G3 Exploration Regulatory News (G3E)

16 January 2013

GREEN DRAGON GAS LTD

("Green Dragon" or "the Company")

Operations Update

Annualized 2012 year-end production 2.6 BcfPY, a 55% year on year increase

Green Dragon Gas Ltd. (AIM: GDG), one of the largest independent companies involved in the production of CBM gas and the distribution and sale of wholesale gas in China, is pleased to report an operations update to 31 December 2012.

Upstream

·; Year on year growth of 55% achieved in annualized year end production of 2.6 BcfPY (201,785 cubic meters/day) compared with 1.7 BcfPY (129,457 cubic meters/day) at the end of December 2011.

·; Quarterly production in the final quarter was 506 MMcf, a 24% increase on a year earlier (407 MMcf in Q4 2011).

·; As at 31 December 2012, 51 LiFaBriC wells had been drilled at the Company's production block in Shizhuang South (GSS), representing a 96% increase on the year earlier.

·; There are an additional 11 LiFaBriC wells across the Company's 5 exploration blocks.

·; The total number of LiFaBriC wells across all blocks was 62, an increase of 88% year on year. These drilled wells are at various stages of completion, including establishing pipeline connections and de-watering.

Midstream

·; At the GSS production block, of the total 19 km pipeline project which connects the existing Integrated Production Facility (IPF) to the north east corner of the GSS production block, 6.8 km of pipe had been laid by the year end resulting in 21 wells being connected to the IPF.

·; The GSS IPF generated 25.4 KWh of power from CBM produced at the block, a 70% increase year on year.

·; At GSS, there is now 31.3 km of well gas gathering pipelines, 15.8 km of gas transmission lines, 54.6 km of electrical grid, 6.5 BcfPY (504,000 cubic meters/day) of gas compression capacity and 10 MW power generation facility.

·; 4 leased trucks and 5 trailers were added to the truck and trailer fleet division in addition to the self-owned truck and trailer fleet comprising 5 and 12 respectively by year end.

·; The midstream wholesale CNG business in Henan and Anhui provinces recorded an 8.8% decline in sales volume. The sales volume in 2012 was 2.54 Bcf (72.2 million cubic meters). Sales volume in 2011 was 2.79 Bcf (79.1 million cubic meters).

Downstream

·; At the GSS production block, piped natural gas (PNG) from the IPF to the West East Pipeline via the Company's self-built, owned and operated pipeline was put into service on a controlled basis. Average daily sales through the pipeline in December 2012 were 2 MMcf/day (58,259 cubic meters/day).

·; Two newly constructed retail stations and one in the final stages of construction complemented the 6 existing retail stations as at 31 December 2012.

·; Quarterly CNG retail station sales in the final quarter was 105 MMcf (32,521 cubic meters/day), a 49% increase on a year earlier (70 MMcf in Q4: 2011, 21,801 cubic meters/day)

·; In Beijing, the jointly controlled entity with Kunlun (CNPC subsidiary), Beijing Huayou (BHY), achieved annual sales volumes of 12.6 Bcf (357.5 million cubic meters), a 4% increase on the year earlier.

Technology and Engineering Division

·; The technology, manufacturing and infrastructure assets were consolidated into Greka Engineering and Technology (GET), a self-sufficient and independently managed entity.

·; Design, construction, operation and the maintenance of gas gathering systems, compressors, gas fired power generation facilities and pipelines, as well as the final delivery of produced gas to the 'factory gate' and C-LNG retail stations, IC Card point of sale systems and software, C-LNG dispensers and compressors, and full value chain SCADA systems are all now under one umbrella.

·; GET had 74 external clients, 9 patents and 9 registered designs for various products within the natural gas industry at the end of December 2012.

Randeep Grewal, Founder & Chairman of Green Dragon Gas, commented:

"We are very pleased with the continued success of the LiFaBriC wells as they demonstrate a stable and sustainable gas production profile once the well de-waters. This predictable production profile enabled us to exceed our production targets for the year end. We are comfortable that the additional production wells currently de-watering will achieve the expected gas production volumes commensurate with the existing ones.

Quite similar to the successful development of Greka Drilling (AIM: GDL), we have consolidated our engineering and technological capability into Greka Engineering and Technology (GET). Third party contracts have complemented the existing Green Dragon Gas contracts. As the unconventional gas industry continues its exponentional growth in China, the demand for GET's products and engineering services is expected to grow significantly. GET's five year niche track record ideally positions the business to capitalize on this demand.

While 2012 saw very significant progress in our LiFaBriC production drilling at the GSS production block, we expect 2013 to be the year that we optimise the completion technology for progressing one additional exploration block into commercial production."

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

Note

Bcf means billions of cubic feet; BcfPY means billions of cubic feet per year; MMcf means millions of cubic feet.