G3 Exploration Regulatory News (G3E)

21 October 2013

GREEN DRAGON GAS LTD

("Green Dragon" or the "Company")

Operations Update

Green Dragon Gas Ltd. (AIM:GDG), one of the largest independent companies involved in the production and sale of CBM gas in China, is pleased to announce an operations update, following the end of the Third Quarter. Green Dragon is committed to being a focused upstream (E&P) company, concentrating on its core asset value proposition over six blocks, one in production and five in exploration.

Upstream

· Gas production for the first nine months of 2013 was 2.05 Bcf (58.17 million cubic meters), a 60.15% yoy increase (1.28 Bcf for the first nine months of 2012).

· Gas production in Q3 2013 was 711 MMcf (20.15 million cubic meters), representing a 2% increase on Q2 2013 (697MMcf /19.8 million cubic meters) and a 10% increase over Q1 2013 (644MMcf/18.3 million cubic meters).

The gas production figures provided above represent total production from all wells drilled, including those wells tied in and contributing to sales volumes and those in the process of being tied in to distribution infrastructure. As such, of the total gas produced:

o 2.5% is sold via the Company's integrated production facility (IPF) to Greka CNG retail stations (52 MMcf / 1.48 million cubic meters);

o 7.8% is sold via the IPF direct to industrial clients (160 MMcf / 4.56 million cubic meters);

o 27.3% is sold via the Company's PNG pipeline connecting to West-East Pipeline (560 MMcf / 15.86 million cubic meters); and

o the balance is either being used to generate electricity at the IPF or being flared (where wells are not tied in).

· Year-end exit production is expected to exceed our previous guidance of 5 Bcf (Gross). The increase over the current production rate is based on additional production from the wells drilled by third parties on the Company's licence blocks, as recently announced, as well as the tying in of further wells already drilled by Green Dragon but not yet on production.

· As at the end of Q3 2013, the total number of wells drilled by the Company consisted of:

o 68 LiFaBriC wells across all blocks, a 33.3% yoy increase (51 LiFaBriC wells as of 30 Sep 2012);

o 2 lateral wells - being wells connecting two existing vertical wells and

o 235 vertical wells.

· Of the total number of LiFaBriC wells, 55 are at GSS (Shizhuang South). 15 of these are currently in full production and connected to the IPF, with the remainder either in the process of being tied into infrastructure with casing pressure or dewatering ahead of starting production.

· Green Dragon remains in dialogue with the third parties responsible for drilling the wells on its licences in order to conclude the required technical and operational data to conduct a thorough audit on all this material activity.

Downstream

· Total volume sales for the first nine months of 2013 was 1.11 Bcf (31.57 million cubic meters), a 109% yoy increase (0.53 Bcf / 14.90 million cubic meters for the first nine months of 2012).

· 69.5% of the gas sold by the Company's distribution arm comes from the GSS block, with the remaining 30.5% being acquired from external parties. Gas is acquired from third parties in order to help develop the end user market by establishing a secure supply to that market ahead of availability of gas produced by Green Dragon.

· PNG sales for the first nine months of 2013 of 560 MMcf (15.86 million cubic meters). Sales of PNG commenced on October 2012. All PNG is produced from the GSS Block.

· CNG sales direct to industrial customers for the first nine months of 2013 of 166 MMcf (4.73 million cubic meters). Of this:

o 96.4% came from GSS production (160 MMcf / 4.56 million cubic meters); and

o 3.6% came from external parties purchases (6 MMcf / 0.17 million cubic meters).

· Greka CNG retail stations sales for the first nine months of 2013 of 388 MMcf (11 million cubic meters), a 75% yoy increase (2012: 0.22 Bcf / 6.27 million cubic meters). Of this:

o 12.5% came from GSS production block (52 MMcf / 1.48 million cubic meters); and

o 87.5% came from external parties purchases (336 MMcf / 9.52 million cubic meters).

· Greka CNG station sales in Q3 2013 were 136 MMcf (3.83 million cubic meters), a 4.36% increase on Q2 2013 (129MMcf / 3.676 million cubic meters).

· Weighted average CNG price in Greka retail stations increased from US$16.6/mcf (RMB3.6/cubic meter) in Q2 2013 to US$17.7/mcf (RMB3.8/cubic meter) in Q3 2013, a 6% increase.

Operations and Finance

· 3,672 health & safety training hours implemented across the Company in Q3 2013, a quarter on quarter increase of 21% (3,032 hours in Q2 2013).

· The Company has suspended pursuing debt options in order to fund future capex until such time that it is able to access the monies owed to it from the third parties drilling activity on its blocks as well as the material increase in the expected cash flows on a recurring basis from such activity. The increase in expected production mentioned above, is expected to provide Green Dragon with additional options in funding the discretionary capex requirement of drilling the planned 150 LiFaBriC wells in 2014. These wells are to be drilled by Greka Drilling (AIM: GDL).

· Greka Engineering & Technology Ltd. successfully demerged from Green Dragon, becoming an independent AIM quoted company via a dividend in specie provided to shareholders on 30 September 2013.

Randeep S. Grewal, Chairman and Founder of Green Dragon, commented:

"Green Dragon continued to progress on many fronts, including making headway with its dialogue with the third parties who have drilled in our blocks. The magnitude of activity by the third parties on our blocks is unprecedented in the industry and the resulting economics are expected to be significant. As expected, we are very focused on crystallizing this impact to the shareholders as soon as possible. The addition of this significant drilling activity on the Company's production and exploration blocks is expected to have a marked positive effect on Green Dragon's reserves and will move some contingent resource into a reserve category. We now conservatively estimate that our exit rate of annual production will exceed the 5 Bcf (Gross) target at year end.

Furthermore, at GSS, the Company's production team has sought to apply the LiFaBriC completion methodology to our existing vertical wells drilled several years ago in order to boost their production potential. The accretive nature of this activity will be felt during the current quarter, but I am pleased to be able to report that for the four vertical wells enhanced to a LiFaBriC, the results were truly impressive - with gas in as little as 30 days following intersection. We expect to deploy this pattern to conclude our drilling program for 2014, to both vertical wells drilled by Green Dragon as well as the additional wells drilled by third parties on our licences. Of the significant number of wells drilled by third parties, many are producing sub-optimally given the subsurface nature of the geology, and as such, through deploying this methodology there is very clear potential for greater production and associated revenues.

Finally we completed the dividend in specie of Greka Engineering & Technology. It has been a particularly rewarding quarter and I expect it to be an even better final quarter of the year."

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