REG - Green Dragon Gas Ltd - Interim Results for the Six Months Ended June 2017 <Origin Href="QuoteRef">GDG.L</Origin> - Part 1

G3 ExplorationAnnouncement

28/09/2017 07:08

RNS Number : 0638S
Green Dragon Gas Ltd
28 September 2017
28 September 2017 
      GREEN DRAGON GAS LTD.
("Green Dragon", "GDG" or the "Company")
Interim Results for the Six Months Ended 30 June 2017
Financial highlights
 Revenue of US$12.9 million (H1 2016 - US$14.6 million)
 Gross revenue of US$7.2 /mcf (H1 2016 - US$7.3/mcf)
 Gross profit of US$6.9 million, a 24% increase (H1 2016 - US$5.8 million)
 Gross profit of 53% of revenue, a 39% increase (H1 2016 - 38%)
 Net profit of US$1.8 million, a 161% increase (H1 - US$2.98 million)
 Investment in fixed assets of US$11.3 million (H1 2016 - US$5.8 million)
 Net assets of US$654 million (December 2016 - US$639 million)
 Total investments of both parties on the GSS and GSN Blocks confirmed at US$ 941 million through 2014 year-end
 Estimated sales revenue from the Company's interest in the CNOOC legacy wells has not been recorded until such time sales revenues and associated volumes is ascertained
Operational highlights
 Concluded Memorandum of Understanding, and Supplementary Agreements on Shizhuang South (GSS) and North (GSN) with CNOOC
 GSS H1 2017 sales volume up 8% versus H1 2016
 H1 2017 gross production capacity of 5.1 Bcf
 Approved Overall Development Plan (ODP) for Zaoyuan portion of GSS and Greka Chengzhuang Block (GCZ Block)
 GGZ Block exploration programme on track 
 Of the 200 GDG operated wells, 130 wells are online with 104 connected to sales infrastructure
Outlook
 Monetisation of vast acreage through development, production and sale of CBM gas
 Concluding Bond maturities
 Progress Hong Kong listing alongside London to deliver shareholder value
 Continue exploration activity at the GGZ Block and submit Block's ODP in 2018 
 Launch GSS LiFaBriC drilling programme to further increase sales volumes
Mr. Randeep S. Grewal, Founder and Chairman of Green Dragon, commented:
"We are pleased to announce a positive set of results for the first half of 2017. It is the first time in almost a decade that we report as a pure upstream company. 
"GDG continued to focus on infrastructure development of our GSS Block, where we have seen a stable increase in gas sales volumes. The concluded Supplementary Agreements further simply and transparently conclude our carried interest benefits and joint account balances, which are a solid proxy for future tax free cash flows. 
"A disciplined cost reduction programme is demonstrative in the material gross profit and profit from operations improvement. The gross profit is an indicator of future potential value with the increase in gas sales volumes anticipated from the collaborative relationship with our Chinese partners CNPC & CNOOC. We have continued the diligent connection of wells to sales infrastructure and are pleased to now have 104 wells of the 200 drilled, including 56 LiFaBriC wells, connected and producing gas for sale from our drilled wells. Concurrently, 1,139 carried wells in GSS are in a continuous process of being connected to the main sales infrastructure. Total planned gas sales capacity at GSS is greater than 50 Bcf per year. 
"Conservative balance sheet has gearing at 22% with a net equity of US$654 million. We are now focused on the upcoming Bond maturities and concluding one of the four viable options. We expect to present our conclusions in the near term." 
For further information on the Company and its activities, please refer to the website at www.greendragongas.com or contact:
FTI Consulting
Edward Westropp / Kim Camilleri / Elizabeth Burnham / NtobekoChidavaenzi
Tel: +44 20 3727 1000
About Green Dragon Gas
Green Dragon Gas is a leading independent gas producer with operations in China and is listed on the main market of the London Stock Exchange (LSE: GDG). The Company has 559Bcf of 2P reserves and 2,386Bcf of 3P reserves across eight production blocks covering over 7,566km of license area in the Shanxi, Jiangxi, Anhui and Guizhou provinces. It holds six Production Sharing Agreements with strong, highly capitalised Chinese partners including CUCBM (CNOOC), CNPC and PetroChina, and has infrastructure in place to support multiple routes to monetise gas production.
Chairman's Statement
It is the first time in almost a decade that we report as a pure upstream company concluding the strategic transformation launched three years ago as an integrated unconventional gas developer. The simplicity of being an upstream company is further compounded with the profit potential realisation. Gross Profit margins exceed 50%, capital expenditure is negligible with 1,339 equity wells in our flagship GSS Block, and EBITDA is 50%. As the gas sales rise from the connections to the main constructed infrastructure, we expect the Company's earning potential to be well demonstrated with these margins further improving. 
 
The concluded Supplementary Agreements further simply and transparently conclude our carried interest benefits and joint account balances which are a solid proxy for future tax free cash flows. The GSS US$ 941 million joint cost recovery account through 2014 yearend will be further increased by yearend results with the addition of an additional three years of activity, and provides a transparent value of the forecasted tax free cash flow. GCZ cost recovery account has been paid in full resulting in disbursement of the monthly cash flow between CNPC and GDG. 
A disciplined cost reduction programme is demonstrative in the material gross profit and profit from operations improvement. The gross profit is an indicator of future potential value with the increase in gas sales volumes anticipated with the collaborative relationship with our Chinese partners CNPC & CNOOC. We have continued the diligent connection of wells to sales infrastructure and are pleased to now have 104 wells of the 200 operated by GDG, including 56 LiFaBriC wells, connected and producing gas for sale from our drilled wells. Concurrently, 1,139 carried wells in GSS are in a continuous process of being connected to the main sales infrastructure. Total planned gas sales capacity at GSS is greater than 50 Bcf per year and we anticipate an acceleration to gas sales following the recent conclusion of the Supplementary Agreement. In addition to our own efforts, CNOOC now has 322 wells producing gas for sale and has continued to deploy capital in gathering and transmission infrastructure in accordance with its previously announced commitments. This infrastructure will be used jointly by the partners to transport gas to market, the completion and commissioning of further infrastructure is expected to increase the number of CNOOC producing wells in the GSS Block.
We maintain a conservative balance sheet with gearing at 22% and a net equity of US$654 million at period end. We are now focused on the upcoming Bond maturities and concluding one of the four viable options. We expect to present our conclusions in the near term.
The Chinese gas market has seen some pressure on sales pricing with the reduction in the city-gate pricing announced by the NDRC. In addition, the average RMB to USD exchange rate has risen by 5% compared to the first half of 2016. The pricing pressure has been somewhat relieved by the increase in subsidy for CBM production from both Central and Local Government, which is at US$1.65/mcf. The continued and stable support of the Central Government together with its commitment to a clear and responsible energy policy for China's future ensures confidence into the future, as we realise the material returns we have worked to develop over the past fifteen years.
Echoing the Central Government's commitment to China's energy future we have made significant progress toward the Chinese Reserve Report (CRR) on our operated GGZ Block this year. The GGZ Block is located in Guizhou Province in Southern China, an area that currently sources the majority of its gas needs by pipeline from other areas. We are proud to be a leader with our partner PetroChina to provide domestic Guizhou resources for local consumption. There are currently eight wells on line, with seven showing commercial gas rates in the GGZ Block, covering five of the seven most prospective coal seams identified with four wells having exceeded the commerciality threshold under the requirements of the Ministry of Land Resources.
The opportunity ahead for GDG is significant and one that we have worked tirelessly to create, secure and develop, with the priority of creating shareholder value. Underpinning the success is the relentless dedication and hard work from a core employee base who have diligently delivered material progress in Shanxi and Giuzhou. I would like to take this opportunity to express my sincere appreciation to them.
I look forward to updating the shareholders on the enhanced cooperation with our partners CNOOC, CUCBM, CNPC and PetroChina which ought to facilitate the monetization of our material gas assets in the near term.
Mr. Randeep S. Grewal
Founder & Chairman
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2017
Six months ended 30
June 2017
Six months ended 30
June 2016
Year ended
31 December 2016
Notes
US$'000
US$'000
US$'000
Unaudited
Unaudited
Audited
Continuing operations
Revenue
3
12,953
14,686
29,143
Cost of sales
(6,050)
(9,110)
(16,393)
Gross profit
6,903
5,576
12,750
Selling and distribution costs
-
-
-
Administrative expenses
(2,400)
(2,250)
(6,805)
Profit from operations
4,503
3,326
5,945
Finance income
4
4,999
1,724
2,058
Finance costs
(7,435)
(8,053)
(16,871)
Profit/(loss) before income tax
2,067
(3,003)
(8,868)
Income tax (charge)/credit
(245)
21
50
Profit/(loss) for the period from continuing operations
1,822
(2,982)
(8,818)
Discontinued operations
Loss for the period from discontinued operations
5
(1,421)
(1,568)
(3,234)
Profit/(loss) for the period attributable to owners of the company
401
(4,550)
(12,052)
Other comprehensive expense, net of tax:
Items that may be reclassified to profit or loss:
Exchange differences arising on
translating foreign operations
14,543
(15,666)
(40,963)
Total comprehensive income/(expense)
for the period attributable to owners of the company
14,944
(20,216)
(53,015)
Basic and diluted earnings/(loss) per share from continuing operations (US$)
6
0.012
(0.019)
(0.056)
Basic and diluted earnings/(loss) per share from discontinued operations (US$)
6
(0.009)
(0.010)
(0.021)
Basic and diluted earnings/(loss) per share (US$)
6
0.003
(0.029)
(0.077)
Condensed Consolidated Statement of Financial Position
At 30 June 2017
As at
30 June 2017
As at 31 December 2016
Notes
US$'000
US$'000
Unaudited
Audited
Assets
Non-current assets
Property, plant and equipment
8
270,599
272,583
Gas exploration and appraisal assets
9
1,066,233
1,034,117
Other intangible assets
-
2,210
Long term prepaid expenses
-
192
Deferred tax asset
2,134
2,079
1,338,966
1,311,181
Current assets
Inventories
-
94
Trade and other receivables
10
22,350
22,911
Restricted cash
1,500
2,000
Cash and cash equivalents
773
7,324
24,623
32,329
Assets of disposal group classified as held-for-sale
5
12,001
-
36,624
32,329
Total assets
1,375,590
1,343,510
As at
30 June 2017
As at 31 December 2016
Notes
US$'000
US$'000
Unaudited
Audited
Liabilities
Current liabilities
Trade and other payables
11
13,881
13,883
Convertible notes
12
49,414
47,347
Bonds
13
89,760
88,795
Current tax liabilities
82
-
153,137
150,025
Liabilities of disposal group classified as held-for-sale
5
1,866
-
155,003
150,025
Non-current liabilities
Convertible notes
12
-
-
Bonds
13
-
-
Cost recovery provision
18
415,990
401,702
Deferred tax liability
19
147,518
144,831
Share buyback option liability
12
3,107
7,924
566,615
554,457
Total liabilities
721,618
704,482
Total net assets
653,972
639,028
Capital and reserves
Share capital
15
16
16
Share premium
15
808,981
808,981
Share redemption reserve
15
(8,255)
(8,255)
Convertible note equity reserve
15
2,851
2,851
Share-based payment reserve
15
-
-
Foreign exchange reserve
15
(4,404)
(18,947)
Retained deficit
15
(145,217)
(145,618)
Total equity attributable to owners of the parent
653,972
639,028
Total equity
653,972
639,028
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2017
Share capital
Share premium
Share buyback option reserve
Convertible note equity reserve
Share based payment reserve
Foreign exchange reserve
Retained deficit
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
At 1 January 2016
16
808,981
-
3,756
12,743
22,016
(150,065)
697,447
Loss for the period
-
-
-
-
-
-
(4,550)
(4,550)
Exchange differences on 
translating foreign
operations
-
-
-
-
-
(15,666)
-
(15,666)
Total comprehensive
expense for the period
-
-
-
-
-
(15,666)
(4,550)
(20,216)
Transfer to retained deficit
-
-
-
-
(12,743)
-
12,743
-
At 30 June 2016
 (unaudited)
16
808,981
-
3,756
-
6,350
(141,872)
677,231
At 1 January 2017
16
808,981
(8,255)
2,851
-
(18,947)
(145,618)
639,028
Profit for the period
-
-
-
-
-
-
401
401
Exchange differences on
translating foreign
operations
-
-
-
-
-
14,543
-
14,543
Total comprehensive
income for the period
-
-
-
-
-
14,543
401
14,944
Transfer to retained deficit
-
-
-
-
-
-
-
-
At 30 June 2017
 (unaudited)
16
808,981
(8,255)
2,851
-
(4,404)
(145,217)
653,972
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June 2017
Six months ended 30 June 2017
Six months ended 30 
June 2016
Year ended
31 December 2016
US$'000
US$'000
US$'000
Notes
Unaudited
Unaudited
Audited
Cash flows used in continuing operating activities
Profit/(loss) after tax
1,822
(2,982)
(8,818)
Adjustments for:
Depreciation
1,670
2,720
3,412
Amortisation of intangible assets
-
-
-
Loss on disposal of plant, properties 
 and equipment
-
-
-
Other income and finance income
(4,999)
(15)
(347)
Finance costs
7,435
8,283
16,355
Accelerated finance charge
-
-
516
Taxation
245
(21)
(50)
Cash generated from operating 
activities before changes in 
working capital
6,173
7,985
11,068
Movement in inventory
-
-
-
Movement in trade and other receivables
(3,679)
892
(693)
Movement in trade and other payables
2,568
23
(1,625)
Net cash generated from operations
5,062
8,900
8,750
Income tax
-
-
-
Net cash generated from
continuing operating activities
5,062
8,900
8,750
Net cash used in
discontinued operating activities
(1,870)
(1,222)
(261)
Net cash generated from
operating activities
3,192
7,678
8,489
Six months ended 30
June 2017
Six months ended 30
June2016
Year ended
31 December 2016
US$'000
US$'000
US$'000
Notes
Unaudited
Unaudited
Audited
Investing activities
Payments for purchase of property,
plant and equipment
(29)
-
(2,002)
Proceed from disposal of property, plant 
 and equipment
-
-
-
Payments for intangible assets
-
-
-
Payments for long-term prepaid expenses
-
-
-
Share of GCZ property, plant and equipment purchases
-
-
-
Payments for exploration activities
(6,565)
(5,579)
(10,468)
Interest received
2
15
16
Refund of deposit received from PetroChina
500
-
-
Net cash used in continuing
investing activities
(6,092)
(5,564)
(12,454)
Net cash used in discontinued
investing activities
(77)
(222)
(1,950)
Net cash used in
investing activities
(6,169)
(5,786)
(14,404)
Financing activities
Interest paid
(4,400)
(6,150)
(12,300)
Net cash used in continuing
financing activities
(4,400)
(6,150)
(12,300)
Net cash used in discontinued
financing activities
-
-
-
Net cash used in
financing activities
(4,400)
(6,150)
(12,300)
Net decrease in cash
 and cash equivalents
(7,377)
(4,258)
(18,215)
Cash and cash equivalents
 at beginning of period
7,324
26,866
26,866
(53)
22,608
8,651
Effect of foreign exchange rate changes
826
(5,466)
(1,327)
Cash and cash equivalents 
 at the end of period
773
17,142
7,324
Notes to Condensed Interim Financial Statements
1  GENERAL INFORMATION
The condensed financial information for the six months ended 30 June 2017 and 30 June 2016 is unaudited and does not constitute a set of statutory financial statements. The consolidated unaudited interim financial information set out in this report represents the consolidated financial statements of Green Dragon Gas Ltd. and its subsidiary companies (together referred to as the 'Group'). The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The comparative financial information for the full year ended 31 December 2016 presented here is not the Group's full annual accounts for that period but has been derived from the annual financial statements for that period. The auditors' report on those accounts was unqualified and includes reference to a matter to which the auditors drew attention by way of emphasis on the Group's ability to continue as a going concern without qualifying their report.
2  ACCOUNTING POLICIES
The interim results, which are unaudited, have been prepared in accordance with the requirements of International Accounting Standard 34. This condensed interim report does not include all the notes of the type normally included in an annual financial report. This condensed report is to be read in conjunction with the Annual Report for the year ended 31 December 2016, and any public announcements made by the Group during the interim reporting period. The annual financial report for the year ended 31 December 2016 was prepared in accordance with IFRS and the accounting policies applied in this condensed interim report are consistent with the polices applied in the annual financial report for the year ended 31 December 2016 unless otherwise noted.
Basis of preparation and going concern
Going Concern
These interim unaudited consolidated financial statements have been prepared on the going concern basis.
Included in current liabilities as at 30 June 2017 are two specific instruments;
- The Company has a $50.0 million convertible loan note which is due for repayment on 31 December 2020. On 23 June 2017 an extension to the note holder's one-time early redemption option was agreed with the note holder such that at any time up to 27 October 2017, the note holder could require the Company to repay the whole amount of the loan note immediately. The option to require early repayment is at the note holder's sole discretion. 
- The Company has an $88.0 million bond which is due for repayment on 20 November 2017. The bond contains a number of financial covenants that are measured by reference to EBITDA and calculated at each reporting date. As announced on 5 June 2017, the Bondholder waived the covenants up to 30 June 2017.
In considering the appropriateness of the going concern basis the Board gave consideration to the following;
- The Company is confident that the $50.0 million note holder will continue to support the Company as it acts to refinance the bond, such that the note holder will not be motivated to act on their early redemption option available to 27 October 2017.
- The Company is currently actively engaged with a number of banks in order to re-finance the $88.0 bond and to provide further funding to support future development. The Company has received draft term sheets from banks indicating that they are willing to progress lending to the Company. The Company expects that the banks will complete their appropriate due diligence steps and confirm financing in before the loans are due to be repaid. 
- The Company has no significant contractual cash flow obligations in relation to the planned development of the Company's CBM assets, having flexibility over when to commit to further development capital.
- The Company is currently actively managing its operating liabilities prior to the expected refinancing. Based on conversations with creditors, the Company expects to be able to defer payments to creditors until after additional financing has been raised.
However, as at the date of this report, there were no binding re-financing agreements in place and therefore there can be no certainty that re-financing will be successful. 
Notwithstanding the confidence that the Board has, the Directors conclude that at this time there is material uncertainty that such finance can be procured and failure to do so might cast significant doubt upon the Group's ability to continue as a going concern and that the Group may therefore be unable to realise their assets and discharge their liabilities in the normal course of business. These Financial Statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
The interim financial statements are presented in United States Dollars and all values are rounded to the nearest thousand dollars (US$'000) except when otherwise indicated. 
The consolidated interim financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) together with joint operations over which the Group has joint control. Control is achieved where the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
3 REVENUE AND SEGMENTAL INFORMATION
The Group's reportable segments are as set out below. The operating results of each of these segments are regularly reviewed by the Group's chief operating decision-makers in order to make decisions about the allocation of resources and assess their performance.
During the period revenue of US$6,093,000 (30 June 2016: US$9,031,000; 31 December 2016: US$9,923,000) was recognised by the Sale of CBM gas segment in respect of 1 (30 June 2016: 1; 31 December 2016: 1) customer representing 10% or more of the Group's total revenue for the period. Gas was sold by the upstream segment to the downstream segment at the rate of US$9.8/mcf (30 June 2016: US$10.3/mcf; 31 December 2016: US$10.1/mcf). The average RMB/USD exchange rate for the period is 5% higher compared to the equivalent period in the prior year. The average RMB/USD exchange rate for the period ended 30 June 2017, and used for translating income statement RMB transactions for the purposes of this financial information was 6.8610 as compared to 6.5557 in the equivalent period of the prior year.
For the period ended 30 June 2017 (unaudited)
Sale of CBM gas
Retail gas station sales
(discontinued operations)
Corporate
Sub-total
Eliminations
Consolidated
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Segment revenue:
Sales to external
customers
5,063
5,364
-
10,427
-
10,427
Inter-segment sales
6,694
-
-
6,694
(6,694)
-
Government subsidies
2,526
-
-
2,526
-
2,526
14,283
5,364
-
19,647
(6,694)
12,953
Depreciation
(1,648)
(278)
(22)
(1,948)
-
(1,948)
Amortisation
-
(356)
-
(356)
-
(356)
Profit/(loss) from operations
7,404
(3,329) 
(1,571)
2,504
-
2,504
Other income and finance income
179
3
4,820
5,002
-
5,002
Finance costs
(3)
230
(7,432)
(7,205)
-
(7,205)
Income tax credit
(245)
345
-
100
-
100
Profit/(loss) for the period
7,335
(2,751)
(4,183)
401
-
401
Assets
1,425,236
44,744
757,902
2,227,882
(852,292)
1,375,590
Liabilities
899,000
71,078
543,410
1,513,488
(791,870)
721,618
For the period ended 30 June 2016 (unaudited)
Sale of CBM gas
Retail gas station sales 
Corporate
Sub-total
Eliminations
Consolidated
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Segment revenue:
Sales to external
customers
9,031
3,033
-
12,064
-
12,064
Inter-segment sales
926
-
-
926
(926)
-
Government subsidies
2,622
-
-
2,622
-
2,622
12,579
3,033
-
15,612
(926)
14,686
Depreciation
(2,709)
(318)
(11)
(3,038)
-
(3,038)
Amortisation
-
(356)
-
(356)
-
(356)
Profit/(loss)from operations
6,779
(3,146) 
(1,841)
1,792
-
1,792
Other income and finance income
1,699
2
25
1,726
-
1,726
Finance costs
3
115
(8,286)
(8,168)
-
(8,168)
Income tax credit
21
79
-
100
-
100
Profit/(loss) for the period
8,502
(2,950)
(10,102)
(4,550)
-
(4,550)
Assets
1,417,483
30,697
753,839
2,202,019
(857,512)
1,344,507
Liabilities
727,099
30,491
526,448
1,284,038
(616,762)
667,276

For the year ended 31 December 2016 (audited)
Sale of CBM gas
Retail gas station sales
Corporate
Sub-total
Eliminations
Consolidated
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Segment revenue:
Sales to external 
Customers
9,923 
12,725
- 
22,648
- 
22,648
Inter-segment sales
12,395
-
-
12,395
(12,395)
-
Government subsidies
6,495
-
-
6,495
-
6,495
28,813
12,725
-
41,538
(12,395)
29,143
Depreciation
(3,390)
(1,742)
(22)
(5,154)
-
(5,154)
Amortisation
-
(723)
-
(723)
-
(723)
Profit/(loss) from
Operations
16,428
(6,889)
(4,956)
4,583
-
4,583
Other income and 
finance income
1
9
346
356
-
356
Finance costs
8
(336)
(16,879)
(17,207)
-
(17,207)
Income tax credit
50
166
-
216
-
216
Profit/(loss) for the year
16,487
(7,050)
(21,489)
(12,052)
-
(12,052)
Assets
1,413,005
37,637
759,973
2,210,615
(867,105)
1,343,510
Liabilities
897,022
61,382
535,390
1,493,794
(789,312)
704,482
These financial statements do not include the Group's share of CNOOC GSN transactions or operated GSS 1,388 wells' revenue, associated costs and resulting margins. During 2016 CNOOC commissioned two additional gas gathering and sales stations in GSS. The sales revenues and volumes associated with the CNOOC operated areas of GSS and GSN will be reported in due course as they are currently being audited by independent auditors. Under the Framework Agreement, while the Company will record its share of revenue, costs and resulting margins, the resulting cash flow will be offset with the cost recovery account. The Group has not recorded any estimated sales revenue from its interest in the CNOOC legacy wells until such time as the independent audit of sales revenues and associated volumes is concluded.
4 OTHER INCOME AND FINANCE INCOME
Six months ended 30
June 2017
Six months ended 30
June 2016
Year ended
31 December 2016
US$'000
US$'000
US$'000
Unaudited
Unaudited
Audited
Value added tax refund
175
1,699
1,711
Revaluation of share buyback option
4,817
-
331
Others
7
25
16
4,999
1,724
2,058
5 NON-CURRENT ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATION
The assets and liabilities related to Greka Gas Distribution Ltd, a 100% wholly-owned subsidiary of the Company, have been presented as held for sale following the announcement made to sell Greka Gas Distribution Ltd in the PRC. The management expects Greka Gas Distribution Ltd will be sold within the next 12 months.
(a) Assets of disposal group classified as held-for-sale
As at
30 June
2017
US$'000
Unaudited
Property, plant and equipment
5,510
Other intangible assets
1,505
Long term prepaid expenses
859
Deferred tax asset
15
Inventories
93
Trade and other receivables
4,019
12,001
(b) Liabilities of disposal group classified as held-for-sale
As at
30 June
2017
US$'000
Unaudited
Trade and other payables
1,843
Current tax liabilities
(351)
Deferred tax liabilities
374
1,866
(c) Analysis of the results of discontinued operations is as follows:
Six months ended 30
June 2017
Six months ended 30
June 2016
Year ended
31 December 2016
US$'000
US$'000
US$'000
Unaudited
Unaudited
Audited
Loss after tax of discontinued operations attributable to owners of the company
(1,421)
(1,568)
(3,234)
6 EARNINGS AND (LOSS) PER SHARE
The calculation of basic and diluted profit/(loss) per share attributable to the owners of the Company is based on the following data:
Six months ended
30 June 2017
Six months ended
30 June 2016
Year ended
31 December 2016
US$'000
US$'000
US$'000
Unaudited
Unaudited
Audited
Profit/(loss) for the period attributable to the owners of the Company used in basic and diluted earnings/(loss) per share from: continuing operations
1,822
(2,982)
(8,818)
discontinued operations
(1,421)
(1,568)
(3,234)
continuing and discontinued operations
401
(4,550)
(12,052)
Weighted average number of ordinary shares
for the basic and diluted loss/earnings per share
156,072,289
156,072,289
156,072,289
Profit/(loss) per share is based on the loss attributable to ordinary equity holders of the Company of divided by the weighted average of ordinary shares in issue during the corresponding period. 
No separate calculation of diluted profit/(loss) per share has been presented as, at the date of this financial information, no options, warrants or other instruments that could have a dilutive effect on the share capital of the Company were outstanding.
7 DIVIDENDS
The directors do not recommend the payment of an interim dividend during the period ended 30 June 2017 and year ended 31 December 2016.
8 PROPERTY, PLANT AND EQUIPMENT
Gas assets
Building and structures 
Construction in progress
Motor vehicles
Fixtures, fittings and equipment
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Cost
At 1 January 2016
282,858
1,041
2,110
2,084
4,726
292,819
Additions
2,002
246
266
1,904
291
4,709
Share of CUCBM additions
19,861
-
-
-
-
19,861
Disposals
-
-
(748)
(66)
-
(814)
Exchange differences
(18,852)
(67)
(135)
(120)
(266)
(19,440)
At 31 December 2016
285,869
1,220
1,493
3,802
4,751
297,135
Additions
-
10
35
29
35
109
Share of CUCBM additions
2,934
-
-
-
-
2,934
Disposals
-
-
-
-
-
-
Transferred to disposal group classified as held for sale (note 5)
-
(1,248)
(1,550)
(3,200)
(3,870)
(9,868)
Exchange differences
2,626
18
22
53
62
2,781
At 30 June 2017
291,429
-
-
684
978
293,091
Depreciation
At 1 January 2016
17,609
447
-
868
1,899
20,823
Provided for the year
3,365
144
-
1,364
281
5,154
Disposals
-
-
-
(62)
-
(62)
Exchange differences
(1,203)
(12)
-
(42)
(106)
(1,363)
At 31 December 2016
19,771
579
-
2,128
2,074
24,552
Provided for the period
1,622
26
-
169
131
1,948
Disposals
-
-
-
-
-
-
Transferred to disposal group classified as held for sale (note 5)
-
(610)
-
(1,913)
(1,835)
(4,358)
Exchange differences
289
5
-
29
27
350
At 30 June 2017
21,682
-
-
413
397
22,492
Net book value
At 30 June 2017
269,747
-
-
271
581
270,599
At 31 December 2016
266,098
641
1,493
1,674
2,677
272,583
9 GAS EXPLORATION AND APPRAISAL ASSETS
 
Cost
US$'000
At 1 January 2016
1,043,859
Additions
4,076
Capitalisation of internal costs
6,392
Share of gas exploration and appraisal assets from CUCBM
37,215
Exchange differences
(57,425)
At 31 December 2016 (audited)
1,034,117
Additions
8,945
Capitalisation of internal costs
2,261
Share of gas exploration and appraisal assets from CUCBM
2,981
Exchange differences
17,929
At 30 June 2017 (unaudited)
1,066,233
 
10 TRADE AND OTHER RECEIVABLES
As at
30 June
2017
As at
31 December
2016
US$'000
US$'000
Unaudited
Audited
Trade receivables
3,616
3,227
Prepayments
623
2,446
Other receivables
6,703
6,321
Amount due from related parties
11,408
10,917
22,350
22,911
11 TRADE AND OTHER PAYABLES
As at
30 June
2017
As at
31 December
2016
US$'000
US$'000
Unaudited
Audited
Trade payables
6,338
6,640
Other payables
4,145
6,325
Amounts due to related parties
3,398
918
13,881
13,883
12 CONVERTIBLE NOTES
As at
30 June
2017
As at
31 December
2016
US$'000
US$'000
Unaudited
Audited
Brought forward from prior year
47,347
48,398
Accrued interest
2,067
4,784
Amendment of convertible notes
-
(2,851)
Accelerated finance charge
-
516
Interest payment
-
(3,500)
49,414
47,347
 As at 30 June 2017, the Company had one (31 December 2016: 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.
Convertible note amendment 
(b) US$50 million 10% coupon convertible note due 2020
In December 2016, the Company reached agreement with the note holder to extend the maturity of the US$50 million convertible note entered into in June 2014. Under the agreement, the note remains unsecured, has a revised coupon of 10% and a maturity date extended to 31 December 2020. The Company issued an option for the note holder to require (one-time) early repayment on the original maturity date, the option being exercisable at the discretion of the note holder by 28 April 2017. The conversion price of the note was amended to US$2.83 per share representing a 25% premium over the 13 December 2016 closing price.
During the period, the Company reached agreement with the note holder to extend the period during which the put option is exercisable to 27 October 2017. 
At final maturity of the note, the note holder has the right to require the Company to purchase all of its share holdings up to a maximum limit of 10,775,578 shares or 6.69% of the entire issued share capital of the Company at a price based on the 90 day VWAP calculated as of 31 December 2020 and to be settled prior to 30 April 2021. See the share buyback option liability below.
(c) 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 and early redemption options. For the note issued during 2014, the rate considered to be comparable was 10%. The loan note is subsequently carried at amortised cost.
The equity element arising from the conversion option of their convertible notes, being the residual value at initial recognition, is presented in the equity heading "convertible note equity reserve".
On the amendment made of the convertible note in December 2016, the original financial liability was extinguished and the convertible reserve was transferred to retained earnings through reserves. The fair value of the liability component of the amended convertible loan was determined using the prevailing market interest rate of similar debts without conversion option and early redemption options. The rate considered to be comparable was 12%. The loan note is subsequently carried at amortised cost.
The equity element arising from the conversion option of the convertible notes, being the residual value at initial recognition, is presented in the equity heading "convertible note equity reserve".
The terms of the convertible note include a clause whereby if another loan held by the Company becomes in default then the convertible note would also be in default. At 31 December 2016, no other loans were in default but there was a breach of covenants on the Company's public corporate bond, waiver of which was subsequently obtained during the period (see note 13).
Share buyback option liability
As at
30 June
2017
As at
31 December
2016
US$'000
US$'000
Unaudited
Audited
Brought forward from prior year
7,924
-
Issue of share buyback option
-
8,255
Revaluation of share buyback option
(4,817)
(371)
3,107
7,924
13 BONDS AND DERIVATIVE FINANCIAL INSTRUMENT

On 8 December 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 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$1,893,000 were offset against the principal amount of the bond and will be amortised as part of the effective interest rate charge to the maturity date. The redemption premium is amortised as part of the effective interest rate charge to the maturity date. The following table summarises the movements in the bond:
As at
30 June
2017
As at
31 December
2016
US$'000
US$'000
Unaudited
Audited
Brought forward from prior year
88,795
86,807
Accrued interest
5,365
10,788
Interest payment
(4,400)
(8,800)
89,760
88,795
As disclosed in the Company's 2016 annual report, due to the non-inclusion of CUCBM's revenue and related costs, the Company's 2015 financial statements failed to meet two of the bonds' financial covenants. On 31 May 2017, the Company has obtained a waiver for the reporting period ended on 31 December 2016 and 30 June 2017 from the bond holders for this non-compliance. 
14 PROVISIONS
Details regarding the provision, along with movements in the year have been disclosed in Note 17. At 30 June 2017, US$367,495,000 (31 December 2016: US$388,702,000) 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 cost recovery provision also includes US$13,000,000 (2016: US$13,000,000) in respect of exploration costs incurred by CUCBM prior to the PSC period. The Group has an option to increase its participating interest in the GSS Block from its current 60% to 70% by investing two installments of US$6,500,000, one prior to 31 December 2017, and the second prior to 31 December 2018. The amount is unsecured and does not bear interest. Discounting is considered to be immaterial.
15 SHARE CAPITAL AND RESERVES
Authorised
Issued and fully paid
Number
Number
of shares
US$
of shares
US$
At 1 January 2016, 31 December 2016 and 30 June 2017 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) Share redemption reserve
The amount represents the initial value of the liability in respect of the option the company has granted to buy back shares.
(iii) 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.
(iv) 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.
(v)  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. 
(vi)  Retained deficit
The amount represents cumulative net gains and losses recognised in consolidated profit or loss less any amounts reflected directly in other reserves.
16 RELATED PARTY TRANSACTIONS
Save as disclosed in notes 10, 11, 13 and 18, 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$11,408,000 (31 December 2016: US$10,917,000) and amounts due to related parties of US$3,398,000 (31 December 2016: US$918,000) 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$3,365,000 (31 December 2016: Amounts due from CNPC of US$1,487,000), 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 17.
 Drilling costs of US$626,000 (31 December 2016: US$3,300,000) on services provided by wholly-owned subsidiaries of Greka Drilling Limited. 
 Incurred infrastructure services costs of US$3,222,000 (31 December 2016: US$5,790,000) from wholly-owned subsidiaries of Greka Engineering and Technology Limited.
 Sold gas of US$799,000 (31 December 2016: US$1,158,000) to a wholly-owned subsidiary of Greka Engineering and Technology Limited for power generation.
17 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, and the signing of Memorandum of Understanding and Supplementary Agreements with CUCBM in note 18 to the financial information, there were no other significant events occurring after 30 June 2017 up to the date of the Group's interim report for the period ended 30 June 2017 that is required to be disclosed.
18 JOINT ARRANGEMENTS
The Group currently operates under six (2016: 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 license 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 2in 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 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. GCZlies 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$10,900,000 within property, plant and equipment in respect of its 47% share in these assets in 2014 based on the final agreement of the costs associated with the downstream infrastructure. The Group also elected to settle its obligation for all historic amounts due to PetroChina through its share of future production.
In 2015 PetroChina achieved cost recovery in respect of its historic investment in the GCZ block. Following cost recovery by PetroChina the Group is receiving its proportion of revenue in cash each month. As a result, the billing arrangements for GCZ have moved to a full joint operations basis where the Group receives its share of revenue on the conclusion of each month and is separately cash-called for its share of opex and capex on a month-ahead basis. Cash calls are reconciled to actual expenditure quarterly.
The following table summarises the Group's share of the capital expenditure and net revenues arising from the GCZ block for the current period and prior year. Depreciation figures have been excluded.
30 June
2017
US$'000
Unaudited
31 December 2016
US$'000
Audited
Capital expenditure
-
-
Revenue and other income
5,666
11,764
Total operational costs and expenses
(2,124)
(4,998)
Net Profit
3,542
6,766
Amount due from/(to) PetroChina
Opening balance
1,487
(1,774)
Capital expenditure for GCZ block
-
-
Share of profit for GCZ block
3,542
6,766
Cash received
(1,664)
(7,053)
Closing balance 
3,365
1,487
The balance due from PetroChina is included within trade and other receivables, is unsecured and interest free.
Baotian-Qingshan block ('GGZ')
In addition, Greka Guizhou 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$1,500,000 (31 December 2016: US$2,000,000). At 30 June 2017, the cumulative net investment made by the Group in GGZ was US$28,847,000 (31 December 2016: US$28,267,000), of which US$55,000 was invested in the six months ended 30 June 2017.
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%
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 license area incurring gross expenditure of US$611,300,000 related to the drilling of wells and the establishment of certain infrastructure across the PSC blocks.
Under the PSC, the Group had the legal right to enforce its interest in the asset as if it had been incurred 100% by the Group in the exploration phase and benefit accordingly from the costs incurred by CUCBM. However, as part of the negotiation of the Framework Agreement the Group agreed to reimburse CUCBM for what otherwise would have represented the Group's share of the historic expenditure by allowing CUCBM to recover its historic costs in kind from an enhanced participation share (over and above CUCBMs equity interest in the PSC) in ring-fenced gas production from the relevant wells. A constructive obligation related to the agreement to reimburse CUCBM in kind is considered to exist given the nature of the transaction and the substance of the negotiation between the parties.
The amount to be reimbursed through future production from the ring-fenced wells is considered sufficiently certain given the status of well development, the extent of in-place infrastructure and estimated reserves associated with the wells. Accordingly, the Group has recorded its proportionate share of the assets in accordance with its equity interest in the PSC. A provision representing the estimated value of production from the ring-fenced wells that the Group will forgo in order to settle its share of the costs incurred has also been recorded.
Settlement remains dependent upon sufficient future production arising from the ring-fenced wells.
The following table summarises the cost recovery provision which also represents the Group's cumulative share of capital expenditure:
As at
30 June
2017
US$'000
Unaudited
As at 31 December 2016
US$'000
Audited
Opening balance
401,702
370,217
Capital additions in the period
6,332
57,076
FX (gain)/loss
7,956 
(25,591)
Closing provision for amounts due to CUCBM
415,990
401,702
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.
Under the original Shizhuang South PSC and as reaffirmed by the Framework Agreement US$13,000,000 included within provisions (2016: 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. The Group has an option to increase its participating interest in the GSS Block from its current 60% to 70% by investing two installments of US$6,500,000, one prior to 31 December 2017, and the second prior to 31 December 2018. The balance is unsecured, and interest-free. Discounting is considered immaterial. The obligation is classified as a provision given the option to increase its participating interest in the GSS Block is at the Company.
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.
Memorandum of Understanding with CUCBM ("MoU")
On 8 September 2017, the Group entered a MoU with CUCBM the purpose of which was to further clarify the rights of both the Group and CUCBM in relation to the PSCs jointly held between the parties, and the Framework Agreement entered into on 31 March 2014. The MoU provides the Group an option to increase its participating interest in the GSS Block from 60% to 70% by investing two installments of US$6,500,000, one prior to 31 December 2017, and the second prior to 31 December 2018. Increasing interest in the Block will encompass CUCBM's legacy wells, which were drilled prior to 31 July 2014, following cost recovery.
Shizhuang South PSC Supplementary Agreement
On 8 September 2017, the Group entered a Shizhuang South PSC Supplementary Agreement with CUCBM. The Agreement stipulates that legacy wells investments are to be recovered by both parties on an accelerated basis, with 90% of gross profit to be distributed to the cost recovery, instead of 70% as per PSC. The remaining 10% is to be distributed between the participating interest of 60% to the Group and 40 % to CUCBM. The Agreement also provides that the Group is to operate CS15 wells and CUCBM has exclusivity in CS3 wells in designated Area 2 of 60 km2.
Shizhuang North PSC Supplementary Agreement
On 8 September 2017, the Group entered a Shizhuang North PSC Supplementary Agreement with CUCBM. The Agreement extended the exploration period to 14 April 2019.
CUCBM is majority owned by China National Offshore Oil Corp and is headquartered in Dongcheng District, Beijing.
19 DEFERRED TAXATION
(a) Deferred tax assets
US$'000
At 1 January 2016
2,169
Reversal of temporary difference
50
Exchange differences
(140)
At 31 December 2016 - audited
2,079
Reversal of temporary difference
13
Exchange differences
42
At 30 June 2017 (unaudited)
2,134
(b) Deferred tax liabilities
US$'000
At 1 January 2016
154,352
Reversal of temporary difference
(178)
Exchange differences
(9,343)
At 31 December 2016 - audited
144,831
Reversal of temporary difference
(463)
Exchange differences
3,150
At 30 June 2017 (unaudited)
147,518
As at
30 June
2017
US$'000
As at
31 December 2016
US$'000
Unaudited
Audited
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
(147,518)
(144,831)
Tax losses - overseas
2,134
2,079
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following:
Tax losses - overseas 
6,503
6,503
Potential unrecognised tax benefit at PRC rate of 25%
1,626
1,626
The deductible temporary timing differences do not expire under current tax legislation. PRC tax losses expire after five years. Deferred tax assets have not been recognised in respect of the full value of these items because at this point in the Groups development it is not virtually certain that future taxable profits will be available against which the Group companies can utilise the benefits of these tax losses in the near future. 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, as adopted by the European Union, 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 Guidance and Transparency Rules (DTR 4.2.7 R and 4.2.8 R). 
On behalf of the Board
Randeep S. Grewal
Founder & Chairman
27 September 2017
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 2017 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 Guidance 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 Guidance 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 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Material uncertainty related to going concern
In forming our opinion on the condensed set of financial statements, which is not modified, we have considered the adequacy of the disclosures made in note 2 to the financial statements concerning the Group's ability to continue as a going concern. The group needs to refinance its debt and liabilities as disclosed further in note 2, but there are currently no binding agreements in place. These conditions, along with the other matters explained in note 2 to the condensed set of Financial Statements, indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. The condensed set of financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

This information is provided by RNS
The company news service from the London Stock Exchange
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