china’s leading independent gas producer - green …/media/files/g/green-dragon-gas/reports... ·...

China’s leading

independent gas

producer March 2015

www.greendragongas.com

LSE: GDG.LN

This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any shares of Green Dragon Gas Ltd. (the

“Company”) in any jurisdiction. The Company’s shares have not been and will not be registered under the US Securities Act of 1933 (the “Securities Act”) and

may not be offered or sold within the United States absent registration under the Securities Act or an exemption from registration.

The information contained in this presentation is given in good faith but no representation or warranty is made in relation to the accuracy or completeness of the

information, or any oral information provided in connection therewith, or the data it generates and no responsibility, obligation or liability is or will be accepted by

the Company or its affiliates or advisors or by any of their respective officers, employees or agents in relation to it.

This presentation contains certain forward looking statements with respect to the financial condition, results, operations and businesses of the Company. The

statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a

number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and

forecasts.

Past performance is no guide to future performance and persons needing advice should consult an independent financial advisor.

This presentation and the information contained in it are confidential and should not be distributed, published or reproduced, in whole or in part, or disclosed by

recipients directly or indirectly to any other person.

Disclaimer

2

Fundamentals in Place for Growth and Cash Flow

Strong China market

fundamentals

Well Defined Reserves and

Known Resources

Realized Gas Prices

Decoupled From Oil

Debt Maturity 2017

Proven In-house Gas

Extraction Method

8% Debt to Equity ratio

GDG: Fundamentals in Place for Growth and Cash Flow

3 2015: A YEAR OF TRANSFORMATION

Leading China CBM Independent

Large reserves base • Largest publicly listed CBM reserves base in China: 1P:148Bcf; 2P: 427Bcf; 3P: 2,290Bcf

• Reserves independently verified by 8 consecutive CPRs

• Six Inland Production Sharing Contracts covering 1,869,599 acres (7,566 km² )

• Ongoing migration to 1P reserves: 17% increase in 2014

Integrated operations and strong partners • Strong, highly capitalised Chinese partners : CUCBM (CNOOC), CNPC and PetroChina

• Proven PSC titles: Protected by Netherlands-PRC Bilateral Investment Treaty

• Equity participation in over 1,800 wells

Centrally located among China’s gas consumers

• Multiple routes to monetise gas: GDG-owned refuelling stations, industrial customers, multiple

gas pipelines, sales via electricity

Experienced leadership and strong corporate profile

• Highly experienced management team with a track record in Coal Bed Methane

• High quality shareholder base: includes GIC, Aberdeen, Fidelity, Platinum Asset

Management, Chandler Corp

$0.9bn Market Cap.

427Bcf 2P Reserves

30 Funded LiFaBriC

commenced

8 blocks over 1.87mn

acres

Market cap as of December 31, 2014 4

Randeep S. Grewal | Founder, Chairman & CEO

• Founded Greka Group in 1997 and also acts as Chairman & CEO of several of the Group’s subsidiaries and affiliated companies

• Extensive experience in oil & gas and has also been involved in various JVs, acquisitions, mergers and reorganisations globally

• BSc Mechanical Engineering, Northrup University

David Turnbull | Non-executive Director

• Executive Chairman of Pacific Basin Shipping Limited

• Held senior leadership roles in MNCs such as Swire Group and Cathay Pacific

• MA Economics, Cambridge University

Wayne Roberts | Non-executive Director

• Chartered Chemical Engineer with over 25 years’ experience in the oil & gas industry

• Served with BG Group as Senior Vice President for AMEA, President of BG Southeast Asia & China and Chairman of BG Asia Pacific

• MBA, INSEAD

Gong Da Bing | Non-executive Director

• Over 27 years of international business experience

• Held various senior leadership positions with private international trading firms and was business negotiator for the Beijing Foreign

Trade Bureau

• Masters, Comparative Law, University of Illinois

Stewart M. John OBE , FREng | Non-executive Director

• Over 50 years of aviation industry experience, mostly from British Airways and Cathay Pacific

• Held non-executive director positions with Rolls-Royce Commercial Aero Engines, British Aerospace Aviation Services and others

• Chartered Engineer, Fellow of Royal Academy of Engineering

Reputable and Proven Board of Directors

5

Alfred Yan| CFO

• Over 22 years of experience in accounting, auditing and corporate finance

• Previously CFO at China People Gas Holdings and held various positions at Deloitte Touche Tohmatsu, KPMG and BDO

• Fellow member of the HK Institute of Certified Public Accountants and associate member of Chartered Institute of Management

Accountants

Mahmood (Mel) Lone | COO

• General Manager and Chief Representative of Greka in China since 2001

• Actively involved in CBM development at Greka and held various positions in the Group

• BA Economics and History, University of Punjab

Elton Dong | GM, Production

• Over 18 years Management experience in CBM industrial

• Over 11 years actively involved in Greka CBM development

• BSc, Xi’an Petroleum University, Majored in Mechanical Design and Manufacturing

• Master degree for Oil and Gas Exploitation, Shandong Petroleum University of China

Zhang Hai Tao | GM, Gas Distribution

• Over 14 years of management experience in natural gas industrials

• Graduate from Anyang University in Marketing Development

• Business Administration from the University of Beijing

Stephen Hill | VP, Corporate Finance

• Over 31 years of Asia experience with extensive fundraising credentials for corporate clients

• Previously Head of Asian Sales at Bear Stearns, Nomura and ING Barings and held several equity sales roles at Jardine Fleming

• BSc Economics, Leicester University and Advanced Management Program, Wharton University

Experienced Senior Management Team

6

Upstream Asset Portfolio: 6 PSCs over 8 Blocks

Xinjiang

Tibet

Qinghai

Inner Mongolia

Heilongjiang

Jilin

Liaoning

Beijing

Hebei

ShandongNingxia

Gansu

Shanxi

Shaanxi

Jiangsu

HubeiShanghai

Zhejiang

Fujian

Jiangxi

Guizhou

Sichuan

YunnanGuangxi Guangdong

Hong Kong

Anhui

Hunan

Chongqing

Tianjin

Qinyuan PSC

(GQY PSC)

3,665km2

Baotian-

Qingshan

PSC (GGZ

PSC) 947km2

Fengcheng PSC

(GFC PSC)

1,541km2

Shizhuang South

PSC (GSS PSC)

388km2

Shizhuang

North PSC

(GSN PSC)

375km2

Chengzhuang

Block (GCZ

Block) 67km2

Existing main gas pipelines

CNG mother stations

Group CBM blocks

Capital of province

Henan

Panxie East PSC

(GPX PSC)

584km2

P Production

D Development / Pilot stage

EA Exploration & Appraisal

P

P

D

EA

EA

EA

EA

Both included under Shizhuang South PSC

GSS GDG interest: 60%

Partner: CUCBM (CNOOC)

Operator: GDG

1P/2P/3P: 132.2/369.6/1,296 bcf

LiFaBriC/vertical wells: 62/171

Total: 1,491 wells*

GCZ GDG interest: 47%

Partner: PetroChina

Operator: PetroChina

1P/2P/3P: 15.6/28.5/45.3 bcf


Total: 104 wells*

GSN GDG interest: 50%


Operator: CUCBM (CNOOC)

1P/2P/3P: N/A / N/A / 705.7 Bcf


Total: 201 wells*

GQY (A) GDG interest: 10%


Operator: CUCBM (CNOOC)

1P/2P/3P: N/A

LiFaBriC/vertical wells: N/A / NA

Total: 9 wells*, 18 coal holes

GQY (B) GDG interest: 60%


Operator: GDG

2C: 20 Bcf


Total: 57 wells*

GFC GDG interest: 49%


Operator: GDG

1P/2P/3P: N/A / 26.9 / 239.9 Bcf


Total: 32 wells*

GPX GDG interest: 60%


Operator: GDG

1P/2P/3P: N/A

LiFaBriC wells/ vertical wells: N/A/12


GGZ GDG interest: 60%

Partner: PetroChina

Operator: GDG

Best Prospective: 442.5 Bcf

LiFaBriC wells/vertical wells : 4/26


* Total wells is inclusive of non operated wells

Reserves by Netherland, Sewell & Associates, Inc as of Dec 31, 2014

7

Reserves Breakdown

1P

GSS

Net: 147.8

PV10:

US$1,464m

GSS

Net: 400

PV10:

US$3,949m

GFC

Net: 27

PV10:

US$347m

GSS

Net: 1,344

PV10:

US$12,628m

GSN

Net: 706

PV10:

US$5,623m

GFC

Net: 240

PV10:

US$2,930m

GQY

Net 1C: 6

Net 2C: 20

Net 3C: 33

GQY

Low Est: 375

Best Est: 872

High Est : 1,700

GFC

Low Est: 72

Best Est: 156

High Est: 539

GPX

Low Est: -

Best Est: 16

High Est: 404

GGZ

Low Est: 24

Best Est: 443

High Est: 990

2P

3P

Contingent

Prospective

Net: 147.8 Bcf

PV10: US$1,464m

Net: 426.8Bcf

PV10: US$4,296m

Net: 2,290 Bcf

PV10: US$21,181m

Net 1C: 6 Bcf

Net 2C: 20 Bcf

Net 3C: 33 Bcf

Low: 471 Bcf

Best: 1486 Bcf

High: 3,634 Bcf

Source: Netherland, Sewell & Associates, Inc as of December 31, 2014

GCZ

Net: 15.6Bcf

PV10: $186m

GCZ

Net:28.5Bcf

PV10: $313m

GCZ

Net: 45.3Bcf

PV10: $462m

8

Reserve Progression - Value Decoupled from Brent

9

(1) Values as of Dec 31st year end

(2) CBM wellhead prices

Source: Company Data, Netherland, Swell & Associates, Inc. Bloomberg

677

928

1255

1527

1801 1818

2806

4,296

0

20

40

60

80

100

120

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2006 2008 2009 2010 2011 2012 2013 2014

US$

US$

mn

2P NPV $mn

1P NPV $mn

Brent (US$)

CBM prices (US$/Boe)

Focus on production and cash-flow from the GSS block:

- Implement a low-risk, low-cost production drilling programme: 150 new LiFaBriC wells

- Low-cost (US$1.5m/well) targeting of proven reserves in shallow and familiar coals

- Ongoing migration of 3P reserves to 1P/2P through continued drilling and

enhancement of off-take infrastructure

- Committed infrastructurespending by CUCBM (CNOOC) to further enhance gross production

Further development of sales channels to increase average

sales price - Expand distribution capacity of high margin CNG refuelling stations

- Grow sales to industrial customers

- Leverage on additional pipeline capacity from PetroChina, CUCBM (CNOOC) and

Sinopec

Appraisal and development at other blocks - Significant upside: 10% working interest in GSN sold to CUCBM (CNOOC)for ~$200m

- Bringing partners to co-develop other exploration blocks using benchmarked value

- Ongoing appraisal through minimum capital commitments ~US$ 12m

- Considering alternatives to accelerate the development and monetization of gas

Strategy

2015

A year of

transformation

10

2P NSAI Production Profile

Production Profile

11 Source: Company data, Netherland, Sewell & Associates, Inc as of April 30, 2014, company data

-

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Bcf

GSS Evolution to Commerciality

Source: Company data as of December 31, 2014 12

0

100

200

300

400

500

600

700

800

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Gro

ss P

rod

uct

ion

(M

MC

F)

PV

10

(U

S$)

NSA

I Au

dit

GSS Production (MMCF)

3P PV10

2P PV10

Production Phase

Vertical

Eureka

R&D Phase

LiFaBriC (Lined Faulted Brittle Coals)

SRHD (short radius horizontal drilling)

MLHD (multilateral horizontal drilling)

Cooperation Phase

Energy consumption per person

Growth rate (%) (energy consumption per person – toe) (gas consumption per person - toe)

Strong incentives from the government to promote domestic gas production:

• CBM sales based on market pricing (unregulated)

• Central government subsidy proposed to double from RMB 0.20/m3 (US$0.9/Mcf) to RMB 0.40/m3 (US$1.8/mcf)

• Beneficial tax treatments to include: value-added tax refunds, import tariff waiver, accelerated depreciation, resource tax exemptions

• Priority treatment of CBM for pipeline and power station access

2014E GDP growth rate

China - Solid Fundamentals for Gas Demand Growth

Source: BP Statistical Review, June 2013; IMF World Economic Outlook Database, April 2014

Gas consumption per person

1%

1%

2%

2%

2%

5%

8%

0% 2% 4% 6% 8%

Japan

Russia

U.K

Brazil

U.S.A

India

China

0.46

1.37

1.94

3.18

3.73

4.81

7.27

0 2 4 6 8

India

Brazil

China

U.K

Japan

Russia

USA

0.04

0.1

0.14

0.82

1.22

2.18

2.6

0 1 2 3

India

China

Brazil

Japan

U.K

U.S.A

Russia

13

0

100

200

300

400

2005A

2006A

2007A

2008A

2009A

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

2018E

2019E

2020E

Bill

ion C

ubic

Mete

rs

Domestic Production Pipeline Imports China Gas Demand

Domestic supply/

demand gap will

keep growing till

2020 if production

will not be

incentivised

China – Russia deal only delivering

gas volumes after 2020

Supply 2020 outlook

China may need to import 2.8Tcf of LNG

by 2020

LiFaBriC: Developed for the Geology

Developed for China’s geology

• Geology of faulted anthracite coal formations

• Traditional drilling methods are not adaptable (unlike Australia or the

US)

• GDG «cracked the code» with LiFaBriC

The LiFaBriC (Lined Faulted Brittle Coals) technology

• Adaptation of horizontal drilling methods used for coal seams

• Perfected to allow measurement and logging while drilling

• Involves advance directional drilling / geo-steering techniques

• Able to drill through multiple faults with a single well

Advantages

• Low capex, long well-life…

• ~US$1.5 million per well

• Connection and ramp-up to plateau rate in 6-7 months

• Producing life of 15-20 years

• Environmentally friendly: no expensive and hazardous fraccing

processes or chemicals; small surface footprint ensures less intrusive

for existing land owners

• Initial evidence indicates that in certain instances LiFaBriC wells have

positively impacted production from nearby vertical wells

Meth

ane

Inseam

RB

Vertical

Fault

SIS Technology “LiFaBriC” Process

LiFaBriC repeatability

14

(USD ‘000) June 2014 December 2013 December 2012

Total Assets 1,018.7 983.0 942.6

Convertible notes 46.5 33.4 79.7

Bonds 32.8 30.4

Total Financial Debt 79.3 63.8 79.7

Cash at bank1 60.0 34.6 40.0

Net Debt 19.3 29.1 39.7

Equity (Book Value) 613.0 646.8 660.1

Debt to Equity 8% 6% 8%

Debt to Capital 7% 6% 8%

Net Asset 613.7 646.0 720.0

GDG financial position Low leverage and strong net asset base

Targeting a strong balance sheet and a disciplined

approach to leverage

Previous capital expenditures financed primarily via

equity and convertible instruments

US$330 million in equity invested in the assets since

inception by GDG (excludes partner funding)

Debt to equity ratio of 8% (June 2014)

Minimum capital expenditure commitments of c$12m

$88m Corporate Bond completed

Targeting RBL availability by Q2 2015

No debt maturity until 2017

(1) Includes USD 8m in restricted cash in 1H 2014

(2) Excludes over USD 1 bn of partner funded capex (still pending final audits)

Disciplined approach to Balance Sheet and Leverage

15

Corporate Social Responsibility

Commitment to the Environment

• Zero use of harmful chemicals

• Wells powered by clean burning Natural Gas

• Clean water as a by product of production for irrigation

or consumption

• Use of biodegradable mud

• No recorded environmental incidents

Commitment to the communities we operate

• Drilling of water wells for local villages

• Maintenance of local infrastructure

Commitment to our people

• 150,856 OH&S incident free man hours as of Q4 2014

• In depth HSE policy and continuous training

16

Listing on the Main Market of the LSE

Reflects Our Development into

a Mature, Successful Gas

Producer

An Opportunity to Create

Further Shareholder Value

Increased Liquidity and Profile

A Milestone in Our Ongoing

Growth Strategy

Listing on the Main Market of the LSE

17

Largest China

CBM

independent

• Proprietary technology - LiFaBriC

• Technology in manufacturing phase

• Based on geo-steered horizontal drilling that suits China’s geology

• Predictable stable output per well with enhanced returns

• Delivers enhanced stable production with little decline

• Implementing a 150-well debt funded drilling programme to the end of 2015 to ramp-up production to 18Bcf

• Committed investment from partners to accelerate production and generate strong cash flow

• Ongoing migration of reserves to 1P: 111% increase in 2014

Investment highlights

Proven

extraction

methodology

Step change in

cash

generation

• Largest Chinese independent

• Favourable Production Sharing Contracts: Today’s Chinese gas economics on yesterday’s favourable terms

• Hand-picked locations in China’s strong growth gas market

• Five year government plan to increase gas as primary energy source

• Long term off take agreements to multiple end users

18

7. Appendix

19

History and Corporate Milestones

1997 -1999

2000-2002

Technological

Breakthrough

• MWD (Measurement While Drilling) and LWD (Logging While Drilling) facilitate LiFaBriC development

Public

Floating on AIM

2003

First License

• GDG commences Chinese operations

• First PSC signed on the GFC block

Acquisition of four

additional licenses

• Commenced operations on the ground

• Signing of four other licenses including Shizhuang South

2006

2008

LiFaBriC

2009

Greka Engineering

and Technology

Dividend

2010

Greka Drilling

Dividend

• 8th March demerger of Greka Drilling

• Addition of 2 CNG stations in Pindingshan

• Upgrade of Infrastructure Production Facilities to support 28 new wells of gas production

2011

2012

Landmark

Government Ruling

• Chinese Gov’t rules in favor of Green Dragon on validity of PSC

2013

Binding Agreements

with CNOOC and

PetroChina

2014

Production Ramp-up

• Launch 150 LiFaBriC drilling program

First Gas

• Gas production commences at GSS

• Landmark agreements lead to shareholder participation in over 1,800 wells

• 30th Sept demerger of Greka Engineering

• Zhengzhou Greka Gas Co Ltd entered into a 20-year agreement with PetroChina Huabei Oilfield

• The Company listed on the Alternative Investment Market (“AIM”) in London on August 17, 2006

• “Lined Faulted Brittle Coal”

• improved drainage factor

FTSE 250

20

1. Refuelling stations

• CNG trucked within 300km

• Eight owned CNG refuelling stations (~2.8 MMcf/d or ~1 Bcf/year)

• Most lucrative: US$18.1/Mcf 2014 avg. price: (6% year on year increase)

• Route for 36% of 2014 GSS sales

• Upcoming capacity increase to 7.8 MMcf/d ~2.8 Bcf/year: doubling capacity at eight existing stations

and adding three larger stations

2. Industrial users in the region

• CNG/PNG

• High demand from nearby factories (ceramic, textiles, packaging, tri-generation projects etc.)

• Second most lucrative channel : US$8.4/Mcf 2014 avg. price


• Industrial customers to continue conversion to gas power due to government restrictions on carbon

emissions

3. Piped into regional /national gas pipelines

• PNG

• Remaining gas is piped into West-East Pipeline I: 20 year GSA with CNPC

• Lower, but still very favourable pricing: US$7.96/Mcf 2014 avg. price:


• Further capacity, optionality and competitive pricing going forward (existing CUCBM (CNOOC)

pipeline being improvement), new Sinopec pipeline under construction

Sales: Multiple Channels

21

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