There is certainly no shortage of state-sponsored incentives for producers such as CNPC. Beijing has been encouraging domestic energy companies to boost natural gas production to counter soaring demand during the winter months; a problem exacerbated by inadequate transportation and gas storage facilities. And with private car ownership expanding rapidly, Chinese authorities have prioritised the roll-out of LNG-fuelled vehicles in a bid to improve the notoriously poor air quality of the country's urban spaces. CNPC has previously stated that domestic production should treble over the next 20 years, although imports will also need to increase substantially. The likes of Sinopec and CNOOC are already developing LNG facilities along China's eastern coast to meet rising demand.
Shares in Greka fell by 81 per cent peak-to-trough last year, possibly as a result of funding issues, but have rallied strongly on the back of the two new deals. Greka now has its initial optimum rig count at its disposal, although this could conceivably increase if there is a marked step-up in third-party deals. Macquarie Equities gives a discounted cash-flow valuation of 36p a share, and we still agree that last year's de-rating was overly severe. Greka shares, trading at 13.75p on a forward multiple of three, remain a buy.
Last IC view: Buy, 18.5p, 4 Sep 2012