Green Dragon Gas
Green Dragon is the parent company of Greka China, and is exclusively focused in gas industry in China. Green Dragon operates within China under its subsidiary Greka China Green Dragon is a gas supplier based in China with a focus on the production, development, production, distribution and sales of natural gas from coal seams, commonly known as coal bed methane or CBM.
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Wait-and-see for Green Dragon Gas as analysts predict 50pct-a-year growth
I recently came to think about how exciting it is, yet bewildering, to see China still posting very sure-footed economical growth rates at the time when the overwhelming majority of other world economies are contracting relentlessly despite their leaders’ efforts to halt the seemingly unstoppable decline. This decline will at one point slow and then turn; as the overall world economy improves, it is only logical to many analysts that the China miracle is set to once again intensify and continue unabated.
China remains a hungry dragon which is to continue energising the world with the expansion of its economy. The consensus is that this time around there is a strong possibility that the Chinese government will look more towards creating an economy driven as much by internal demand as by satisfying external demand.
The long term trend that is hard to disagree with is that China will continue to need very large and growing resources of energy for the functioning of its ever expanding economy. AIM-listed Green Dragon Gas (GDG) is the largest explorer, extractor, distributor and vendor of coal bed methane (CBM) gas in the People’s Republic of China. The company seems perfectly positioned to attempt to capitalise on its presence in the industry with potential as well as in the market with even greater potential.
What is methane? Methane is the primary energy source of natural gas. Coal bed methane is simply methane located in coal seams. China currently ranks third in the world for resources of coal bed methane after Canada and Russia.
Green Dragon Gas has as its main aim to become a vertically integrated operator encompassing CBM exploration, drilling, production, transportation and sale to the end consumer. The company’s investments into assets have so far been extensive and now include 7,566 sq km of licence exploration area with gas-in-place estimates of some 20 TCF (trillion cubic feet), six functional blocks on which drilling is currently on-going, eight drilling rigs, four CNG gas stations with planned capacity of 10.000 m3 of gas, long term gas supply contracts at Zhengzhou and Wuhu, joint venture with Beijing Huayou Gas Development ensuring gas deliveries through exclusive pipeline infrastructure, over 500 employees and proprietary technology allowing to remotely manage all field operations.
In 2008 the company made several strategic acquisitions: 49% of Beijing Huayou Gas Development for $27.1m; 100% of Pacific Asia China Energy Inc. for CAD$32.4m; 100% of Giant Power International Ltd for $10.7m; 100% equity in each Zhengzhou Nanhai Gas Ltd, Zhengzhou Clean Petro-Equipment Ltd and Zhengzhou Clean Technology Ltd for a total consideration of $9.3m. To finance the operations and asset acquisitions Green Dragon Gas raised almost $38m in new equity via placement of new shares.
The logic for the acquisitions was to enable Green Dragon Gas to construct an intended vertically integrated gas business. At this time it is not possible to identify whether the assets have been purchased at reasonable prices and how effective these acquisitions will turn out to be; there was no separate reporting available for each acquired business in the last reported financial statements of the company.
Green Dragon Gas currently owns assets totalling $749.5m, of which almost $73m is cash and just over $606m is exploration and appraisal assets. The long term debt amounts to $83.2m and total equity equals $495.7m. Debt to Equity ratio is therefore 17% making the company comparatively lightly leveraged.
The revenue for six months ending 30th June ’08 came in at $2.4m, almost entirely contributed by the recently acquired stake in Beijing Huayou Gas Development. This level of revenue resulted in net loss for the period of $12.9m.
Assuming the analysts’ predictions of $100m in revenue for 2010 are correct, the company growth for the next 10 years is 50% per year, the net profit towards year 2020 converges on industry average of some 7%, the Re-Investment Rate towards year 2020 converges on industry average of some 60%; the equity in Green Dragon Gas is at this point worth around $500-550m. There are some "ifs" in the valuation above, which are fairly significant, but should these play out as planned the company could well prove a profitable investment over long term.
The information for above analysis has been largely obtained from Green Dragon Gas last financial interim accounts ending June ’08. The next set of accounts is due at end of June.
Other Green Dragon Gas news
- Green Dragon’s Grewal speaks at prestigious Chinese conference
2011-08-31 - Green Dragon Gas chairman Grewal appointed to provincial gov't board in China
2011-08-03 - Green Dragon Gas says Chinese CBM contracts remain in ‘full force and effect’
2011-03-12 - Enter the Dragons: China's coal bed methane specialist prepares to do the splits
2011-02-16 - Green Dragon Gas to move ahead with Hong Kong IPO
2010-11-09
