REG - Green Dragon Gas Ltd - Interim Results for the Six Months Ended June 2016 <Origin Href="QuoteRef">GDG.L</Origin> - Part 2
29/09/2016 07:06
- Part 2: For the preceding part double click ID:nRSc1417La
- - - (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$'000
At 1 January 2015 1,157,915
Additions 31,949
Capitalisation of internal costs 10,370
Share of gas exploration and appraisal assets from CUCBM 23,012
Transfer to property, plant and equipment (121,010)
Exchange differences (58,377)
At 31 December 2015 - audited 1,043,859
Additions 2,744
Capitalisation of internal costs 2,835
Share of gas exploration and appraisal assets from CUCBM 594
Exchange differences (18,806)
At 30 June 2016 1,031,226
8 TRADE AND OTHER RECEIVABLES
As at 30 June 2016 As at 31 December2015
US$'000 US$'000
unaudited audited
Trade receivables 1,364 1,933
Prepayments 3,045 3,367
Other receivables 5,087 5,817
Amount due from related parties 11,543 11,361
21,039 22,478
9 TRADE AND OTHER PAYABLES
As at 30 June 2016 As at 31 December2015
US$'000 US$'000
unaudited audited
Trade payables 10,448 10,654
Other payables 2,842 3,319
Amounts due to related parties 1,508 1,440
14,798 15,413
10 CONVERTIBLE NOTES
As at 30 June 2016 As at 31 December2015
US$'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$1,893,000 were offset against the
principal amount of the bond and will be amortised as part of the effective
interest rate charge to the maturity date. The redemption premium is amortised
as part of the effective interest rate charge to the maturity date. The
following table summarises the movements in the bond:
As at 30 June 2016 As at 31 December2015
US$'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$10,900,000 within property, plant and equipment in respect of its 47% share
in these assets in 2014 based on the final agreement of the costs associated
with the downstream infrastructure. The Group also elected to settle its
obligation for all historic amounts due to PetroChina through its share of
future production.
In 2015 PetroChina achieved cost recovery in respect of its historic
investment in the GCZ block. Following cost recovery by PetroChina the Group
is receiving its proportion of revenue in cash each month. As a result, the
billing arrangements for GCZ have moved to a full joint operations basis where
the Group receives its share of revenue on the conclusion of each month and is
separately cash-called for its share of opex and capex on a month-ahead basis.
Cash calls are reconciled to actual expenditure quarterly.
The following table summarises the Group's share of the capital expenditure
and net revenues arising from the GCZ block for the current and prior year.
Depreciation figures have been excluded.
30 June 2016US$'000 31 December 2015US$'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 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%
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$611,300,000 related to the drilling of wells and the
establishment of certain infrastructure across the PSC blocks.
Under the PSC, the Group had the legal right to enforce its interest in the
asset as if it had been incurred 100% by the Group in the exploration phase
and benefit accordingly from the costs incurred by CUCBM. However, as part of
the negotiation of the Framework Agreement the Group agreed to reimburse CUCBM
for what otherwise would have represented the Group's share of the historic
expenditure by allowing CUCBM to recover its historic costs in kind from an
enhanced participation share (over and above CUCBMs equity interest in the
PSC) in ring-fenced gas production from the relevant wells. A constructive
obligation related to the agreement to reimburse CUCBM in kind is considered
to exist given the nature of the transaction and the substance of the
negotiation between the parties.
The amount to be reimbursed through future production from the ring-fenced
wells is considered sufficiently certain given the status of well development,
the extent of in-place infrastructure and estimated reserves associated with
the wells. Accordingly, the Group has recorded its proportionate share of the
assets in accordance with its equity interest in the PSC. A provision
representing the estimated value of production from the ring-fenced wells that
the Group will forgo in order to settle its share of the costs incurred has
also been recorded.
Settlement remains dependent upon sufficient future production arising from
the ring-fenced wells.
The following table summarises the CUCBM provision which also represents the
Group's cumulative share of capital expenditure:
Six months ended30 June 2016US$'000 Year ended 31 December 2015US$'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$'000
At 1 January 2015 163,478
Reversal of temporary difference (9)
Exchange differences (9,117)
At 31 December 2015 154,352
Reversal of temporary difference (46)
Exchange differences (3,438)
At 30 June 2016 150,868
30 June 2016US$'000 31 December 2015US$'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 2nd 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
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