physical possession. The group principally satisfies its performance obligations at a point in time of gas delivered to customer. Although, according written clauses in selling contracts, the group will give discount if there was a quality issue; however, the situation is uncommon. The Group does not meet a significant impact on adoption of IFRS 15 during the first half of 2018.

IFRS 16 'Leases'

IFRS 16 is effective for the 31 December 2019 financial year-end. IFRS 16 'Leases' provides a new model for lessee accounting in which all leases, other than short-term leases and leases of low-value items, will be accounted for by the recognition under a single on-balance sheet model of a right-to-use asset and a lease liability, similar to finance leases under IAS 17. The subsequent amortization of the right-to-use asset and the interest expense related to the lease liability will be recognized separately in profit or loss over the lease term. Lessor accounting is substantially unchanged from today's accounting under IAS 17. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective transition approach. The standard's transition provisions permit certain reliefs. Early application is permitted, but not before an entity applies IFRS 15.

The group will continue to assess all lease agreements. The group expects that IFRS 16 will have a non-material effect on the group's financial statements after its adoption, as the total amount of lease agreement is insignificant.

Basis of preparation and going concern

These financial statements have been prepared on a going concern basis.

Included in current liabilities as at the 30 June 2018 are two specific instruments;

The Company has a $50.0 million convertible loan note which is due for repayment on 31 December 2020. On the 23 October 2017 an extension to the one-time early redemption option was agreed with the note holder such that is now exercisable at any time up to 20 November 2018, and would require early repayment of the whole amount due no earlier than 20 November 2018. The option to require early repayment is at the note holder's sole discretion. Further details of the terms of the instrument are included in note 13.

The Company has an $88.0 million bond which was due for repayment in November 2017. The bond has not been repaid, the due date has passed. On 22 December 2017 the Bond Trustee reported that it was instructed by one or more bondholders representing a majority of the outstanding bond that they were in discussions with the Company regarding amongst other things an amendment to the bond agreement to extend the maturity date. Furthermore, the Bond Trustee was instructed by those majority bondholders not to take any action to recover amounts due and, until further notice, and as long as no conflicting instruction is received, they will not declare the bond to be in default or demand immediate payment. Further details of the terms of the instrument are included in note 14.

The Company also has other payables due to third parties of approximately $16.4 million, due immediately. The Company is managing these payables through continuing negotiation with suppliers.

In considering the appropriateness of the going concern basis, the Board gave consideration to the following:

The Company is currently in negotiation with a bank in order to re-finance the $88.0 million bond, the $50.0 million convertible loan note and settle all other liabilities and fund commitments. The Company has received a draft term sheet and the Company expects that a bank will complete its appropriate due diligence process and confirm debt financing in due course.

The Company plans to divest its main producing assets (blocks GSS and GCZ) into a new Hong Kong listed company, Green Dragon Gas (GDG), and at the same time raise sufficient cash from new equity to repay all of the Company's existing debt. The remaining development and exploration blocks are planned to stay in G3E, which in turn will remain listed in London. The Hong Kong listing and concurrent equity raise is subject to approval from the Hong Kong Stock Exchange (HKEX) and confirmation of investment from potential new shareholders, however the Board is confident this will be completed.

The Company's major shareholder and CEO, Randeep S. Grewal, has confirmed that he will provide sufficient financial support in respect to other current payables of $16.4 million, prior to the expected fundraising through debt or the IPO, if required.

The Directors have informed the Bondholder Trustee of the Company's intention to raise financing through the issue of debt or equity from the Hong Kong listing and to use the new financing to repay the $88.0 million bond. The Company notes that discussions continue and a major bondholder has also signed a non-binding draft agreement to defer the due date to November 2018. To date the Company is not aware of any immediate intention of the Bond Trustee to take action to recover amounts due. On the basis of the above, the Company does not expect the bondholders to put the bond into default before additional funding is received. However, the bondholders have given no written assertions that they will not put the bond into default.

The Company is confident that the $50.0 million note holder will continue to support the Company as it acts to refinance the bond, such that the note holder will not be motivated to act on their early redemption option available until 20 November 2018. However, the note holder has not given any written assertions that they will not exercise their early redemption option.

The Company expects to use the proceeds from the Hong Kong listing and the new debt finance to repay all of the Company's debts. Based on the above, the Company expects to be able to meet its liabilities as they fall due for a period not less than one year.

However, as at the date of this report, there were no binding debt re-financing agreements in place, the HKEX have not yet approved the Hong Kong Listing and investors have not committed to provide equity financing. Therefore there can be no certainty that re-financing will be successful. There can also be no certainty that the $50.0 million note holder will continue to support the Company and not exercise their right to early redemption, or that no default notice will be issued in respect of the $88.0 million bond.

Notwithstanding the confidence that the Board has, the Directors, in accordance with Financial Reporting Council guidance in this area, conclude that at this time there is material uncertainty that such finance can be procured and failure to do so might cast significant doubt upon the Group's ability to continue as a going concern and that the Group may therefore be unable to realise their assets and discharge their liabilities in the normal course of business. These Financial Statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

3 REVENUE AND SEGMENTAL INFORMATION

The Group's reportable segments are 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, the revenue of US$13.7 million (30 June 2017: US$11.2 million) was recognised by the upstream discontinued business. The average RMB/USD exchange rate for the period is 5% higher compared to the equivalent period in the prior year. The average RMB/USD exchange rate for the period ended 30 June 2018, and used for translating income statement RMB transactions for the purposes of this financial information was 6.8610 as compared to 6.5557 in the equivalent period of the prior year.

For the period ended 30 June 2018 (unaudited)

For the period ended 30 June 2017 (unaudited)

For the year ended 31 December 2017 (audited)

4 OTHER INCOME AND FINANCE INCOME

5 NON-CURRENT ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATION

The assets and liabilities relating to the carve-out of the producing blocks (GSS & GCZ) of Greka Energy (International) B.V., a 100% wholly-owned subsidiary of the Company, have been presented as held for sale following the board decision to launch GSS & GCZ blocks IPO listing in the Hong Kong Stock Exchange. Management expects GSS & GCZ blocks to be sold within the next 12 months.

The assets and liabilities relating to Greka Gas Distribution Ltd, a 100% wholly-owned subsidiary of the Company, have been presented as held for sale following the announcement made to sell Greka Gas Distribution Ltd in the PRC. Management expects Greka Gas Distribution Ltd to be sold within the next 6 months.

(a) Assets of disposal group classified as held-for-sale

(b) Liabilities of disposal group classified as held-for-sale

(c) Analysis of the results of discontinued operations is as follows:

(d) Cash flow from (used in) discontinued operations:

6 EARNINGS AND (LOSS) PER SHARE

The calculation of basic and diluted profit/(loss) per share attributable to the owners of the Company is based on the following data:

Profit/(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.

No separate calculation of diluted profit/(loss) per share has been presented as, at the date of this financial information, no options, warrants or other instruments that could have a dilutive effect on the share capital of the Company were outstanding.

7 DIVIDENDS

The Directors do not recommend the payment of an interim dividend during the period ended 30 June 2018 and year ended 31 December 2017.

8 PROPERTY, PLANT AND EQUIPMENT

9 GAS EXPLORATION AND APPRAISAL ASSETS

10 TRADE AND OTHER RECEIVABLES

11 CASH AND CASH EQUIVALENTS

An analysis of the balances of cash and cash equivalents is as follows:

Current loans and borrowing