REG - Green Dragon Gas Ltd - Audited results - year ended 31 December 2015 <Origin Href="QuoteRef">GDG.L</Origin> - Part 2
27/04/2016 07:07
- Part 2: For the preceding part double click ID:nRSa4644Wa
December
2015 2014
US$'000 US$'000
Auditors' remuneration:
Fees payable to the Company's auditors for the audit of the annual financial
statements 385 360
Fees payable to the Company's auditors for the review of the interim results
40 39
Staff costs (note 7)
1,357 3,832
Depreciation of property, plant and equipment
4,172
4,867
Operating lease expense (property)
370
1,231
Amortisation of intangible assets
945
713
Reversal of provision for ConocoPhillips interest and penalties
- (6,937)
________ ________
5 OTHER INCOME AND FINANCE INCOME
Year ended Year ended
31 December 31 December
2015 2014
US$'000 US$'000
Bank interest
121 4
Exchange gain
303 101
Sundry income
373 -
________ ________
797 105
________ ________
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
6 FINANCE COSTS
Year ended Year ended
31 December 31 December
2015 2014
US$'000 US$'000
Convertible notes (coupon at 7% plus effective interest adjustments)
4,655 3,902
Bonds (coupon at 7% plus effective interest adjustments)
- 7,060
Bonds (coupon at 10% plus effective interest adjustments)
10,535 1,166
Exchange loss
734 -
________ ________
15,924 12,128
________ ________
7 STAFF COSTS
Year ended Year ended
31 December 31 December
2015 2014
US$'000 US$'000
Staff costs (including Directors' emoluments) comprise:
Wages and salaries
5,841
7,125
Employer's national social security contributions
1,134
396
Other benefits
1,181 1,231
________ ________
8,156 8,752
Less: expenses capitalised as gas exploration and
appraisal assets
(6,799) (4,920)
________ ________
Total staff costs charged to profit or loss (note 4)
1,357
3,832
________ ________
8 SHARE-BASED PAYMENTS - PRIOR YEARS
Details of the Group's share options as follows:
Number of share options granted historically
3,408,750
Number of share options exercised historically
(2,029,375)
________
Number of share options outstanding at 1 January 2014,
31 December 2014
1,379,375
________
Number of share options outstanding at 31 December 2015
-
________
The share options granted under the Share Option Scheme are equity-settled.
The share options do not confer any rights on the holders to dividends or to
vote at shareholders' meetings. The fair value of the share options granted
was calculated using the Black-Scholes pricing model. The inputs into the
model were as follows:
Share options granted on 25
January 31 December 28 February 1 October
2011 2009 2008
2008
Weighted average share price US$11.13
US$6.67 US$6.04 US$8.25
Weighted average exercise price US$6.50
US$6.50 US$6.50 US$6.50
Expected volatility
35% 25% 39%
44%
Risk free rate
0.27% 2.76% 3.08%
4.06%
Expected dividend yield
N/A N/A N/A
N/A
The volatility assumption, measured at the standard deviation of expected
share price returns, was based on a statistical analysis of daily share prices
over the year prior to grant.
The 1,379,375 outstanding share options since 1 January 2012, which had a
weighted average exercise price of US$6.5 fully expired on 31 December 2015.
9 TAXATION
Year ended Year ended
31 December 31 December
2015 2014
US$'000 US$'000
Current tax - PRC Enterprise Tax
Tax creditforthe current year
(25)
(47)
Deferred tax
Temporary timing differences
(9)
(581)
Previously unrecognised deferred tax assets assessed
as recoverable at the end of the year
(178)
178
________ ________
Total tax credit
(212) (450)
________ ________
Other comprehensive income includes a charge of US$Nil (2014: credit,
US$396,000) in respect of deferred tax movements on exchange gains and on the
retranslation of foreign subsidiaries.
The reasons for the difference between the actual tax charge for the year and
the standard rate of corporation tax in the Cayman Islands applied to the loss
for the period are as follows:
Year ended Year ended
31 December 31 December
2015 2014
US$'000 US$'000
Accounting loss before tax
(130)
(36,263)
Expected tax credit based on the standard rate
of corporation tax in the PRC of 25%
(2014:25%)
(32) (9,065)
Effect of:
Different tax rates applied in overseas jurisdictions
57
9,112
Temporary differences applied in overseas jurisdictions
at different tax rates
(237) (403)
________ ________
Income tax credit
(212) (450)
________ ________
Taxation for the Group's operations in the PRC is provided at the applicable
current tax rate of 25% (2014: 25%) on the estimated assessable profits for
the year.
10 EARNINGS AND LOSS PER SHARE
The calculation of basic and diluted loss per share attributable to owners of
the Company is based on the following data:
Year ended Year ended
31 December 31 December
2015 2014
US$'000 US$'000
Profit/(loss) for the year attributable to
owners of the Company used in basic and diluted earnings/(loss) per share
82 (35,813)
________ ________
Year ended Year ended
31 December 31 December
2015 2014
Number Number
Weighted average number of ordinary shares for basic and diluted earnings per
share 156,072,289 156,072,289
Year ended Year ended
31 December 31 December
2015 2014
Basic and diluted earnings/(loss) per share (US$)
0.0005 (0.229)
________ ________
There have been no other transactions involving Ordinary Shares or potential
Ordinary Shares between the reporting date and the date of approval of these
financial statements.
11 JOINT ARRANGEMENTS
The Group currently operates under five (2014: five) 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
Panxie East 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 development stage. However, as
detailed in note 3 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 development 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
abovementioned (the "Sharing Proportion"),
· secondly to exploration cost recovery solely by the Group, 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 thirty years, with a production period of
not more than twenty 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 PSC requirement for ODP approval before
transition to production period . In 2015 the assets associated with a portion
of 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 an memorandum of
understanding previously entered in December 2013. GZC lies within the GSS
licence area and prior to the Cooperation agreement was governed exclusively
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$10,900,000 within property, plant and equipment in respect of its 47% share
in these assets in 2014 based on the final agreement of the costs associated
with the downstream infrastructure. The Group also elected to settle its
obligation for all historic amounts due to CNPC through its share of future
production.
In 2015 CNPC achieved cost recovery in respect of its historic investment in
the GCZ Block. Following cost recovery by CNPC the Group is receiving its
proportion of revenue in cash each month. As a result the billing arrangements
for GCZ have moved to a full joint operations basis where the Group receives
its share of revenue on the conclusion of each month and is separately
cash-called for its share of opex and capex on a month-ahead basis. Cash calls
are reconciled to actual expenditure quarterly.
The following table summarises the Group's share of the capital expenditure
and net revenues arising from the GCZ Block for the current and prior year.
Depreciation figures have been excluded.
2015US$'000
Capital expenditure 2,404
Revenue 15,126
Total operational costs and expenses (3,248)
Net Profit 11,878
Amount due from/(to) CNPC USD$'000
Balance as at 1 January 2015 (4,407)
Capital expenditure for GCZ block (2,404)
Share of profit for GCZ block 11,878
Cash received (3,293)
Balance as at 31 December 2015 1,774
The balance due from CNPC is included within trade and other receivables, is
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 is entitled to earn a 60% interest in GGZ by
funding up to US$8,000,000 in respect of an exploration pilot programme and
has provided a performance bond against this commitment in the amount of
US$2,000,000. At 31 December 2015 the cumulative investment made by the Group
in GGZ was US$30,287,000, of which US$ 7,382,000 was invested in 2015.
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 share in the relevant blocks were updated and confirmed as
follows:
PSC GDG share CUCBM share
Shizhuang South 60% 40% GDG share increasing to 70% on payment of US$13,000,000 to CUCBM
Shizhuang North 50% 50%
Quinyuan Area A 10% 90%
Quinyuan 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$611,300,000 related to the drilling of wells and the
establishment of certain infrastructure across the PSC blocks.
Under the PSC, the Group had the legal right to enforce its interest in the
asset as if it had been incurred 100% by the Group in the exploration phase
and benefit accordingly from the costs incurred by CUCBM. However as part of
the negotiation of the Framework Agreement the Group agreed to reimburse CUCBM
for what otherwise would have represented the Group's share of the historic
expenditure by allowing CUCBM to recover its historic costs in kind from ring
fenced gas production from the relevant wells. A constructive obligation
related to the agreement to reimburse CUCBM in kind is considered to exist
given the nature of the transaction and the substance of the negotiation
between the parties.
The amount to be reimbursed through future production from the ring fenced
wells is considered sufficiently certain given the status of well development,
the extent of in-place infrastructure and estimated reserves associated with
the wells. Accordingly the Group has recorded its proportionate share of the
assets in accordance with its equity interest in the PSC. A provision
representing the estimated value of production from the ring fenced wells that
the Group will forgo in order to settle its share of the costs incurred has
also been recorded.
Settlement remains dependent upon sufficient future production arising from
the ring fenced wells.
The following table summarises the CUCBM provision which also represents the
Group's cumulative share of capital expenditure:
31 December 2015US$'000 31 December 2014US$'000
Opening balance 367,027 13,000
Capital additions in the year 23,012 354,027
FX gain (19,822) -
Closing provision for amounts due to CUCBM 370,217 367,027
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 (2014: 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 12months. 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 ofUS$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.
12 SUBSEQUENT EVENTS
There were no significant subsequent events that happened after 31 December
2015 up to the date of approval of the Group's Annual Report for the year
ended 31 December 2015.
13 PUBLICATION OF NONSTATUTORY ACCOUNTS
The financial information for the years ended 31 December 2015 and 31 December
2014 set out in this announcement does not constitute the Group's statutory
financial information but is extracted from the Company's audited financial
statements for those years. The auditors have reported on the full accounts
for both periods and their reports were unqualified and did not include
references to any matters to which the auditors drew attention by way of
emphasis without qualifying their reports.
14 ANNUAL REPORT
The Company's Annual Report and copies of this announcement will be available
in due course on the Company's website at www.greendragongas.com.
This information is provided by RNS
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