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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Green Dragon Gas | LSE:GDG | London | Ordinary Share | KYG409381053 | ORD USD0.0001 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 62.50 | 60.00 | 65.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMGDG
RNS Number : 1417L
Green Dragon Gas Ltd
29 September 2016
29 September 2016
GREEN DRAGON GAS LTD.
("Green Dragon" or the "Company")
Interim Results for the Six Months Ended June 2016
Green Dragon Gas (LSE: GDG), one of the leading independent gas development and production companies in China, today announces its results for the six months ended June 2016.
Financial highlights
-- Revenue decreased to US$12.1 million (H1 2015: US$16.8 million) due to an approximate 20% decrease in gas prices in and a 7% decline in the RMB/USD exchange rate period on period
-- Cash from operations increased to US$7.7 million (H1 2015: cash used in operations US$0.8 million)
-- Cash from operations ahead of full year 2015 run rate of US$12.5 million -- Gross revenue per mcf including subsidy income of US$7.3/mcf (full year 2015: US$10.0/mcf) -- Net loss for the period of US$4.6 million (H1 2015: US$1.4 million) -- Investment in fixed assets of US$6.1 million (H1 2015: US$20.4 million) -- Net assets of US$677.2 million (December 2015: US$697.4 million)
Operations highlights
-- Gross gas sales of 1.9 bcf consistent with prior year (H1 2015: 1.9 bcf) -- GSS H1 2016 sales volume of 0.89bcf up 34% and 19% versus H1 and H2 2015 respectively
-- Reached a H1 2016 sales peak of 6.0mmcf/day (170,000m(3) /day) at GSS, an increase of 18% compared to 31 December 2015
-- Continued focus on infrastructure and compression across the GSS production circuits
-- First well head compressor installed at GSS in April 2016, allowing wellhead pressure to be taken to vacuum for the first time, resulting in an increase in gas sales of 45% from the well
-- 108 wells producing gas in GSS with 100 connected to sales infrastructure
Outlook
-- Well head compression programme to increase the sales to production capacity ratio -- Increase gas sales and related cash flow -- Conclude the CNOOC operated legacy well audit
Randeep S. Grewal, Chairman and Founder of Green Dragon, commented:
"We are pleased to announce our interim results for 2016. We have continued to focus on infrastructure on our GSS operated block where we have seen a continued increase in gas sales volumes. We have benefitted from the clean energy policy set out by the Chinese Central Government that saw the cash subsidy paid for gas production increase in 2016 to US$1.31/mcf with additional local subsidies of US$0.44/mcf totalling $1.75/mcf, support that we expect to continue. This has partially compensated for the gas sales price reduction we have seen in China during the period. In accordance with our objectives, our focus has been on infrastructure rather than drilling in H1 2016. We have continued the diligent connection of wells to sales infrastructure and are pleased to now have 100 wells, including 56 LiFaBriC wells, connected and producing gas for sale. The system back pressure, which was at approximately 75kpa at year-end 2015, has been reduced to 25kpa at the half year 2016, resulting in increased gas sales volumes. The decrease in such back pressures will enable us to increase the sales to produced gas ratio within GSS block, a key Company objective for the year. Furthermore, the increase in wells connected and the progress made on infrastructure will form the basis for the continued growth in sales volumes and, importantly, will inform our approach to the completion and connection of future wells on GSS.
GCZ production remains on track with expectations and the Overall Development Plan is expected to be filed with the NDRC shortly. We expect such ODP to be approved prior to year-end and will form the basis to further development in this commercial block in 2017.
We are pleased to see GGZ exploration activities conclude and the block move into the development phase. The ODP for this block is expected to be concluded in 2017 following the reserve certification expected in Q1 2017.
In light of the progress made on all the key objectives discussed during the Capital Market Day in April, the Company is considering a range of farmout, debt and equity options to pursue its development, discretionary capex and financing plans for 2017."
For further information on the Company and its activities, please refer to the website at www.greendragongas.com or contact:
Instinctif Partners
David Simonson / George Yeomans
Tel: +44 20 7457 2020
Citigroup
Tom Reid / Luke Spells
Tel: +44 20 7986 4000
Peel Hunt
Richard Crichton / Ross Allister
Tel: +44 20 7418 8900
About Green Dragon Gas
Green Dragon Gas is a leading independent gas producer with operations in China and is listed on the main market of the London Stock Exchange (LSE: GDG). The Company has 549Bcf of 2P reserves and 2,379Bcf of 3P reserves across eight production blocks covering over 7,566km(2) of licence area in the Shanxi, Jiangxi, Anhui and Guizhou provinces. It holds six Production Sharing Agreements with strong, highly capitalised Chinese partners including CUCBM (CNOOC), CNPC and PetroChina, and has infrastructure in place to support multiple routes to monetise gas production.
Chairman's Statement
In the first six months of 2016 we have continued our focus on infrastructure on the GSS block with the stated objective of increasing the volume of gas produced for sale from our largest commercial production area. Together with our partner, CNOOC, we have continued to connect wells to sales infrastructure and in the GDG operated area of GSS we now have 100 wells producing gas for sale including 56 LiFaBriC wells. In addition to our own efforts, CNOOC now has 521 wells producing gas for sale and has continued to deploy capital in gathering and transmission infrastructure in accordance with its previously announced commitments. That infrastructure will be used jointly by the partners to transport gas to market, the completion and commissioning of further infrastructure is expected to increase the number of CNOOC sales wells in GSS. Well head gas compression is the key objective within the infrastructure projects as approximately 70% of the gas-producing wells currently have back pressure restricting optimum gas sale volumes.
The average RMB to USD exchange rate has fallen by 7% compared to the first half of 2015. This has been somewhat relieved by the increase in subsidy for CBM production from both Central and Local Government that was put in place earlier this year and effective from 1 January. The gas subsidy was increased from US$0.87/mcf to US$1.31/mcf; a 51% increase with local subsidies increasing similarly from US$0.22/mcf to US$0.44/mcf, the total subsidy now being $1.75/mcf. The continued and stable support of the Central Government together with its commitment to a clear and responsible energy policy for China's future continues our confidence for the future that is not necessarily prevalent in our industry today. We have seen such responsible and stable consistent support from the Central Government over the past twenty years of operations in China.
Echoing the Central Government's commitment to China's energy future we have made significant progress toward the Chinese Reserve Report (CRR) on our operated GGZ block this year. The GGZ block is located in Guizhou Province in Southern China, an area that currently sources the majority of its gas needs by pipeline from other areas. We are proud to be a part of a project to produce gas directly in Guizhou for local consumption. The exploration programme included drilling of 33 wells, evaluating 582 core holes and reviewing 41.6 miles of seismic lines. Nine wells have successfully been placed on line, strategically covering five of the seven most prospective coal seams identified. Four wells have exceeded the commerciality threshold under the requirements of the Ministry of Land Resources. The block has been moved from exploration onto development making it our third block earmarked for commercial gas production.
We are pleased to see GGZ exploration activities conclude and the block move into the development phase. The ODP for this block is expected to be concluded in 2017 following the reserve certification expected in Q1 2017.
The resource opportunity in front of Green Dragon Gas is significant and one that we have worked hard to create, secure and develop for our shareholders. Underpinning everything we do is the hard work and dedication of our employees who have diligently continued to move our projects forward and I would like to take this opportunity to express my sincere thanks to them.
Mr. Randeep S. Grewal
Founder & Chairman
29 September, 2016
Operations overview
Upstream
-- H1 2016 gross production capacity of 6.01 bcf, an increase of 23.4% and 10.4% compared to H1 2015 and 2H 2015 respectively
Hot Features
Premium
Area H1 2015 H2 2015 H1 2016
----------------------- --------- --------- ---------
GSS - GDG operated 1.63 1.79 2.05
GSS - CNOOC operated 1.13 1.67 2.07
GCZ 2.11 1.98 1.89
----------------------- --------- --------- ---------
4.87 5.44 6.01
======================= ========= ========= =========
Drilling & infrastructure
-- Total of 3 wells drilled on GDG operated GSS in H1 2016 including one recompletion of an existing lateral as part of our optimisation programme
-- Four LiFaBric wells connected to infrastructure in H1 2016
-- Total of 80 LiFaBriC wells on the GDG-GSS production block of which 76 are online, 57 are connected to infrastructure and 56 are producing gas for sale at 30 June 2015
-- 44 standalone vertical wells also producing gas for sale on GSS-GDG
Exploration
-- Significant progress made on GGZ block ahead of Chinese Reserve Report (CRR) approval targeted for Q4 2016
-- Total of 33 wells drilled across the area including 21 vertical, 9 directional and 3 LiFaBriC wells
-- Nine wells on line in GGZ covering five coal seams, four wells have established commercial gas rates in accordance with guidelines issued by the Ministry of Land Resources
-- Updated subsurface models complete for all exploration blocks
Well portfolio
-- 708 wells producing gas for sale across all blocks (2015: 666)
-- 108 GDG wells producing gas in GSS with 100 connected to sales infrastructure
-- H1 2016 well count across all blocks is summarised as follows:
Well count GSS GCZ GSN GPX GQY GQY GFC GGZ Total
A B
------------- -------- ----- ----- ----- ----- ----- ----- ----- -------
Total 1,588* 114 201 12 7 52 30 33 2,037
=======
Sale wells 621 87 - - - - - - 708
------------- -------- ----- ----- ----- ----- ----- ----- ----- =======
*includes 1,388 legacy CNOOC wells at GSS (2015: 1,388)
Downstream
-- GSS H1 2016 sales volume up 34% and 19% versus H1 and H2 2015 respectively -- Key senior management appointments made H1 2016
-- Sales increases on GSS partially offset by reduction in volume of sales on GCZ due to natural reservoir decline. GCZ decline to be offset with further development in 2017, following ODP approval
-- Total equity sales increase 6% to 1.72 bcf versus 2H 2016 (1.63 bcf)
H1 2015 H2 2015 H1 2016
---------------------- --------- --------- ---------
PNG
GSS 0.55 0.52 0.67
GCZ 0.94 0.88 0.83
CNG industrial 0.01 0.11 0.08
CNG retail 0.02 0.02 0.02
Power 0.08 0.09 0.12
---------------------- --------- --------- ---------
Total equity sales* 1.60 1.63 1.72
====================== ========= ========= =========
*excluding CNOOC sales currently subject to audit
-- Own CNG sales negatively impacted by severe weather disruption
-- Gross sales of 1.90 bcf consistent with 2015 (full year: 3.79 bcf)
H1 2015 H2 2015 H1 2016
--------------------- --------- --------- ---------
GSS 0.66 0.75 0.89
GCZ (all sales to
PNG) 0.94 0.88 0.83
--------------------- --------- --------- ---------
Total equity sales 1.60 1.63 1.72
CNG third party 0.30 0.25 0.18
--------------------- --------- --------- ---------
Gross Sales* 1.90 1.88 1.90
===================== ========= ========= =========
*excluding CNOOC sales currently subject to audit
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2016
Six months ended 30 Six months ended 30 Year ended
June 2016 June 2015 31 December 2015
Notes US$'000 US$'000 US$'000
unaudited unaudited audited
Revenue 3 12,064 16,783 32,715
Revenue - subsidy income 2,622 3,315 5,000
----------------------- ----------------------- --------------------
Total revenue 14,686 20,098 37,715
Cost of sales (9,110) (8,184) (15,549)
----------------------- ----------------------- --------------------
Gross profit 5,576 11,914 22,166
Selling and distribution costs (630) (668) (1,639)
Administrative expenses (3,154) (5,783) (5,530)
Profit from operations 1,792 5,463 14,997
Other income and finance income 1,726 476 797
Finance costs (8,168) (7,495) (15,924)
Loss before income tax (4,650) (1,556) (130)
Income tax credit 100 110 212
----------------------- ----------------------- --------------------
(Loss)/profit for the period
attributable
to owners of the company (4,550) (1,446) 82
Other comprehensive expense, net of
tax:
Items that may be reclassified to
profit or loss:
Exchange differences arising on
translating foreign operations (15,666) (397) (41,937)
----------------------- ----------------------- --------------------
Total comprehensive expense for the
period attributable to owners of
the company (20,216) (1,843) (41,855)
======================= ======================= ====================
Basic and diluted (loss)/earnings
per share (US$) 4 (0.029) (0.009) 0.001
======================= ======================= ====================
All results for the period relate to continuing operations.
Condensed Consolidated Statement of Financial Position
At 30 June 2016
As at As at 31
30 June December
2016 2015
Notes US$'000 US$'000
unaudited audited
Assets
Non-current assets
Property, plant and
equipment 6 268,299 271,996
Gas exploration and
appraisal assets 7 1,031,226 1,043,859
Other intangible assets 2,228 2,957
Long term prepaid expenses 248 213
Deferred tax asset 2,190 2,169
----------- ------------
1,304,191 1,321,194
----------- ------------
Current assets
Inventories 135 109
Trade and other receivables 8 21,039 22,478
Restricted cash 2,000 2,000
Cash and cash equivalents 17,142 26,866
----------- ------------
40,316 51,453
----------- ------------
Total assets 1,344,507 1,372,647
----------- ------------
Liabilities
Current liabilities
Trade and other payables 9 14,798 15,413
Convertible notes 10 49,012 -
Bonds 11 87,743 -
Current tax liabilities - 13
----------- ------------
151,553 15,426
----------- ------------
Non-current liabilities
Convertible notes 10 - 48,398
Bonds 11 - 86,807
CUCBM provision 16 364,855 370,217
Deferred tax liability 17 150,868 154,352
----------- ------------
515,723 659,774
Total liabilities 667,276 675,200
----------- ------------
Total net assets 677,231 697,447
=========== ============
As at As at 31
30 June December
2016 2015
Notes US$'000 US$'000
unaudited audited
Capital and reserves
Share capital 13 16 16
Share premium 13 808,981 808,981
Convertible note equity
reserve 13 3,756 3,756
Share-based payment
reserve 13 - 12,743
Foreign exchange reserve 13 6,350 22,016
Retained deficit 13 (141,872) (150,065)
----------- ------------
Total equity attributable
to owners of the parent 677,231 697,447
=========== ============
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2016
Share
Convertible based Foreign
Share Share note equity payment exchange Retained
capital premium reserve reserve reserve deficit Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------- -------------- -------------- ---------- ------------ ----------- ------------
At 1 January
2015 16 808,981 3,756 12,743 63,953 (150,147) 739,302
Loss for the
period - - - - - (1,446) (1,446)
Exchange
differences
on translating
foreign
operations - - - - (397) - (397)
------------- -------------- -------------- ---------- ------------ ----------- ------------
Total
comprehensive
expense for the
period - - - - (397) (1,446) (1,843)
At 30 June 2015
(unaudited) 16 808,981 3,756 12,743 63,556 (151,593) 737,459
------------- -------------- -------------- ---------- ------------ ----------- ------------
At 1 January
2016 16 808,981 3,756 12,743 22,016 (150,065) 697,447
Loss for the
period - - - - - (4,550) (4,550)
Exchange
differences
on translating
foreign
operations - - - - (15,666) - (15,666)
------------- -------------- -------------- ---------- ------------ ----------- ------------
Total
comprehensive
expense for the
period - - - - (15,666) (4,550) (20,216)
Transfer to
retained
deficit - - - (12,743) - 12,743 -
At 30 June 2016 16 808,981 3,756 - 6,350 (141,872) 677,231
============= ============== ============== ========== ============ =========== ============
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June 2016
Six months Six months Year ended
ended ended 31 December
30 June 30 2015
2016 June 2015
US$'000 US$'000 US$'000
Notes unaudited unaudited Audited
Operating activities
(Loss)/profit after
tax (4,550) (1,446) 82
Adjustments for:
Depreciation 3,038 1,295 4,172
Amortisation of intangible
assets 356 356 945
Loss on disposal of
plant, properties 8 - -
and equipment
Other income and finance
income (17) (64) (797)
Finance costs 8,168 7,495 15,924
Taxation (100) (110) (212)
Cash generated from
operating
activities before
changes in
working capital 6,903 7,526 20,114
Movement in inventory (26) (214) 3
Movement in trade
and other receivables 1,439 (4,348) 1,600
Movement in trade
and other payables (615) (4,144) (9,265)
------------ ------------ --------------
Net cash /generated
from/(used in) operations 7,701 (1,180) 12,452
Income tax (23) 348 (24)
------------ ------------ --------------
Net cash generated
from/(used in)
operating activities 7,678 (832) 12,428
------------ ------------ --------------
Six months Six months Year ended
ended 30 ended 31 December
June 2016 30 2015
June
2015
US$'000 US$'000 US$'000
Notes unaudited unaudited audited
Investing activities
Payments for purchase
of property,
plant and equipment (238) (284) (259)
Proceed from disposal
of property, plant 417 - -
and equipment
Payments for intangible
assets (368) - (794)
Payments for long-term
prepaid expenses (35) - 192
Share of GCZ property,
plant and equipment
purchases - (755) (2,404)
Payments for exploration
activities (5,579) (19,407) (42,319)
Interest received 17 64 121
Deposit paid to PetroChina - - (2,000)
------------ ------------ --------------
Net cash used in
investing activities (5,786) (20,382) (47,463)
------------ ------------ --------------
Financing activities
GCZ block finance - (2,645) -
repaid to PetroChina
Other interest paid (6,150) (6,151) (12,300)
Net cash used in
financing activities (6,150) (8,796) (12,300)
------------ ------------ --------------
Net decrease in cash
and cash equivalents (4,258) (30,010) (47,335)
Cash and cash equivalents
at beginning of period 26,866 80,037 80,037
------------ ------------ --------------
22,608 50,027 32,702
Effect of foreign
exchange rate changes (5,466) (622) (5,836)
------------ ------------ --------------
Cash and cash equivalents
at the end of period 17,142 49,405 26,866
============ ============ ==============
Notes to Condensed Interim Financial Statements
1 GENERAL INFORMATION
The condensed financial information for the six months ended 30 June 2016 and 30 June 2015 is unaudited and does not constitute a set of statutory financial statements. The consolidated unaudited interim financial information set out in this report represents the consolidated financial statements of Green Dragon Gas Ltd. and its subsidiary companies (together referred to as the 'Group'). The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The comparative financial information for the full year ended 31 December 2015 presented here is not the Group's full annual accounts for that period but has been derived from the annual financial statements for that period. The auditors' report on those accounts was unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report.
2 ACCOUNTING POLICIES
The interim results, which are unaudited, have been prepared in accordance with the requirements of International Accounting Standard 34. This condensed interim report does not include all the notes of the type normally included in an annual financial report. This condensed report is to be read in conjunction with the Annual Report for the year ended 31 December 2015, and any public announcements made by the Group during the interim reporting period. The annual financial report for the year ended 31 December 2015 was prepared in accordance with IFRS and the accounting policies applied in this condensed interim report are consistent with the polices applied in the annual financial report for the year ended 31 December 2015 unless otherwise noted.
Basis of preparation and going concern
These interim unaudited consolidated financial statements have been prepared on the going concern basis.
On 19 November 2014 the Company issued senior secured bonds due 20 November 2017 in the amount of $88.0 million. The associated bond agreement contains a number of financial covenants that are to be measured by reference to EBITDA and calculated at each reporting date. The Company derives EBITDA from both its own operated activity and its proportionate share of partner operated activity.
On 2 September 2016 the Company announced that it is in discussions with the Bond Trustee and certain key bondholders regarding a request for waivers of certain financial covenants. Included within that announcement, we explained that the Company has not met two of its financial covenants due to revenues and profits relating to CNOOC operated areas not being included in the financial statements. This is due to an independent audit of these amounts having not yet been completed, but is on-going and the completion of the audit not being wholly within the control of the Company. In the meantime, the Company continues to interest payments on a timely basis.
Discussions are on-going and these remain positive, in particular with our key bondholders, and the Company considers that it is likely a resolution to the covenant breach situation will be achieved in due course through the completion of the audit above or a waiver from the bondholders. In order for the bond to become payable early a formal default notice must be issued by the Bond Trustee, no default notice has been issued. Given the above, the bond has been shown as due within one year as at 30 June 2016.
In addition, the Company is actively exploring a number of financing options to satisfy the discretionary capital expenditures, and payment of both the $88.0 million Bond and the $50.0million Convertible Notes, as they fall due.
Although the Company considers it highly unlikely it is possible that the $88.0 million senior secured bond and the $50.0 million convertible note become payable at short notice and prior to their maturities which could require the Company to accelerate other financing options.
The interim financial statements are presented in United States Dollars and all values are rounded to the nearest thousand dollars (US$'000) except when otherwise indicated.
The consolidated interim financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) together with joint operations over which the Group has joint control. Control is achieved where the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Critical accounting estimates and judgments
The Group makes estimates and assumptions regarding the future. Estimates and judgments are continually evaluated based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may deviate from these estimates and assumptions. The estimates and assumptions that have a significant risk or cause a material adjustment to the carrying amounts of assets and liabilities within the period after the year/period are as follows.
CUCBM Framework Agreement
Judgment has been exercised in the recognition of the Group's share of the historic expenditure incurred by China United Coalbed Methane Gas ("CUCBM") on the Group's blocks. Further to the identification of drilling activities by third parties across several of the Group's blocks, the Group entered into a Framework Agreement signed with CUCBM in 31 March 2014 and as at 31 December 2014 had reached agreement with CUCBM regarding the historical exploration and infrastructure expenditure. CUCBM undertook significant historical exploration and infrastructure preparation work within several licence areas and incurred gross expenditure of $611,300,000. Under the PSC, the Group had the right to enforce its PSC interests in the asset but agreed to reimburse CUCBM for the Group's share of the historic expenditure by allowing CUCBM to recover its costs from ring fenced cash flows associated with the relevant wells. A constructive obligation is considered to exist given the nature of the transaction and the negotiation between the parties. The amount to be reimbursed through future cash flows from the relevant wells is considered sufficiently certain given the extent of well development, the level and nature of infrastructure in place and reserve volumes associated with the wells, although settlement remains dependent upon sufficient future production arising. Accordingly, the Group has recorded its share of the assets and a provision reflecting the Group's share of revenue entitlement that, through the enhanced cost recovery mechanism established by the Framework Agreement (Note 16), will be used to settle the Group's proportionate share of the historic CUCBM expenditure from in-kind gas production from a defined population of ring-fenced wells. The Group has exercised judgment in considering the arrangement to create an obligation and its assessment that there is a reasonable expectation that the relevant wells will generate sufficient cash flows. Further details are provided in Note 16.
The Group's arrangement with CUCBM represents a joint arrangement as the Group shares joint control with CUCBM. The Group accounts for the arrangement as a joint operation and therefore has recognised its share of the relevant assets and liabilities, which reflects the structure of the arrangement and the joint control conferred by the PSC and the Joint Management Committee.
Depreciation of gas production assets
The Group has exercised judgment in depreciating its property, plant and equipment associated with its gas assets which have achieved commercial production. These assets have been depreciated on a units-of-production basis. Judgment was required in determining the reserves used in this calculation and the Group considers the economics and well performance of each of the individual fields to determine the suitable reserves basis. The Group considers 1P reserves for its operated legacy wells on the GSS block and 2P reserves for the GCZ block to be capable of extraction using the assets and therefore an appropriate estimate of the respective asset's life. It is noted that significant 3P reserves have been estimated to exist and such reserves, when developed, would significantly extend the estimate useful life. However, 3P reserves are not included until such time as they are transferred to 2P reserves as part of the Group's independent reserves audit.
Determination of commercial production
Judgment has been exercised in determining whether the Group's exploration assets have achieved technical feasibility and commercial viability. The Group's definition of technically feasible and commercially viable reserves ("commercial reserves") for such purpose are those which are classified as proven and probable reserves on an entitlement basis for which approval has been obtained from the PRC Government in respect of the "overall development programme" related to the relevant license and thus commercial production has commenced as defined in the production sharing agreements. In certain circumstances, delays obtaining the overall development programme approval can be encountered. As a result, the Group also considers factors such as the extent to which infrastructure is in place to process the gas and the levels of actual production. As such, in addition to the PetroChina operated GCZ block which has been in production since 2013, the Group considers the operated legacy wells on the GSS block to have been in commercial production since 2015 as technical feasibility and commercial viability has been established despite the pending approval of the overall development programme. The Group's remaining areas within the GSS block will be assessed for commercial production once the Group has reviewed production volumes being generated from the recently completed processing facilities by China National Offshore Oil Corporation ("CNOOC"). Therefore, commercial production period has not yet commenced for the remaining blocks and licence areas under the Group's accounting policy.
Transfer of exploration and appraisal assets and depreciation of the gas production assets
The Group has exercised judgment in determining the relevant assets transferred from exploration and evaluation intangible assets to property, plant and equipment in respect of the producing operated legacy wells on the GSS block. The costs transferred included a portion of the fair value uplift on acquisition of the Group's licence interests as a whole considered attributable to the operated legacy wells on the GSS block, based on the relative Original Gas In Place ("OGIP") of the operated legacy wells on the GSS block and the total licence areas. The property, plant and equipment attributable to the operated legacy wells on the GSS block has been depreciated on units-of-production basis. Judgment was required in determining the reserves used in this calculation and the Group considers 1P reserves to be capable of extraction using the assets and therefore an appropriate estimate of the asset's life.
Impairment reviews
Exploration and appraisal costs are assessed for indicators of impairment using the criteria detailed in the notes to the financial statements for the year ended 31 December 2015. The assessment by the Board requires judgment and is dependent upon an assessment of the rights to the Group's assets and renewal of such rights, expected levels of expenditure, interpretation of exploration and appraisal activity in the year and future intentions. No impairment indicators were noted. These assessments are inherently judgmental and require estimation and therefore may change over time resulting in significant charges to the statement of comprehensive income.
The Group tests its property, plant and equipment assets, which include oil and gas development and production assets for impairment when circumstances suggest that the carrying amount may exceed its recoverable value and in accordance with the policy detailed in the notes to the financial statements for the year ended 31 December 2015. This assessment involves judgment as to the level of reserves that are capable of being extracted commercially and which are technically viable with reference to the Group's independent competent person's report, estimates of future gas prices, operating costs, capital expenditure necessary to extract those reserves and the discount rate to be applied to such revenues and costs for the purpose of deriving a recoverable value. The Group uses proven (1P) and probable (2P) reserves in such impairment tests.
3 REVENUE AND SEGMENTAL INFORMATION
The Group's reportable segments are as set out below. The operating results of each of these segments are regularly reviewed by the Group's chief operating decision-makers in order to make decisions about the allocation of resources and assess their performance.
During the period revenue of US$9,031,000 (30 June 2015: US$7,527,000; 31 December 2015: US$15,127,000) was recognised by the Sale of CBM gas segment in respect of 1 (30 June 2015: 1; 31 December 2015: 1) customer representing 10% or more of the Group's total revenue for the period. The average RMB/USD exchange rate for the period is 7% lower compared to the equivalent period in the prior year. The average RMB/USD exchange rate for the period ended 30 June 2016, and used for translating income statement RMB transactions for the purposes of this financial information was 6.5557 as compared to 6.1289 in the equivalent period of the prior year.
For the period ended 30 June 2016 - unaudited
Sale Retail
of CBM gas station
gas sales Corporate Sub-total Eliminations Consolidated
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Segment revenue:
Sales to external
customers 9,031 3,033 - 12,064 - 12,064
Inter-segment
sales 926 - - 926 (926) -
Government
subsidies 2,622 - - 2,622 - 2,622
-------------- ----------- ----------- -------------- --------------
12,579 3,033 - 15,612 (926) 14,686
=========== ============== =========== =========== ============== ==============
Depreciation (2,709) (318) (11) (3,038) - (3,038)
=========== ============== =========== =========== ============== ==============
Amortisation - (356) - (356) - (356)
=========== ============== =========== =========== ============== ==============
Profit/(loss)
from operations 6,779 (3,146) (1,841) 1,792 - 1,792
Other income
and finance
income 1,699 2 25 1,726 - 1,726
Finance costs 3 115 (8,286) (8,168) - (8,168)
Income tax
credit 21 79 - 100 - 100
Profit/(loss)
for the period 8,502 (2,950) (10,102) (4,550) - (4,550)
=========== ============== =========== =========== ============== ==============
Assets 1,417,483 30,697 753,839 2,202,019 (857,512) 1,344,507
=========== ============== =========== =========== ============== ==============
Liabilities 727,099 30,491 526,448 1,284,038 (616,762) 667,276
=========== ============== =========== =========== ============== ==============
For the period ended 30 June 2015 - unaudited
Sale Retail
of CBM gas station
gas sales Corporate Sub-total Eliminations Consolidated
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Segment revenue:
Sales to
External
customers 11,912 4,871 - 16,783 - 16,783
Inter-segment
sales 5,111 - - 5,111 (5,111) -
Government
subsidies 3,315 - - 3,315 - 3,315
20,338 4,871 - 25,209 (5,111) 20,098
Depreciation (1,149) (138) (8) (1,295) - (1,295)
=========== ================ =========== =========== ============== =====================
Amortisation - (356) - (356) - (356)
=========== ================ =========== =========== ============== =====================
Profit/(loss)
from operations 10,056 (1,276) (3,317) 5,463 - 5,463
Other income
and
finance income 3 2 471 476 - 476
Finance costs - - (7,495) (7,495) - (7,495)
Income tax
credit 21 89 - 110 - 110
Profit/(loss)
for the period 10,080 (1,185) (10,341) (1,446) - (1,446)
=========== ================ =========== =========== ============== =====================
For the year ended 31 December 2015 - audited
Sale Retail
of CBM gas station
gas sales Corporate Sub-total Eliminations Consolidated
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Segment revenue:
Sales to external
Customers 15,127 17,588 - 32,715 - 32,715
Inter-segment
sales 10,874 - 25 10,899 (10,899) -
Government
subsidies 5,000 - - 5,000 - 5,000
31,001 17,588 25 48,614 (10,899) 37,715
Depreciation (3,495) (608) (69) (4,172) - (4,172)
=========== ============== ============ =========== ============== ==============
Amortisation - (945) - (945) - (945)
=========== ============== ============ =========== ============== ==============
Profit/(loss)
from
Operations 18,473 (2,656) (820) 14,997 - 14,997
Other income
and
finance income - 113 684 797 - 797
Finance costs - (469) (15,455) (15,924) - (15,924)
Income tax
credit 123 89 - 212 - 212
Profit/(loss)
for the year 18,596 (2,923) (15,591) 82 - 82
Sale Retail
of CBM gas station
gas sales Corporate Sub-total Eliminations Consolidated
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Assets 1,338,275 23,844 857,023 2,199,142 (846,495) 1,372,647
Liabilities 533,374 4,958 626,548 1,164,880 (509,680) 655,200
=========== ============== ============ =========== ============== ==============
These financial statements do not include the Group's share of CNOOC GSN transactions or operated GSS 1,388 wells' revenue, associated costs and resulting margins. During 2015 CNOOC commissioned two additional gas gathering and sales stations in GSS. The sales revenues and volumes associated with the CNOOC operated areas of GSS and GSN will be reported in due course as they are currently being audited by independent auditors. The audit will complete the sales revenue since inception of the sales from all wells operated by CNOOC in GSS under the Framework Agreement. Under the Framework Agreement, while the Company will record its share of revenue, costs and resulting margins, the resulting cash flow will be offset with the cost recovery account. The Group has not recorded any estimated sales revenue from its interest in the CNOOC legacy wells until such time as the independent audit of sales revenues and associated volumes is concluded.
4 EARNINGS AND (LOSS) PER SHARE
The calculation of basic and diluted (loss)/profit per share attributable to the owners of the Company is based on the following data:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2016 2015 2015
US$'000 US$'000 US$'000
unaudited unaudited audited
(Loss)/profitfor the
period attributable
to the owners of the
Company used in basic
and diluted (loss)/earnings
per share (4,550) (1,446) 82
============= ============= ==============
Weighted average number
of ordinary shares
for the basic and diluted
(loss)/earnings per
share 156,072,289 156,072,289 156,072,289
============= ============= ==============
Loss per share is based on the loss attributable to ordinary equity holders of the Company of divided by the weighted average of ordinary shares in issue during the corresponding period.
No separate calculation of diluted profit/(loss) per share has been presented as, at the date of this financial information, no options, warrants or other instruments that could have a dilutive effect on the share capital of the Company were outstanding.
5 DIVIDS
The directors do not recommend the payment of an interim dividend during the period ended 30 June 2016 and year ended 31 December 2015.
6 PROPERTY, PLANT AND EQUIPMENT
Fixtures,
Gas Building Construction Motor fittings
assets and structures in progress vehicles and equipment Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January
2015 165,794 1,041 1,978 899 4,566 174,278
Additions 3,055 - 132 1,185 160 4,532
Transfer from
gas exploration
& appraisal
assets 121,010 - - - - 121,010
Exchange differences (7,001) - - - - (7,001)
At 31 December
2015 282,858 1,041 2,110 2,084 4,726 292,819
Additions - - 216 - 22 238
Share of CUCBM
additions 2,304 - - - - 2,304
Disposal - - (421) (71) - (492)
Exchange differences (2,887) (11) (22) (21) (48) (2,989)
At 30 June
2016 282,275 1,030 1,883 1,992 4,700 291,880
Depreciation
At 1 January
2015 14,114 406 - 717 1,227 16,651
Provided for
the year 3,495 41 - 151 485 4,172
At 31 December
2015 17,609 447 - 868 1,899 20,823
Provided for
the period 2,673 25 - 143 197 3,038
Disposal - - - (67) - (67)
Exchange differences (180) (5) - (9) (19) (213)
At 30 June
2016 20,102 467 - 935 2,077 23,581
=========== ================== ================ ============ ================ ===========
Net book value
At 30 June
2016 262,173 563 1,883 1,057 2,623 268,299
=========== ================== ================ ============ ================ ===========
At 31 December
2015 265,249 594 2,110 1,216 2,827 271,996
=========== ================== ================ ============ ================ ===========
7 GAS EXPLORATION AND APPRAISAL ASSETS
Cost US$'000
At 1 January 2015 1,157,915
Additions 31,949
Capitalisation of internal
costs 10,370
Share of gas exploration
and appraisal assets
from CUCBM 23,012
Transfer to property,
plant and equipment (121,010)
Exchange differences (58,377)
-------------
At 31 December 2015 -
audited 1,043,859
Additions 2,744
Capitalisation of internal
costs 2,835
Share of gas exploration
and appraisal assets
from CUCBM 594
Exchange differences (18,806)
-------------
At 30 June 2016 1,031,226
=============
8 TRADE AND OTHER RECEIVABLES
As at As at
30 June 31 December
2016 2015
US$'000 US$'000
unaudited audited
Trade receivables 1,364 1,933
Prepayments 3,045 3,367
Other receivables 5,087 5,817
Amount due from related
parties 11,543 11,361
----------- --------------
21,039 22,478
=========== ==============
9 TRADE AND OTHER PAYABLES
As at As at
30 June 31 December
2016 2015
US$'000 US$'000
unaudited audited
Trade payables 10,448 10,654
Other payables 2,842 3,319
Amounts due to related
parties 1,508 1,440
----------- --------------
14,798 15,413
=========== ==============
10 CONVERTIBLE NOTES
As at As at
30 June 31 December
2016 2015
US$'000 US$'000
unaudited audited
Brought forward from
prior year 48,398 47,243
Accrued interest 2,364 4,655
Interest payment (1,750) (3,500)
----------- --------------
49,012 48,398
=========== ==============
As at 30 June 2016, the Company had one (31 December 2015: one) convertible note in issue.
Convertible loan note issued 2014
(a) US$50 million 7% coupon convertible note due 2017
On 2 June 2014 ("Issue Date"), the Company issued a three-year convertible note having a face value of US$50,000,000 with a maturity date of 1 June 2017 ("Maturity Date"). The note bears interest at 7% per annum, payable on a semi-annual basis. At the Maturity Date, the total sum of 100% of the outstanding principal amount of the convertible note and the accrued interest shall become payable, unless previously converted or redeemed.
The convertible note can be converted into ordinary shares of the Company at the note holder's option at any time prior to the Maturity Date at US$9.34 per share.
(b) Accounting for convertible notes
On initial recognition, the fair value of the liability component of the convertible loan note was determined using the prevailing market interest rate of similar debts without conversion option. For notes issued during 2014, the rate considered to be comparable was 10%. The loans are subsequently carried at amortised cost.
The equity element arising from the conversion options of their convertible notes, being the residual value at initial recognition, is presented in the equity heading "convertible note equity reserve".
11 BONDS AND DERIVATIVE FINANCIAL INSTRUMENT
On 19 November 2014, Green Dragon Gas issued a public corporate bond (the "Bond") in the amount of US$88,000,000. The bond was issued at a discount of 2.5% and is senior secured three-year paper due on 20 November 2017. The Bond carries a 10% coupon payable semi-annually and also carries a redemption premium of 2% at maturity. The Company has a right to redeem the Bond early at 103% of par at the 24th month anniversary. The Bond is secured by a pledge over the shares of Greka Gas China, a wholly-owned subsidiary of Green Dragon Gas. The bond was initially recorded at fair value and is subsequently carried at amortised cost. Issue fees of US$1,893,000 were offset against the principal amount of the bond and will be amortised as part of the effective interest rate charge to the maturity date. The redemption premium is amortised as part of the effective interest rate charge to the maturity date. The following table summarises the movements in the bond:
As at As at
30 June 31 December
2016 2015
US$'000 US$'000
unaudited audited
Brought forward from
prior year 86,807 85,072
Accrued interest 5,336 10,535
Interest payment (4,400) (8,800)
----------- --------------
87,743 86,807
=========== ==============
12 PROVISIONS
Details regarding the provision, along with movements in the year have been disclosed in Note 16. At 30 June 2016, US$364,855,000 (31 December 2015: US$370,217,000) represents the value of future production related to the enhanced cost recovery from the ring-fenced CUCBM legacy wells that the Group has agreed in the Framework Agreement with CUCBM will be used to satisfy the Group's proportionate share of investment made by CUCBM in GSS. The balance will be paid in kind from future production. There is no constructive or substantive obligation on the Group to repay these amounts in cash should future production from the ring-fenced legacy wells be insufficient to recover the balance.
No discounting has been applied to the provision as it bears interest at 9.0%.
The CUCBM provision also includes US$13,000,000 (2014: US$13,000,000) in respect of exploration costs incurred by CUCBM prior to the PSC period. This balance is to be settled from the Group's share of future production from Shizhuang South or could be paid in cash at any time. The amount is unsecured and does not bear interest. Discounting is considered to be immaterial. On satisfaction of the payable the Group's interest in the GSS PSC will be revised to 70% (currently 60%).
13 SHARE CAPITAL AND RESERVES
Authorised Issued and fully
paid
Number Number
of shares US$ of shares US$
At 1 January 2015,
31 December 2015
and 30 June 2016
ordinary shares
of US$0.0001 each 500,000,000 50,000 156,072,289 15,607
============= ======== ============= ========
Nature and purpose of reserves
(i) Share premium
The amount relates to subscription for or issue of shares in excess of nominal value. The application of the share premium account is governed by the Companies Law of the Cayman Islands.
(ii) Convertible note equity reserve
The amount represents the value of the unexercised equity component of the convertible note issued by the Company recognised in accordance with the Group's accounting policy.
(iii) Share based payment reserve
The amount relates to the fair value of the share options that have been expensed through the income statement less amounts, if any, that have been transferred to the retained earnings/deficit upon exercise.
(iv) Foreign exchange reserve
The amount represents gains/losses arising from the translation of the financial statements of foreign operation the functional currency of which is different from the presentation currency of the Group.
(v) Retained deficit
The amount represents cumulative net gains and losses recognised in consolidated profit or loss less any amounts reflected directly in other reserves.
14 RELATED PARTY TRANSACTIONS
Save as disclosed in notes 8, 9, 11 and 16, there were no other related party transactions that are required to be disclosed. Transactions between the company and its subsidiary undertakings, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The related party transactions of the Group during the period include the following:
-- Amounts due from related parties of US$9,512,000 (31 December 2015: US$9,587,000) and amounts due to related parties of US$1,508,000 (31 December 2015: US$1,440,000) are companies that are subsidiaries of Greka Drilling Ltd. and Greka Engineering & Technology Ltd. which are companies under common control. The Group has contracts with both companies regarding drilling services and gas processing respectively. All amounts due from related parties are unsecured, interest free and repayable on demand.
-- Amounts due from CNPC of US$2,031,000 (31 December 2015: Amounts due from CNPC of US$1,774,000), which is a party to the production sharing contracts on the activities of exploration, development and production of coal bed methane, in respect of exploration costs incurred. The balance is unsecured and interest-free.
-- Amounts due to CUCBM under the Framework Agreement. These are detailed in Note 16. 15 EVENTS AFTER REPORTING DATE
Other than the matters noted in the basis of preparation and going concern paragraph in note 2 to the financial information there were no significant events occurring after 30 June 2016 up to the date of the Group's interim report for the period ended 30 June 2016 that require to be disclosed..
16 JOINT ARRANGEMENTS
The Group currently operates under six (2015: six) production sharing contracts ("PSCs") for the exploration and development of CBM gas in the PRC.
Background
On 8 January 2003, the Group entered into four PSCs with CUCBM to explore, develop and produce coal bed methane in five blocks comprising Shizhuang South ("GSS"), Chengzhuang ("GCZ"), Shizhuang North ("GSN"), Qinyuan ("GQY") and Panxie East ("GPX"). GSS, GCZ, GSN and GQY are located in Shanxi Province with PanxieEast located in Anhui Province.
In 2003 the Group also obtained the rights as foreign contractor related to the Fengcheng ("GFC") PSC. This PSC, dated 13 August 1999, was originally entered between Saba Petroleum Inc. as foreign contractor and CUCBM. Saba Petroleum Inc. was a related company of the Group by way of the common controlling shareholder, Mr. Randeep S. Grewal. The GFC block is located in Jiangxi Province.
Under the terms of these five PSCs the Group, as operator, agreed to provide funds and apply its technology and managerial experience and to cooperate with CUCBM to explore, develop and produce coal bed methane from the licence areas. CUCBM as a state-owned enterprise is eligible to apply for the exclusive rights for the exploitation of coal bed methane in the areas as defined in the contracts.
The PSCs provide that all costs incurred in the exploration stage shall be borne by the Group. The terms of the PSCs require the Group to cooperate with the state partner to submit the Overall Development Plan to the relevant authorities. Upon approval of the ODP by the Chinese authorities, the PSC operations are determined to have entered the commercial production stage. However, as detailed in Note 2 in circumstances when the approval of ODP is delayed other factors, including the substantive nature of operations and cash generation, may be considered to determine whether the commercial production stage has been reached regardless of formal ODP approval.
Where it is determined that an asset is in the development stage based on facts and circumstances then the associated investment balance is reclassified from the exploration and appraisal category to the property, plant and equipment category of fixed assets. The responsibility for procuring approval of the ODP lies with the State partner. Once formally in the development stage the cost sharing mechanisms within the PSCs become effective and development and operating costs are borne by the partners in accordance with their respective equity interests in the relevant PSCs. Once production commences the cost recovery mechanism within the PSCs provides that the proceeds of production output (after deduction of value-added tax and any royalty payable to the Chinese tax authority) are allocated as follows:
-- firstly towards operating costs recovery in the proportion above mentioned (the "Sharing Proportion");
-- secondly to exploration cost recovery; and -- thirdly to development cost recovery (including deemed interest as appropriate).
Any unallocated revenue after cost recovery is allocated to the partners in accordance with their equity participation in the PSC after calculating a final royalty payable to the Chinese Authorities. The final royalty is based on a sliding scale from 0% to the maximum payable of 15% and calculated over total block production.
The five PSCs each have a term of 30 years, with a production period of not more than 20 consecutive years commencing on a date determined by the Joint Management Committee but aligned with the approval date of ODP. The JMC is established in accordance with the PSC between the Group and CUCBM to oversee the operations in the contracted area. Currently all the six blocks covered by these five production sharing contracts are formally in the exploration stage based on the Chinese requirement for ODP approval before transition to development. In 2015 the assets associated with area 4 within the GSS block were reclassified as property, plant and equipment due to the substantive nature of the production operations and associated cash generation from this area.
PSCs held with PetroChina (CNPC)
Chengzhuang block ("GCZ")
In August 2014, the Group finalised and signed the Cooperation Agreement with PetroChina in respect of the GCZ block in accordance with a memorandum of understanding previously entered in December 2013. GCZ lies within the GSS licence area and prior to the Cooperation Agreement was governed by the GSS PSC. The Cooperation Agreement reaffirms the rights of the Group contained in the PSC over the GCZ block. The Cooperation Agreement confirms the Group's 47% participating interest in the block and defines the term of the agreement as running from March 2010 to March 2033.
The Cooperation Agreement confirmed the Group's contribution to cumulative capital expenditure and its share of net revenue. The Cooperation Agreement also confirmed the Group's entitlement to its share of the downstream infrastructure assets in place, including the gas gathering station, together with the Group's funding obligation for those assets. The Group recorded US$10,900,000 within property, plant and equipment in respect of its 47% share in these assets in 2014 based on the final agreement of the costs associated with the downstream infrastructure. The Group also elected to settle its obligation for all historic amounts due to PetroChina through its share of future production.
In 2015 PetroChina achieved cost recovery in respect of its historic investment in the GCZ block. Following cost recovery by PetroChina the Group is receiving its proportion of revenue in cash each month. As a result, the billing arrangements for GCZ have moved to a full joint operations basis where the Group receives its share of revenue on the conclusion of each month and is separately cash-called for its share of opex and capex on a month-ahead basis. Cash calls are reconciled to actual expenditure quarterly.
The following table summarises the Group's share of the capital expenditure and net revenues arising from the GCZ block for the current and prior year. Depreciation figures have been excluded.
31 December
30 June 2015
2016 US$'000
US$'000
Capital expenditure 55 2,404
=========== =============
Revenue and other income 6,523 15,126
Total operational costs
and expenses (1,740) (3,248)
----------- -------------
Net Profit 4,783 11,878
=========== =============
Amount due from/(to) PetroChina
Opening balance 1,774 (4,407)
Capital expenditure for
GCZ block (55) (2,404)
Share of profit for GCZ
block 4,783 11,878
Cash received (4,471) (3,293)
----------- -------------
Closing balance 2,031 1,774
=========== =============
The balance due from PetroChina is included within trade and other receivables, is unsecured and interest free.
Baotian-Qingshan block ('GGZ')
In addition, GrekaGuizhou E&P Ltd, a subsidiary of the Company, is party to a PSC with PetroChina to explore for and develop coal bed methane resources in Guizhou Province. The Group has a 60% participating interest in GGZ and has provided a performance bond against its pilot exploration programme commitment in the amount of US$2,000,000. At 30 June 2016, the cumulative net investment made by the Group in GGZ was US$28,847,000 (31 December 2015: US$30,287,000), of which US$55,000 was invested in the six months ended 30 June2016.
PetroChina is a subsidiary of state-owned China National Petroleum Corporation (CNPC), headquartered in Dongcheng District, Beijing.
PSCs held with CUCBM (CNOOC)
Framework Agreement with CUCBM
On 31 March 2014, and following the identification of unauthorised drilling activities across several of the Group's blocks by CUCBM, the Group entered a Framework Agreement CUCBM the purpose of which was to amend and clarify the rights of both the Group and CUCBM in relation to the PSCs jointly held between the parties. Under the terms of the Framework agreement, the Group's percentage shares in the relevant blocks were updated and confirmed as follows:
PSC GDG CUCBM
share share
-------------- -------- -------- ------------------------------
GDG share increasing to 70%
Shizhuang on payment of US$13,000,000
South 60% 40% to CUCBM
Shizhuang
North 50% 50%
Quinyan
Area A 10% 90%
Quinyan
Area B 60% 40%
Fengcheng 49%* 51%
Panxie East 60%* 40%
-------------- -------- -------- ------------------------------
* unchanged
The Framework Agreement reaffirmed the status of the PSC's. Under the PSCs, the exploration costs were due to be incurred by the Group, with the Group carrying the exploration risk and the associated costs being recovered from future production. Notwithstanding the terms of the PSC, CUCBM undertook significant unauthorised exploration work within the licence area incurring gross expenditure of US$611,300,000 related to the drilling of wells and the establishment of certain infrastructure across the PSC blocks.
Under the PSC, the Group had the legal right to enforce its interest in the asset as if it had been incurred 100% by the Group in the exploration phase and benefit accordingly from the costs incurred by CUCBM. However, as part of the negotiation of the Framework Agreement the Group agreed to reimburse CUCBM for what otherwise would have represented the Group's share of the historic expenditure by allowing CUCBM to recover its historic costs in kind from an enhanced participation share (over and above CUCBMs equity interest in the PSC) in ring-fenced gas production from the relevant wells. A constructive obligation related to the agreement to reimburse CUCBM in kind is considered to exist given the nature of the transaction and the substance of the negotiation between the parties.
The amount to be reimbursed through future production from the ring-fenced wells is considered sufficiently certain given the status of well development, the extent of in-place infrastructure and estimated reserves associated with the wells. Accordingly, the Group has recorded its proportionate share of the assets in accordance with its equity interest in the PSC. A provision representing the estimated value of production from the ring-fenced wells that the Group will forgo in order to settle its share of the costs incurred has also been recorded.
Settlement remains dependent upon sufficient future production arising from the ring-fenced wells.
The following table summarises the CUCBM provision which also represents the Group's cumulative share of capital expenditure:
Six months Year ended
ended 31 December
30 June 2015
2016 US$'000
US$'000
Opening balance 370,217 367,027
Capital additions in the
period 2,898 23,012
FX (gain)/loss (8,260) (19,822)
------------ --------------
Closing provision for
amounts due to CUCBM 364,855 370,217
============ ==============
The cumulative expenditure by CUCBM across the PSCs, which the Group is reimbursing through future production, bears interest at 9%. No discounting of the provision applies given the interest bearing nature. No entries have been made in relation to the interest as the Group remains in discussions with CUCBM over accounting for the interest.
Under the original Shizhuang South PSC and as reaffirmed by the Framework Agreement US$13,000,000 included within provisions (2015: US$13,000,000) represent amounts payable to CUCBM in respect of exploration costs incurred by CUCBM on GSS prior to the original PSC between the parties. This amount is to be settled out of the Group's share of future revenue from the Shizhuang South Block. The balance is unsecured, interest-free and is not expected to be repayable within the next 12 months. Discounting is considered immaterial. On satisfaction of the payable to CUCBM, the Group's interest in the GSS PSC will be revised to 70%. The obligation is classified as a provision given the uncertain nature of its timing.
Shizhuang North PSC
Under the terms of the Framework Agreement, the Group agreed to reduce its interest in the GSN Block by 10% in return for CUCBM providing the Group with a carried interest of US$100,000,000 related to exploration and development expenditure across the block. The Group has incurred US$7,700,000 on the block which is currently held as exploration asset. No gain in respect of the committed future expenditure as compared to the 10% interest in the Group's existing assets has been recognised under the Group's accounting policy.
CUCBM is majority owned by China National Offshore Oil Corp and is headquartered in Dongcheng District, Beijing.
17 DEFERRED TAXATION
(a) Deferred tax assets
US$'000
---------
At 1 January 2015 2,241
Reversal of temporary difference 178
Exchange differences (250)
---------
At 31 December 2015 2,169
Reversal of temporary difference 64
Exchange differences (43)
At 30 June 2016 2,190
=========
(b) Deferred tax liabilities
US$'000
At 1 January 2015 163,478
Reversal of temporary difference (9)
Exchange differences (9,117)
---------
At 31 December 2015 154,352
Reversal of temporary difference (46)
Exchange differences (3,438)
---------
At 30 June 2016 150,868
=========
31 December
30 June 2015
2016 US$'000
US$'000
Recognised deferred tax
(liabilities) and assets
at PRC rate of 25%
Deferred tax assets and
liabilities are attributable
to the following:
Fair value adjustments
in exploration and evaluation
assets 150,868 154,352
=========== =============
Tax losses - overseas 2,190 2,169
=========== =============
Unrecognised deferred
tax assets
Deferred tax assets have
not been recognised in
respect of the following:
Tax losses - overseas 2,863 888
=========== =============
Potential unrecognised
tax benefit at PRC rate
of 25% 716 222
=========== =============
The deductible temporary timing differences do not expire under current tax legislation. PRC tax losses expire after five years. The Group has not offset deferred tax assets and liabilities across different jurisdictions.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the Condensed Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting, and give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
(b) the Interim Management Report includes a fair review of the information required by FCA's Disclosure and Transparency Rules (DTR 4.2.7 R and 4.2.8 R).
On behalf of the Board
Randeep S. Grewal
Founder & Chairman
29 September 2016
Interim Review Report for Green Dragon Gas Ltd.
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, the condensed consolidated statement of cash-flows and the related notes.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
BDO LLP
Chartered Accountants
Location
United Kingdom
29 September 2015
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
DIRECTORS, COMPANY SECRETARY AND ADVISORS
DIRECTORS
Randeep S. Grewal
Executive Director, Chairman and CEO
David Turnbull
Non-Executive Director
Wayne Roberts
Non-Executive Director
Stewart John, OBE
Non-Executive Director
Gong Da Bing
Non-Executive Director
LEGAL ADVISORS
As to Chinese Law
Guantao Law Firm
17/F, Tower 2,
Yingtai Center, NO. 28,
Finance Street, Xicheng District,
Beijing 100140, P R China
As to Cayman Islands & BVI Law
Travers Thorp Alberga
1205A The Centrium
60 Wyndham Street
Central Hong Kong
As to English Law
Memery Crystal LLP
44 Southampton Buildings
London WC2A 1AP
REGISTERED OFFICE
PO Box 472
Harbour Place 2(nd) Floor
103 South Church Street
George Town
Grand Cayman KY1-1106
Cayman Islands
COMPANY SECRETARY
International Corporation Services Ltd.
CORPORATE BROKERS
Citigroup
Citigroup Centre
Canary Wharf
London E14 5LB
Peel Hunt
Moor House
120 London Wall
London EC2Y 5ET
AUDITORS
BDO LLP
55 Baker Street
London W1U 7EU
INVESTOR RELATIONS
Instinctif Partners
65 Gresham Street
London EC2V 7NQ
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LPMPTMBMTBIF
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September 29, 2016 02:00 ET (06:00 GMT)
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