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Cash slimming at Green Dragon

The China-based coal-bed methane gas producer continues to build its assets, though the cash pile has slimmed
April 27, 2016

For the 10th year in a row, full-year results for China-focused Green Dragon Gas (GDG) showed an increase in its coal-bed methane reserves. Specifically, a 29 per cent net increase in proven and probable (2P) reserves to 549bn cubic feet (bcf) - a considerable amount, particularly as the company sold just 3.7bcf last year.

IC TIP: Hold at 265p

But what Green Dragon may lack in volume sales, it makes up for in predictable long-term regional contracts and pricing, which currently average $10 (£6.80) per thousand cubic feet. This feature of China's domestic gas market is one of the reasons BP (BP.) signed a shale gas production deal with state-backed China National Petroleum Corporation (CNPC) last month. Understandably, Green Dragon chief executive Randeep Grewal is keen to trumpet the comparison with his company's production sharing contracts, which cover an area more than five times the size of the BP-CNPC tie-up.

Against a falling cash pile; non-restricted cash reserves declined from $80m to $26.9m from a year earlier. Green Dragon is also looking to build its own partnerships. Mr Grewal confirmed the group is considering its debt and equity financing options, as well as possible farm-out deals, to develop its assets.

Prior to these results, analysts at Edison were forecasting an adjusted full-year pre-tax profit of $23.1m, against a $0.2m loss in 2015.

GREEN DRAGON GAS (GDG)

ORD PRICE:265pMARKET VALUE:£414m
TOUCH:255-265p12-MONTH HIGH:375pLOW: 200p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:447¢NET DEBT:16%

Year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201175.2-25.2-20.5nil*
20128.1-16.8-13.1nil
201362.2-34.8-25.1nil*
201432.7-0.13-0.01nil
201533.8-36.3-22.9nil
% change+3---

*Excludes dividends paid in specie, comprising three shares in Greka Drilling and Greka Engineering £1=$1.46