Update on Gas Reserves

23 Feb 2009 07:00



23 FEBRUARY 2009

GREEN DRAGON GAS LTD.

("Green Dragon" or the "Company")

 RESERVE 2P AT US$1.1 BILLION, 3P AT US$7.2 BILLION, GIP OF 25.5 TCF

Green Dragon Gas Ltd (AIM: GDG), the Chinese vertically integrated gas business, today announces an update on its Coal Bed Methane ('CBM") resources within its upstream business across its six blocks. The 2008 year end reserves were as follows:

The resources were evaluated by independent reserve engineers Netherland Sewell & Associates ("NSAI") as of 31 December 2008. The estimates of reserves and resources in this report were prepared in accordance with definitions and guidelines set forth in the 2007 Petroleum Resources Management System approved by the Society of Petroleum Engineers as well as Chapter 18, Section 18.09 (6) of the Hong Kong Exchange Listing Rules. All resources estimates shown above are net to the Company's interest. In accordance with the standards, no cash flows are reported for the Contingent and Prospective categories. The present value figures shown above represent estimated future net revenues based on region-specific gas price parameters specified by the Company discounted at 10%.

Commenting on the resource update, Randeep S. Grewal, the Company's Chairman and Chief Executive stated, "The consistent stable growth in resources since our listing on AIM in August 2006, is a direct result of the drilling successes by the Company. The year end audit concluded by world renown CBM resource auditor, NSAI, reconfirms our internal evaluations as to the significance of Green Dragon's potential within our upstream business. The US$7.2 billion net value to Green Dragon on the 2.2 trillion cubic feet with 3P is a reflection of better net margins in China over other prolific CBM basins, such as those in Australia. Net per thousand cubic feet margins in China are expected to be approximately US$4-6 as compared to Australian margins which are in the US$1-2 range. Lower costs in China, complemented with an acute shortage of gas supplies to an expanding market, create better economics to Australia.

"While our significant upstream resource has been confirmed, so has the management ability to successfully convert such resource into production which is demonstrated by the successful drilling being conducted by the in-house drilling teams. Our eight rigs provide a solid execution control over the safety, efficiency, productivity and consistency in the production drilling phase of our development, which will include drilling thousands of wells over the next decade, 

"The drilling and production successes by the Surface-to-inseam ("SIS") wells are a clear catalyst to developing this large resource at a faster pace. To date, we have successfully drilled four wells with three being in our Shizhuang South ("GSS") block and the fourth in the Qinyuan block. The faster de-watering period, earlier gas production, significantly greater coal seam penetration which is protected during the gas production have all collectively been demonstrated so far. We expect to drill five less vertical wells for each SIS horizontal well. SIS wells could have multiple horizontal wells while the most common approach is with two horizontal wells of up to 1000 meters each.

"The results of these improved economics were reviewed and implemented in the GSS block as the developmental approach by the Company which was incorporated within the reserve report. 

"Additionally, GSS production has exceeded 33,000 cubic meters or one million cubic feet with a fraction of the total wells drilled on gas production at this point. As the balance of the wells convert from their de-watering stage and the related infrastructure is built, gas production increases ought to be well complemented by gas sales," concluded Mr. Grewal.

The information in this announcement pertaining to Green Dragon's China properties has been reviewed by Mr. Craig H. Adams, a Vice President of NSAI. He is a registered Professional Engineer in the State of Texas and is a member of the Society of Petroleum Engineers.

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