G3 Exploration Regulatory News (G3E)

6th OCTOBER 2010

GREEN DRAGON GAS LTD

("Green Dragon Gas" or "the Company")

Strategic Acquisition

Providing access to infrastructure to facilitate distribution of upstream gas production

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 announce it has entered into a strategic transaction, to acquire an effective equity interest in Sinoenergy Corporation ("Sinoenergy") ("the Acquisition"), which is expected to provide the Company with incremental access to the midstream and downstream sales infrastructure within niche geographical locations in China. This Acquisition is expected to facilitate the distribution of its potentially very significant and developing upstream CBM gas production. The transaction will also significantly expand Green Dragon Gas's compressed natural gas (CNG) retail technology division.

The structured transaction involves an initial investment of approximately USD 35 million for a minimum equity interest of 33.3% and could be up to 59.3% in the operating business. Upon conclusion of the current ongoing corporate re-organization and related approvals, which are expected prior to December, the precise equity interest will be concluded. Green Dragon Gas determines the final equity amount. USD 19.7 million of the total investment was to acquire Convertible Bonds from funds administered by Abax Global Capital. Until the transaction is completed, expected by year end, Green Dragon Gas has a security interest over all the assets of Sinoenergy and its parent. The Company funded the Acquisition from its existing cash resources.

This transaction follows the recent USD 50 million fund raising through the issuance of a convertible bond at USD 9.10 per share to funds managed by Ontario Teachers' Pension Board.

Background

Sinoenergy has been operating in China since 2004, and it is expected to have annual revenues of USD 50 million for this year with a gross margin of approximately 25%. For the year ended 30th September 2009, Sinoenergy had revenues of USD 41.8 million and loss of USD 12.7 million. The most recent publically released financials at 30th June 2010 reported total assets of USD 209.8 million with a total shareholder's equity of USD 60.9 million.

The midstream and downstream operating assets sit well within Green Dragon Gas's existing geographic gas supply niche in China and the technology is also complementary to Green Dragon Gas's existing capability. The business sells wholesale and retail gas within a region with a population of approximately 15.7 million.

Rationale

Midstream - Wholesale Sales Distribution

The midstream wholesale distribution business expands Green Dragon Gas's existing potential gas swap locations from two to five and also adds Sinopec as a partner, alongside Petrochina. Petrochina and Sinopec are the key operators of the gas transmission pipeline infrastructure in proximity to the Company's GSS production block.

The Company will now have five wholesale gas locations within the pipeline distribution network spread between the two main Chinese pipeline operators providing the best optionality possible within China.

The business' three wholesale distribution facilities are located in Wuhan, Hubei Province and in Xuancheng City, Anhui Province. The three facilities have a total annual capacity of approximately 8.8 Bcf. The wholesale distribution business is expected to have a gross margin USD 2 per Mcf under the current regulated pricing policy.

Retail Sales Distribution

The downstream assets include 13 CNG retail locations, which geographically complement the locations of Green Dragon Gas's current committed 27 CNG locations. Collectively, the network of 40 locations will supply 9.6 Bcf annually to a population of 21 million within three contiguous inner provinces namely Henan, Anhui and Hubei.

It is the Company's intention to increase the number of its CNG fuelling locations to over 100 with a sales capacity of 18 Bcf by yearend 2012. Sales prices within this retail division are currently at USD 15 per Mcf and expected to accrete over time.

The acquired 13 CNG retail locations are located in Wuhan in Hubei, Pingdingshan in Henan, and Xuancheng City in Anhui Province. The retail locations currently have a 3.6 Bcf annual sales capacity. This retail business is expected to have a gross margin of USD 3 per Mcf under the current regulated pricing policy.

Manufacturing and technology

The Company is one of the few main manufacturers of CNG trailers within China, with an annual production capacity of 300. Each trailer sells for approximately USD 150,000.

Through the transaction, Green Dragon Gas's technology division will become a 'one stop shop' in China for CNG distribution equipment; with capacity to manufacture CNG related equipment in upstream Gas Production monitoring systems, car conversion kits, electric control devices for automobiles and fleet transport, CNG transport manufacturing, natural gas flow monitoring systems and CNG dispensers for refuelling stations.

Randeep Grewal, Chairman, CEO and Founder, commented:

"Green Dragon Gas has a clear vision and strategy to build a significant China CBM upstream business complemented by a substantial gas distribution network in China superimposed by proprietary technology. This acquisition provides all these ingredients synergistically.

This acquisition makes Green Dragon Gas a unique one stop shop for a comprehensive solution to gas utilization within the energy mix in China. It allows us to capture the highest margin business within the gas value chain; with CNG trailers taking our CBM gas production to CNG retail stations that have our CNG dispensers selling gas to cars converted by our CNG conversion kits. "

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