G3 Exploration Regulatory News (G3E)

24 Aug 2009 07:00



24 August 2009

GREEN DRAGON GAS LTD.

("Green Dragon" or the "Company")

CONOCOPHILLIPS ENTERS INTO JOINT VENTURE WITH GREKA

Green Dragon Gas Ltd (AIM: GDG), the Chinese vertically integrated gas business, announces a farm out agreement between its 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 will make 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.

Goldman Sachs advised the Company on the transaction which was identified within the strategic options assignment initiated in the first quarter.

Mr. Randeep S. Grewal, Chairman & CEO, commented:

"It has been exactly three years since we listed on the AIM market and this agreement with ConocoPhillips is an important validation of the Company's continued success. ConocoPhillips is a significant producer of CBM with substantial production experience which we believe will add value in monetizing our large resource expeditiously. ConocoPhillips acceptance of Greka as operator further validates the capability of our operating team and its achievements to date."

"The ConocoPhillips agreement coincides with the Overall Development Plan approval which we expect to receive this quarter on our most advanced Shizhuang South block. The ODP has been extensively vetted and will provide relevant guidance to expedite the ODPs on the Company's other five blocks."

For further information on the Company and its activities, please refer to the website at

www.greendragongas.com or contact: