Green Dragon Gas Ltd. (LSE: GDG), one of the largest independent companies involved in the production and sale of Coal Bed Methane (CBM) gas in China, is pleased to announce an increase in its 1P, 2P and 3P estimated reserves as at 31 December 2016. The estimates of reserves have been provided by independent reserve engineers Netherland Sewell and Associates Inc. (NSAI).
Randeep S. Grewal, Chairman and Founder of Green Dragon Gas commented:
"I am pleased to announce the results of the 2016 reserves evaluation which represents the 11th consecutive increase in both 1P and 2P reserve volumes since coming to market in 2006. With GCZ and GSS in commercial production, Green Dragon continues to de-risk its project pipeline and in accordance to our objectives, I am particularly pleased to see initial reserve volumes being booked on the GGZ development asset in 2016. This builds on the first time bookings seen in respect of Coal Seam 15 on the GSS and GCZ blocks in 2015 and reaffirms the Company's focus on the continued development of our significant portfolio of assets.
With a focus on increasing sales volumes the Company has continued to innovate and re-examine aspects of how we drill and connect our wells. In 2016 we modified and enhanced our LiFaBriC drilling and completion methodology to improve gas recovery from existing wells. This in turn has led to anticipated capex and opex efficiencies in the further development of our acreage and has yielded enhanced NPV10 valuations in 2016. The 1P, 2P, 3P values of $1.3 billion, $4.3 billion and $16.2 billion respectively is demonstrative of these achievements.
Our plan to re-finance the USD denominated debt with the RMB debt is on schedule with the two terms sheets on hand. We are confident of aligning our revenue and debt currency in the near future to eliminate the currency volatility. Our current discussions envision early repayment of the Nordic Bond and funding of this year's capex.
The continued development and production innovation by our people underscores our commitment to Green Dragon's production present and development future."
Reserves Report Overview
Green Dragon Gas has total Original Gas In Place of 27.1 Tcf across all its blocks. The estimates and evaluation of the reserves and resources contained in this announcement were prepared by independent reserve engineers NSAI.
The report includes all 2,037 wells operated by Green Dragon, CNOOC and PetroChina across all blocks in which the Company has varying equity interests.
Prices at year end used in the reserves evaluation were USD $11.8/Mcf at the production block, inclusive of Government subsidies.
NPV10 has increased year over year as a result of:
While there has been some devaluation of the RMB to USD exchange rate in the period this has been more than compensated by the expected operational efficiencies. As a Company operating in China, and functioning in an RMB environment, the currency devaluation compared to the USD has limited operational effect on the Company.
Guizhou - first time reserve volumes
Reserve volumes reported at 31 December 2016 include first-time booking of 2P and 3P reserve volumes on the GGZ development asset located in Guizhou Province. The migration of resources to reserves reflects the development work undertaken during the year where nine wells are now on production with six of those wells having reached commercial production levels. Guizhou is an important asset to the company and an exciting prospect as it located in a market that is characterised by higher end user gas prices.
Guizhou Province is located in Southern China and currently sources the majority of its gas needs by pipeline from other provinces. As such, prices in Guizhou attract a transportation premium to encourage the delivery of gas to the province. It is expected that gas sourced and produced directly in Guizhou will also benefit from this premium as the premium is a factor in determining city-gate end user pricing.