Green Dragon taps market for US$102.8m

PUBLISHED : Monday, 06 December, 2010, 12:00am
UPDATED : Monday, 06 December, 2010, 12:00am

Green Dragon Gas, a developer of projects to extract natural gas from coal seams on the mainland, has raised US$102.8 million through an institutional share placing.

The London Alternative Investment Market-listed company, which plans to list on Hong Kong's main board next year, placed 8.8 million new shares - equivalent to 7.3 per cent of its existing capital base - at US$11.68 each through investment bank CLSA.

The proceeds, raised from undisclosed institutional investors, will be used to fund the purchase of 25 drilling rigs to add to its existing seven rigs. Their delivery is expected to be completed by the end of next year, which will accelerate its US$250 million two-year drilling programme.

The company's shares closed on Friday on the London secondary board at US$11.85.

Green Dragon aims to raise its annual gas production to 18 billion cubic feet by 2013 from 1 bcf this year. It plans to sell the gas in compressed or liquefied form to be trucked to customers or through pipelines.

The company has six projects, located in Shanxi, Jiangxi, Anhui, and Guizhou provinces, with total geological gas resources of 25.5 trillion cubic feet (tcf).

It is assessing the amount of economically recoverable gas by drilling more wells.

According to research by United States-based brokerage Sanford Bernstein, its proven recoverable reserves stand so far at 2.3 tcf and it is expected to drill 120 wells in the next 18 months to raise output.

As a foreign firm, it has to enter into so-called production sharing contracts with stated-owned PetroChina and China United Coal Bed Methane - a unit of China National Coal, the parent of listed China Coal Energy. Under the contracts, the foreign investor funds the exploration drilling and bears all the risks, and must share the output with the domestic partner once economic reserves are found.

But the foreign party can recover its exploration and development expenses before output sharing begins.

Green Dragon has 60 per cent stakes in four projects, and 49 per cent holdings in the remaining two.

Its latest fund-raising exercise came after partner ConocoPhillips opted not to exercise an option to take a 50 per cent share in its three Shanxi projects.

The US energy major was entitled to half the development rights in the project once it provided U$50 million of funding, but it chose to stop after putting in US$42.63 million. Had it gone through with the option, Green Dragon would have received US$170 million from ConocoPhillips to fund the projects.

Green Dragon has a 50-50 joint venture with Australian drilling firm Mitchell Drilling to deploy the latter's technology on the mainland.

In addition to drilling, Green Dragon also has a 28.9 per cent stake in gas distributor Beijing Huayou, which is majority-owned by Hong Kong-listed Kunlun Energy, a subsidiary of PetroChina.

Huayou owns pipeline networks in Beijing's suburbs, as well as Qihe in Shandong province and Suizhong in Liaoning province.

Green Dragon also runs 20 compressed natural gas stations in Henan province, and plans to build 28 more. It posted a net loss of US$30 million last year after a loss of US$23 million in 2008.

New capital

Green Dragon Gas sells 8.8 million new shares to institutional investors

The size of the share placement that is equivalent to its existing capital base: 7.3%