Greka Drilling Regulatory News (GDL)

6 July 2018

Greka Drilling Limited

("Greka Drilling" or the "Company")

Annual results for the year ended 31 December 2017

Greka Drilling Limited (AIM: GDL), the largest independent and specialized unconventional gas driller in Asia, is pleased to announce its annual results for the year ended 31 December 2017.

OPERATIONAL HIGHLIGHTS:

· 48 wells were drilled in 2017 (2016: 33 wells), of which:

- 41 wells drilled in China (2016: 5 wells)

- 7 wells drilled in India (2016: 28 wells)

- 13 wells drilled for G3 Exploration ("G3E") (2016: 5 wells)

- 28 wells drilled for other clients in China (2016: none)

- 7 wells were drilled for Essar Oil in India (2016: 28 wells)

· A total of 64,192 metres were drilled in 2017, compared to 39,553 metres in 2016, of which:

- 56,531 metres were drilled in China

- 7,661 metres were drilled in India

- 81% of the metres in China involved the use of the Company's in house MWD (measurement while drilling) directional tools (i.e. were lateral or directional wells using measurement-while drilling); (2016: 13%)

FINANCIAL HIGHLIGHTS:

· Annual revenue of US$11.6m (2016: US$7.2m)

· Losses before tax curtailed to US$1.4m (2016: loss before tax US$9.6m) due to increase in revenue and controlled operational costs resulting in gross profit of US$3.4m (2016: gross loss of US$1.0m), further supported by decrease in administrative expenses

· Year-end cash and bank deposits of US$0.6m (2016: US$2.1m)

Randeep S. Grewal, Chairman & CEO of Greka Drilling, commented:

"While the year presented challenges in India and some in China, Greka Drilling concluded the year with a 61% increase in revenues to US$11.6m from US$7.2m in the previous year. The gross profit increased to US$3.4m from a loss of US$1m in 2016. A total of 48 wells were completed with 64,192 metres being successfully being drilled, a 45% and 62% increase over 2016, respectively.

In China the government continued its strong support for the development of its Coal Bed Methane (CBM) resources. We were beneficiaries of the continued drilling programs by state-owned China National Petroleum Corporation (CNPC) on its large acreage in southern Shanxi province on multiple blocks.

Among the significant number of state-owned drilling companies, Greka Drilling stands out as the only independent foreign drilling contractor sustainably providing services within the CBM sector in China and India."

For further information on Greka Drilling, please refer to the Company's website at www.grekadrilling.com or contact:

CHAIRMAN'S STATEMENT

We were pleased with the continued stability of our service contracts in China while we faced challenges in India. The Company's dual geography strategy for stability has proven itself since being implemented five years ago. This year, the Chinese clients provided for the stability and growth.

While the year presented challenges in India and some in China, Greka Drilling concluded the year with a 61% increase in revenues to US$11.6m from US$7.2m in the previous year. The gross profit increased to US$3.4m from a loss of US$1m in 2016. A total of 48 wells were completed with 64,192 metres being successfully being drilled, a 45% and 62% increase over 2016, respectively.

In China the government continued its strong support for the development of its Coal Ben Methane (CBM) resources. We were beneficiaries of the continued drilling programs by state-owned China National Petroleum Corporation (CNPC) on its large acreage in southern Shanxi province on multiple blocks. Greka Drilling has been accepted as a CBM drilling expert and routinely provided drilling mandates. Specifically, we are always awarded the more complex horizontal or directional wells to drill by CNPC. We expect CNPC to continue its drilling campaigns and include Greka Drilling as its service provider going forward.

Additionally in China, Greka Drilling delivered on a challenging drilling campaign by G3 Exploration (LSE: G3E) in the fourth quarter. G3E mandated the Company to drill twelve wells in their Guizhou province block and further required the program to be completed prior to year end. Notwithstanding, multiple challenges on attaining land access, midst of a torrential rainy season and a difficult mountainous terrain, Greka Drilling successfully completed this difficult mandate timely. The completed program provided G3E the necessary accomplishments by yearend and helped it conclude that their block continue onto development from the exploration phase. As a result of the timely and proficient execution, we expect to drill a significant inventory of wells over the next five years across the large acreage.

Furthermore, the Company concluded 52 work-overs for G3E during the course of the year. The work-overs are continual requirements on their producing wells due to the intermittent well failures on the large population of wells operated by G3E. We expect such workload to continue in the years ahead.

As a result of the drilling campaign and work-overs, the G3E intercompany payable reduced by 52% to US$6.3m at yearend. We expect this balance to be reduced further in 2018 from similar activities.

While in China we continued to stabilize and expand our operations, the sole Indian contract with ONGC was terminated. Greka Drilling was fully committed to Oil and Natural Gas Corporation's (ONGC's) proposed drilling campaign at Bokaro and had designated rigs and resources and had made the best workforce available for the project. Unfortunately, the development plan concluded by ONGC was determined not to be in the best interests of the Company and its shareholders. Greka Drilling wishes the best for ONGC in this drilling campaign.

The curtailed Indian team continues its focus on business development activities with potential clients with CBM ownership interests. We continue to be optimistic of the long term Indian CBM drilling service market, notwithstanding the current challenges being faced.

Among the significant number of state-owned drilling companies, Greka Drilling stands out as the only independent foreign drilling contractor sustainably providing services within the CBM sector in China and India. The contracted drilling services are recognition of the niche drilling expertise within the Company.

I look forward to providing further updates of the Company's continued progress.

Randeep S. Grewal

Chairman

6 July 2018

Consolidated Statement of Comprehensive Income

*Items that may be reclassified to profit or loss

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

The following describes the nature and purpose of each reserve within owners' equity.

Share capital: Amount subscribed for share capital at nominal value.

Share premium: Amount subscribed for share capital in excess of nominal value.

Invested capital: Amount represents the difference between the nominal value of the Company's share of the paid-up capital of the subsidiaries acquired and the Company's cost of acquisition of the subsidiaries under common control.

Reserve fund: The rules and regulations of the People's Republic of China require that one tenth of profits as determined in accordance with China Accounting Standards for Business Enterprises in each period be reserved for making good previous years' losses, expanding business, or for bonus issues, provided that the balance after such issue is not less than 25% of the registered capital. The amount is non-distributable.

Foreign exchange reserve: Foreign exchange differences arising on translating the financial statements of foreign operations into the reporting currency.

Retained (deficit)/earnings: Cumulative net gains and losses recognised in profit or loss.

Consolidated Statement of Cash Flows

INDEPENDENT AUDITORS' REPORT TO THE DIRECTORS OF GREKA DRILLING LIMITED

Opinion

We have audited the financial statements of Greka Drilling Limited (the 'company') and its subsidiaries (the 'group') for the year ended 31 December 2017 which comprise the consolidated statement of financial position, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion:

· the financial statements give a true and fair view of the state of the group's affairs as at 31 December 2017 and of its loss for the year then ended; and

· the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company and the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material uncertainty related to going concern

We draw attention to Note 2 to the financial statements concerning the company's and the group's ability to continue as a going concern which shows that the group will need to raise sufficient funds in order to repay the group's US$2.5 million promissory notes financing from Grecap Ltd and US$5 million promissory notes financing from Guaranty Finance Investors LLC ("GFI"). As disclosed in note 2, these loans are due within the next 12 months.

The matters explained in note 2 indicate that a material uncertainty exists that may cast significant doubt on the group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group was unable to continue as a going concern. Our opinion is not modified in respect of this matter.

Given the conditions and uncertainties noted above we considered going concern to be a Key Audit Matter.

Our audit procedures in response to this key audit matter included:

· We critically assessed management's financial forecasts and the key underlying assumptions, including drilling plans, pricing, expenditure and the loan facilities currently available to the Group. In doing so, we considered factors such as past performances, new contracts entered into, revenue from related parties and existing loan facilities being rolled forward subsequent to year end. This also included consideration of the group's ability to extend or refinance the promissory notes to meet the group's liabilities as they fall due.

· Our assessment also included making enquiries of management of the future financing plans and options and performing sensitivity analysis in respect of key assumptions underpinning the forecasts.

· We evaluated the adequacy of disclosure made in the financial statements in respect of going concern.

· We discussed these matters with management and the Audit Committee and sought representations from the Board in respect of the future plans of the group.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matter described below to be the key audit matter to be communicated in our report.

Our application of materiality

The materiality for the group financial statements as a whole was set at US$1.3 million (2016: US$500,000). This was based on 1.5% of total assets which we consider to be an appropriate benchmark due to the focus of stakeholders being the assets of the Group. The significant components of the group were audited to a lower materiality.

Performance materiality was set at US$975,000 (2016: US$375,000) which represents 75% of the above materiality levels.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of US$65,000 (2016: US$10,000), which was set at 5% of materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluated any uncorrected misstatements against both quantitative measures of materiality discussed above and in light of other relevant qualitative considerations when forming our opinion.

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the group and its environment, including the group's system of internal control, and assessing the risks of material misstatement in the financial statements at the group level. Whilst Greka Drilling Limited is a Company registered in the Cayman Islands and listed on the Alternative Investment Market in UK, the Group's principal operations are located in China and India. In approaching the audit we considered how the Group is organised and managed. We assessed the business to be made up of two significant components, being Greka (Zhengzhou) CBM Technical Service Co Ltd and Greka India Drilling Limited. The Group audit team performed the audits of all the significant components, along with the consolidation. The remaining non-significant holding companies were principally subject to analytical review procedures.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

This report is made solely to the company's members as a body, in accordance with our engagement letter. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

BDO LLP

Chartered Accountants

London, United Kingdom

06 July 2018

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Notes

1 GENERAL

Greka Drilling Limited (the "Company") was incorporated in the Cayman Islands on 1 February 2011 under the Companies Law (2010 Revision) of the Cayman Islands. The registered office and principal place of business of the Company are located at PO Box 472, Harbour Place 2nd Floor, 103 South Church Street, George Town, Grand Cayman KY1-1106, Cayman Islands and 29th Floor, Landmark Plaza, No. 1 Business Outer Ring Road, Central Business District, Henan Province, Zhengzhou 450000, PRC respectively.

The Company was established as an investment holding company for a group of companies whose principal activities consist of the provision of coal bed methane drilling services in China and India. The Company and its subsidiaries are hereinafter collectively referred to as the "Group".

The financial statements are presented in United States dollars which is same as the functional currency of the Company. The functional currencies of the subsidiaries are Renminbi (RMB) for China and Rupee for India.

2 BASIS OF PREPARATION

The financial statements have been prepared in accordance with IFRS as adopted by the European Union, that are effective for accounting periods beginning on or after 1 January 2017. The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

The financial statements have been prepared under the historical cost basis.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3 to the financial statements. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period or in the period of revision and future periods if the revision affects both current and future periods.

Going concern

The Directors have prepared cashflow forecasts which show the company will generate positive cash flows from operations at least for the next 12 months, these will be used to settle overdue trade payables but will not be sufficient to repay the loan notes to Guarantee Finance LLC and Grecap Ltd when they fall due. The loan note holders are also significant shareholders and whilst it is expected they will extend the repayment terms in due course there are no legally binding agreements currently in place to do so.

These conditions indicate that a material uncertainty exists that may cast significant doubt on the company's and the group's ability to continue as a going concern and therefore that the company and group may be unable to realise their assets and discharge their liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the company or group was unable to continue as a going concern. The directors are nevertheless confident that sufficient funds will be made available and that the use of the going concern basis remains appropriate for the preparation of the financial statements.

3 REVENUE AND SEGMENT INFORMATION

The Group determines its operating segment based on the reports reviewed by the chief operating decision-makers ("CODMs") that are used to make strategic decisions.

The Group reports its operations as two reportable segments: the provision of contract drilling services in the PRC and India. The division of contract drilling operations into two reportable segments is attributable to how the CODMs manage the business.

The accounting policies of the reportable segments are the same as those described in the summary of principal accounting policies (see Note 2). We evaluate the performance of our operating segments based on revenues from external customers and segmental profits.

Drilling services revenue and management services revenue represent the net invoiced value of contracted drilling services and management services provided to three major customers, two in the PRC of which one is a related party and the other in India. 100% of revenue in India was derived from one single customer. 43% of revenue in the PRC was derived from the third party customer with the remaining from the related party customer. Please refer to note 23 for details of the revenue derived from the related party customer.

For the Year Ended 31 December 2017

For the Year Ended 31 December 2016

As at 31 December 2017

As at 31 December 2016

4 LOSS FROM OPERATIONS

Loss from operations is stated after charging:

5 FINANCE INCOME

6 FINANCE COSTS

7 STAFF COSTS

8 EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to the owners of the Company is based on the following data:

There were 56,000,000 warrants outstanding at the end of the year that could potentially dilute basic earnings per share in the future. As the Group is in a loss making position, the potential ordinary shares are anti-dilutive and therefore a diluted loss per share has not been calculated. No additional potentially dilutive instruments have been issued between 31 December 2017 and the date of the approval of these financial statements.

9 TAXATION

The reasons for the difference between the actual tax charge for the years and the standard rate of corporation tax in the PRC applied to the loss) for the year are as follows:

Taxation for the Group's operations in the PRC is provided at the applicable current tax rate of 25% on the estimated assessable profits for the year. Taxation for operations in India is taxed at 4.326% of gross revenue.

10 TRADE AND OTHER RECEIVABLES

The fair values of trade and other receivables approximate their respective carrying amounts at the end of each reporting period due to their short maturities. There is no allowance for impairment of receivables.

The ageing analysis of trade receivables prepared based on allowed credit terms that are past due but not impaired as of the end of the reporting period is set out below. The debtors are not considered to be impaired given post year end receipts.

11 CASH AND BANK BALANCES

12 TRADE AND OTHER PAYABLES

Trade and other payables are expected to be settled within one year. The fair values approximate their respective carrying amounts at the end of each reporting period due to their short maturities.

13 LOANS AND BORROWINGS

(1) Bank loans

The banks loans are all secured. The detailed information regarding loan maturity dates and interest rates is below:

The loans due to SCITIC Bank and SPD Bank have been renewed post year-end.

(2) Promissory notes

During the year 2017, Greka Drilling Limited secured US$2.5 million in loan financing from Grecap Ltd. Maturity date of the promissory notes is 30 November 2018. The notes bear an interest rate of 7% per annum.

During the year 2016, Greka Drilling Limited secured US$5 million and US$3 million in loan financing from Guaranty Finance Investors LLC ("GFI"). The promissory notes are repayable on 30 March 2019 and 30 September 2019 respectively. The notes bear an interest rate of 7% per annum and are unsecured. On initial recognition, financing costs of US$872,000 were deducted from the promissory notes balance.

14 DERIVATIVE FINANCIAL LIABILITY

During the year ended 31 December 2016, 35,000,000 and 21,000,000 warrants, at a subscription price of 5 pence per share, were granted to Guaranty Finance Investors LLC as part of the financing agreements entered into in March 2016 and September 2016 respectively. The warrants have an exercise period of 2 years from 1 April 2017 to 31 March 2019 and 30 September 2017 to 30 September 2019 respectively

The fair values on the grant date and reporting date were determined using the Black Scholes Model. The fair values were based on the following assumptions:

The fair value of the 35,000,000 and 21,000,000 warrants on the grant date was US$605,000 and US$267,000 respectively. On initial recognition the warrants' cost was deducted from the promissory notes balance as it represents the cost of obtaining the financing. Subsequent changes in the fair value of the warrants are recognised through profit or loss. The warrants were valued at US$466,000 (2016: US$858,000) at year end with the change of fair value of US$392,000 (2016: US$14,000) recognised through profit or loss (Note 5).