Recapitalising to maximise value

Green Dragon Gas 20 February 2017 Update

Green Dragon Gas

Recapitalising to maximise value

Valuation sensitivities

Oil & gas

 

20 February 2017

Price

141.0p

Market cap

£220m

US$1.3/£

Net debt ($m) at 30 June 2016

119.6

Shares in issue

156.1m

Free float

20.4%

Code

GDG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.6)

(26.7)

(47.8)

Rel (local)

(12.8)

(31.7)

(56.6)

52-week high/low

297.5p

141.0p

Business description

Green Dragon Gas is one of the largest independent companies involved in the production and sale of coal bed methane (CBM) gas in China.

Next events

GCZ ODP approval

Expected H117

FY16 preliminary results

Q117

Analysts

Sanjeev Bahl

+44 (0)20 3077 5742

Ian McLelland

+44 (0)20 3077 5756

Green Dragon Gas is a research client of Edison Investment Research Limited

Green Dragon Gas (GDG) has laid the foundations for what could be a world-class CBM development; however, the company’s ability to develop and monetise the resource before PSC expiry in 2035 is contingent on funding. 2P reserves (net 549bcf) continue to rise as GDG proves gas deliverability from incremental coal seams. As it stands, GDG is funding rather than resource constrained. In this note we look at three valuation scenarios; in our base case we assume that GDG uses RBL debt capacity (contingent on overall development plan approval) to drill additional LiFaBriC wells on the GSS block, driving a group core valuation of 227p/share – assuming well deliverability in line with company type curves. We see blue-sky potential for this to rise to a RENAV of 591p/share if GDG had no funding constraints and drilling activity on GSS/GCZ and GSN was stepped up materially, accessing 3P CBM reserves.

Year end

Revenue ($m)

EBITDA ($m)

PBT* ($m)

Debt ($m)

Net cash/ (debt) ($m)

Capex ($m)

12/15

32.7

20.1

(0.1)

(135.2)

(108.3)

(47.8)

12/16e

24.5

8.7

(8.0)

(136.8)

(127.8)

(8.5)

12/17e

38.1

22.1

9.4

(172.8)

(161.3)

(34.8)

12/18e

80.0

55.8

34.7

(220.9)

(214.4)

(61.5)

Note: *PBT is normalised, excluding intangible amortisation, exceptional items and share-based payments. Step up in revenues contingent on ODP approvals in 2017, access to RBL debt and a significant step up in GSS drilling activity.

Existing GSS investment provides a solid foundation

We estimate that gross GSS production could reach 13bcf with minimal investment, underpinning our ‘minimal capex’ GSS asset value of $136m. Sales growth is driven by upstream facility optimisation including well-head compression and new gas connections. Incremental value requires capital investment in new LiFaBriC well-stock in order to maximise 2P reserve recovery within the licence period.

Acceleration in activity needed

Given capital constraints, GDG management is focused on short-term, capital-light, high-return investments such as wellhead compression. Over the medium term, capital will need to be deployed to exploit the wider reserve base through intensive drilling activity. In our base case valuation, we scale GDG’s drilling programme to RBL debt capacity, driving our core valuation of 227p/share. Given PSC constraints, time is of the essence and farm-down remains a potentially NAV-accretive option that should enable GDG to accelerate drill-out and maximise 3P resource recovery.

Valuation: NAV sensitive to LiFaBriC activity levels

We derive a core NPV12.5, net of liabilities, of 227p/share, which has potential to rise to a RENAV of 591p/share if funding were completely unconstrained (this is down from a core NAV of 328p/share in January 2016). Well count, a higher discount rate and lower short-term gas pricing affect the valuation relative to previous Edison coverage. Our analysis shows that the valuation is highly sensitive to drilling activity levels, hence GDG’s ability to attract capital is an important investment consideration.

CBM exploitation sensitivities

GDG remains a differentiated E&P given its relative insensitivity to the oil price. Development and production costs remain low relative to peers (c $1.3m per completed LiFaBriC well; opex costs <$1/mcf life of field) and margins are high on a unit basis. Ten years of audited reserves growth help demonstrate resource quality and depth, partly de-risked by production and sales from GSS and GCZ. GDG also benefits from continued government support through energy policy subsidies. This includes the specific mention of CBM and GDG’s key assets, GSS and GCZ, in the Chinese government’s five-year plan. The plan states the intention to increase the natural gas share of the country’s energy mix from 6% to 13% by the end of the decade and to obtain 85% of energy from domestic sources. Inclusion of GSS and GCZ in the government’s five-year plan has the potential to open up access to domestic debt markets as state-owned banks provide liquidity to support the plan.

GDG’s last published reserves assessment report (RAR) remains on the basis of rapid exploitation of the company’s reserve base delivering a 1P net valuation of NPV10 $1,227m (based on a well-head gas price prior to subsidy of $10.37/mcf in 2016 increasing to $12.6/mcf by 2020). To realise this value, GDG needs to step up the pace of development drilling, infrastructure build-out and ultimately gas sales.

In the immediate term, we expect gas sales to benefit from the introduction of wellhead screw compression across existing LiFaBriC well stock. We believe this to be a prudent use of GDG’s funds given current capital constraints – maximising gas sales from existing well stock and closing the gap between production capacity and actual sales. Over the medium term, we believe gas sales growth will be driven by GDG’s ability to drill-out its wider reserve base and in this note we run sensitivities around the pace of LiFaBriC drilling.

Our GDG valuation explores three cases, which assume a range of funding and drilling assumptions:

1.

Minimal capex case: no additional wells drilled, capital expenditure on upstream compression and well connections.

2.

Base case: drilling activity aligned to RBL capacity and short-term funds.

3.

Accelerated drilling: drilling out of resource base funded by equity or asset farm-downs.

In our analysis, we present group cash flow and EBITDA profiles consistent with each scenario. However, it is important to note that, in line with GDG’s accounting policy, we assume revenues will be booked on a working interest basis rather than an entitlement basis (on completion of the ongoing audit of CNOOC-operated areas of blocks GSS and GSN). Due to a material proportion of existing production coming from legacy CNOOC wells, this is not fully reflected in GDG’s cash flow from operations post-CNOOC cost recovery, hence cash conversion1 is expected to remain low until CNOOC recovers legacy costs. The timing of CNOOC cost recovery varies from case to case, but is an important consideration for investors valuing GDG on the basis of free cash flow or NAV.

  We define cash conversion as post-tax cash flow from operations minus CNOOC cost recovery divided by EBITDA.

Case 1: Minimal capex

In this case, we assume GDG does not drill any new wells across its asset portfolio but addresses production optimisation opportunities. These include wellhead compression and connecting existing well-stock to gas pipeline infrastructure. As of December 2016, only 568 wells of a total of 2,037 wells were connected to infrastructure and selling gas. Under this scenario we forecast that net gas sales rise over the medium term, generating material net free cash flow; however, only 28% of the GSS 2P reserve base is monetised. In this case, we estimate that GDG will require $15-20m of additional funding in the short term to fund small capital items such as compression, together with G&A and debt commitments. Under this scenario, we see gross GSS sales gas exceeding 11bcf, generating material revenues and EBITDA net to GDG. Cash generation and cash conversion are low due to a large percentage of production generated by CNOOC legacy wells and related cost recovery. We expect CNOOC cost recovery in 2026 based on our forecasts. As can be seen in Exhibit 2 below, we see a drop in cash conversion in 2022 after GDG fully recovers its cost pool, and then a step up in 2026 once CNOOC has recovered legacy costs.

Exhibit 1: Growth in GSS gross sales gas and net cash generation post CNOOC cost recovery

Exhibit 2: Group EBITDA and cash conversion

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 1: Growth in GSS gross sales gas and net cash generation post CNOOC cost recovery

Source: Edison Investment Research

Exhibit 2: Group EBITDA and cash conversion

Source: Edison Investment Research

Our valuation in the minimal capex case for the GSS asset is $136m, assuming a well-head gas price (including subsidy) of $7.5/mcf in 2017 rising to $10.5/mcf by the end of the decade. This asset valuation helps underpin current net debt and G&A; however, for equity holders to realise material value from GDG’s CBM resource base, we believe a material investment in new GDG LiFaBriC wells is needed. This would ensure maximum 2P reserve recovery prior to the 2035 PSC expiry.

Exhibit 3: Case 1 – minimal capex case core valuation

Asset

 Country 

Diluted WI

%

CoS

%

Recoverable reserves/resources

 

Net risked value

Sensitivity to discount rate

Gross

Net

NPV/mcf

@12.5% DR

£/share

bcf

bcf

$/mcf

$m

£/share

10.0%

15.0%

17.5%

Net (debt)/cash June 2016

 

 

 

 

 

 

(119.6)

(0.59)

(0.59)

(0.59)

(0.59)

SG&A

 

 

 

 

 

 

(14.6)

(0.07)

(0.07)

(0.07)

(0.07)

GSS 2P

China

60%*

80%

202.6

132.4

1.3

136.0

0.67

0.87

0.53

0.42

GCZ 2P

China

47%

80%

31.1

14.6

3.3

39.2

0.19

0.22

0.17

0.15

GSN 2P

China

50%

80%

36.0

18.0

0.0

0.0

0.00

0.00

0.00

0.00

Core NAV

 

 

 

287.7

154.4

 

40.9

0.20

0.43

0.03

(0.09)

Source: Edison Investment Research. Note: *Option to increase GSS WI to 70%.

Case 2: Base case valuation – driven by GSS RBL debt capacity

In our base case valuation, we assume GDG receives GSS ODP approval in 2017, opening up access to the RBL debt market. We assume attained RBL debt capacity is in addition to the company’s existing $50m convert (due 2020) and $88m corporate bond due November 2017 – for which we assume a maturity extension.

We feel that it is reasonable to assume that GDG will be able to access the RBL debt market for the producing GSS asset and its 47% interest in GCZ – the availability of RBL for Chinese CBM has been demonstrated by AAG Energy receiving a $250m RBL loan for development funding from a consortium of banks including HSBC, Bank of Communications, Standard Chartered Bank, Société Générale and Crédit Agricole in 2015. We see uncertainty around the exact timing of GSS ODP approval but note that there is precedent of Sino-foreign cooperative CBM projects being approved in China; the first such project was AGG’s Panzhuang CBM concession, which was approved for development in 2011, with AAG Energy and CUCBM each holding a 50% stake.

In order to calculate the RBL debt capacity of GDG’s GSS block, we make a number of assumptions in order to determine the borrowing base. Key assumptions are:

RBL pricing assumptions (8% discount rate, $7/mcf rising to $9.5/mcf by 2020 and then rising to LNG parity).

Based on 2P reserves profile but only including GSS and GCZ.

RBL available after ODP approval – assumed in 2017.

Borrowing base is re-determined annually.

Borrowing base is the minimum amount that satisfies the field life and loan life coverage ratios (we use conventional RBL coverage ratios).

After imposing a maximum drilling rate cap of 100 LiFaBriC wells per year in our analysis, our RBL funded drilling schedule for GSS is as outlined in Exhibit 4. Under this scenario, GDG recovers 100% of its GSS gross 2P reserve base of 788bcf. Our analysis suggests that GDG may require a capital injection in early 2017 in order to fund G&A and a limited LiFaBriC well programme ahead of ODP approval and RBL debt access.

Exhibit 4: Base case LiFaBriC drilling assumptions

Exhibit 5: Base case funding requirements vs RBL debt capacity

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 4: Base case LiFaBriC drilling assumptions

Source: Edison Investment Research

Exhibit 5: Base case funding requirements vs RBL debt capacity

Source: Edison Investment Research

In our base case, we see gross GSS sales rising to 60bcf by 2024, with material cash flow (post cost recovery) net to GDG. Cash conversion rises rapidly from 2023, as GDG benefits from a larger LiFaBriC well-stock from which it receives its full 60% of net cash flow and CNOOC fully recovers legacy costs.

Exhibit 6: Growth in GSS gross sales gas and net cash generation post CNOOC cost recovery

Exhibit 7: Group EBITDA and cash conversion

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 6: Growth in GSS gross sales gas and net cash generation post CNOOC cost recovery

Source: Edison Investment Research

Exhibit 7: Group EBITDA and cash conversion

Source: Edison Investment Research

Net cash flow increases rapidly (cash conversion moves towards 75%) once CNOOC has fully recovered its cost balance; we currently forecast that this will occur in 2023 in our base case.

Exhibit 8: Base case core valuation (assumes minimal GCZ/GSN activity with funds deployed on GSS)

Asset

Country

 

Diluted WI

%

CoS

%

Recoverable reserves/resources

 

Net risked value

Discount rate sensitivity

Gross

Net

NPV/mcf

@12.5% DR

£/share

bcf

bcf

$/mcf

$m

£/share

10.0%

15.0%

17.5%

Net (debt)/cash June 2016

 

 

 

 

 

 

(119.6)

(0.59)

(0.59)

(0.59)

(0.59)

SG&A

 

 

 

 

 

 

(14.6)

(0.07)

(0.07)

(0.07)

(0.07)

GSS 2P

China

60%*

80%

788.1

472.9

1.5

556.1

2.74

3.64

2.08

1.59

GCZ 2P

China

47%

80%

31.1

14.6

3.3

39.2

0.19

0.22

0.17

0.15

GSN 2P

China

50%

80%

36.0

18.0

0.0

0.0

0.00

0.00

0.00

0.00

Core NAV

 

 

 

855.2

505.5

 

461.0

2.27

3.20

1.59

1.08

Source: Edison Investment Research. Note: *Option to increase GSS WI to 70%.

Key assumptions that we make in our base valuation are as below:

GDG is able to drill LiFaBriC wells in line with RBL borrowing base at a cost of $1.3m gross per well.

GDG is able to refinance its existing corporate bond in 2017 on similar terms, bridging the gap to rising RBL borrowing capacity.

IP rates for new LiFaBriC wells average 250mcf/d with a 24m plateau and 10% decline rate.

GDG receives ODP approval for GSS/GCZ in 2017, providing RBL debt access. We assume RBL debt capacity is incremental to GDG’s convertible bond and senior secured Nordic bond.

We assume all available capital is deployed on GSS.

GDG receives a two-year licence extension for GSS to 2035 as per the 2014 framework agreement.

Life of field opex costs average $1/mcf.

Gas sales as a percentage of actual gross production (not production capacity) rise to 95%; gas sales to production capacity will be lower in percentage terms.

CNOOC/CUCBM retains cost recovery rights over legacy wells and infrastructure capex spend.

We define sales gas as working interest production volume after utilisation losses, which include gas lost to production, transmission, gathering, compression, power and processing processes.

As can be seen in the table above, our base case NPV12.5 valuation is 227p/share (net of liabilities). Our 12.5% cost of capital is based on the assumption that GDG utilises a combination of high-yield debt (current coupon 10% on convertible), RBL debt, equity and farm-out. We believe a 12.5% cost of capital is a reasonable assumption for through-cycle cost of capital, but we provide a sensitivity to discount rate in our valuation tables. GDG may be able to access lower-cost domestic debt now that GSS and GCZ are included in the government’s five-year plan and we intend to revise our cost of capital assumptions once GDG has secured additional funds.

Exhibit 9: Base case free cash flow (post-financing) and net cash evolution

Exhibit 10: GSS gross gas sales and GSS RBL capacity

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 9: Base case free cash flow (post-financing) and net cash evolution

Source: Edison Investment Research

Exhibit 10: GSS gross gas sales and GSS RBL capacity

Source: Edison Investment Research

Case 3: Accelerated drilling/no funding constraints

Our valuation (net of liabilities) is highly levered to GDG’s ability to fund the drill-out of its reserve base. In our final scenario, we look at the sensitivity of core value (2P net of liabilities) to drilling intensity. Unsurprisingly, we see the greatest GDG group valuation when GSS gas recovery is maximised prior to 2035 licence expiry. We believe that GDG needs to drill 60-80 wells per year to maximise resource recovery in the 2P case, while close to 330 wells would need to be drilled per year to fully exploit GSS 3P reserves. At a cost of $1.3m per LiFaBriC well, this would amount to a gross cost of $78m to $104m per annum in the 2P case. Including risked recovery of 3P CBM reserves (higher well-density) this could rise to in excess of 435p/share RENAV. Finally, if we were to include an intensive drilling programme on GCZ and GSN, this has potential to rise to in excess of 591p/share RENAV.

Exhibit 11: Value sensitivity to GSS LiFaBriC wells/year and average IP rate

Exhibit 12: Net GSS gas sales vs LiFaBriC wells/year

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 11: Value sensitivity to GSS LiFaBriC wells/year and average IP rate

Source: Edison Investment Research

Exhibit 12: Net GSS gas sales vs LiFaBriC wells/year

Source: Edison Investment Research

GDG’s ability to fund accelerated drilling activity will be key in maximising resource recovery and shareholder value. As shown in Exhibit 12, if drilling rates enable full recovery of GSS 2P reserves, valuation increases dramatically.

Exhibit 13: Growth in GSS gross sales gas and net cash generation post CNOOC cost recovery – 80 LiFaBriC wells/year

Exhibit 14: Group EBITDA and cash conversion assuming 80 LiFaBriC wells/year

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 13: Growth in GSS gross sales gas and net cash generation post CNOOC cost recovery – 80 LiFaBriC wells/year

Source: Edison Investment Research

Exhibit 14: Group EBITDA and cash conversion assuming 80 LiFaBriC wells/year

Source: Edison Investment Research

Potential sources of funding include equity, corporate debt, RBL debt (post ODP approval), industry farm-ins and asset sales. In our base case, we assume that GDG accesses the RBL debt market post GSS ODP approval in 2017. Additional injections of capital, over and above our base case, have the potential to significantly increase this pace of drilling being NAV accretive.

Exhibit 15: RENAV assuming 80 LiFaBriC wells/year on GSS 2P in core NAV

Asset

 Country

 

 Diluted WI

%

 CoS

%

Recoverable reserves/resources

 

Net risked value

Discount rate sensitivity

Gross

Net

NPV/mcf

@12.5% DR

£/share

bcf

bcf

$/mcf

$m

£/share

10.0%

15.0%

17.5%

Net (debt)/cash June 2016

 

 

 

 

 

 

(119.6)

(0.59)

(0.59)

(0.59

(0.59)

SG&A

 

 

 

 

 

 

(14.6)

(0.07)

(0.07)

(0.07)

(0.07)

GSS 2P

China

60%*

80%

787.9

472.8

1.5

548.9

2.71

3.60

2.05

1.57

GCZ 2P

China

47%

80%

31.1

14.6

3.3

39.2

0.19

0.22

0.17

0.15

GSN 2P

China

50%

80%

36.0

18.0

1.1

16.2

0.08

0.11

0.06

0.04

Core NAV

 

 

 

855.1

505.4

 

470.1

2.32

3.27

1.62

1.10

GSN 3P drill-out

China

50%

40%

1402.4

701.2

1.1

315.9

1.56

2.23

1.09

0.76

GSS 3P drill-out

China

60%

40%

1504.3

902.6

1.2

421.7

2.08

2.93

1.49

1.08

RENAV

 

 

 

3,761.8

2,109.2

 

1,207.7

5.95

8.44

4.19

2.93

Source: Edison Investment Research. Note: *Option to increase WI to 70%.

As well as exploitation of GDG’s reserve base, we see potential for the company to create incremental value for shareholders through the farm-down or sale of acreage that remains in the early stages of exploration/monetisation (blocks GFC, GQY, GPX, GGZ). We conservatively do not include these assets in our valuation at this point in time and crystallisation of value for these assets would be incremental to our RENAV. The timing of a farm-down or asset sale is of the essence as GDG looks to explore, appraise and monetise this resource base prior to 2035 licence expiry.

Macro impact on gas price realisations

In addition to updating our operational inputs, in this note, we also consider the impact of lower oil prices on GDG’s long-term revenue potential. GDG’s gas price is largely driven by domestic policy; however, we expect that in the medium term, domestic regulated pricing will trend towards LNG import price parity. A reduction in the National Development Reform Commission (NDRC) wholesale price of natural gas in November 2015 of c $3.1/mcf was prompted by a fall in oil and LPG prices and was intended to increase the price competitiveness of natural gas relative to other fuel sources. This was offset by China increasing the cash subsidy for CBM producers from $0.87/mcf to $1.31/mcf. Despite subsidy support, we expect GDG’s realised gas prices to move towards LNG price parity over time (2020 vs previous assumption of 2023) and at a lower absolute gas price than was previously assumed. Our latest model now assumes that current realisations ($7.5/mcf as a blended average of CNG and PNG prices) will remain until 2018, beyond which it will track towards Chinese LNG import price parity. The IEA expects 2021 Chinese gas demand of 320bcm; and import dependency rising from c 30% today to over 40% by the end of the decade. The supply gap will be filled by increasing LNG and piped imports as well as higher cost sources of domestic supply such as shale. Based on Brent crude of $72.6/bbl by 2020, IHS estimates an LNG delivered cost (including transport) of just under $10/mcf. Our modelled gas price assumptions rise from $7.5/mcf, including subsidies, in 2016 to $10.5/mcf by 2020. We note that additional CBM subsidies are possible over this time frame, but these are not included in our base case price assumptions.

Exhibit 16: Edison gas price assumptions $/mcf

Exhibit 17: City gate gas prices outlook to 2030 $/mmbtu as of April 2016

Source: Edison Investment Research

Source: Green Dragon Gas

Exhibit 16: Edison gas price assumptions $/mcf

Source: Edison Investment Research

Exhibit 17: City gate gas prices outlook to 2030 $/mmbtu as of April 2016

Source: Green Dragon Gas

Audited reserves continue to rise

In 2016, for the 10th year running GDG reported an increase in 1P and 2P reserves across its blocks as it continued to migrate reserves and resources from the 3P and prospective categories into 1P/2P (Exhibit 18). This is largely a function of GDG drilling additional wells across GSS, increasing the acreage across which CBM reserves can be allocated. With an ongoing focus on infrastructure development across GSS and GSN, including installation of an additional c 30bcf pa of gas processing over the next one to two years at GSS, we would expect these reserves to continue to increase, even with relatively modest drilling programmes.

Exhibit 18: Annual audited reserves values (bcf)

Exhibit 19: 2P reserves distribution

Source: Green Dragon Gas

Source: Green Dragon Gas

Exhibit 18: Annual audited reserves values (bcf)

Source: Green Dragon Gas

Exhibit 19: 2P reserves distribution

Source: Green Dragon Gas

While the reserves increase is indeed impressive, GDG is aware that the real challenge for the company is recovering the maximum quantity of gas within the defined 20-year production licence it has for each of its blocks following ODP approval. The company currently has 84% of its reserves booked against only 5% of its land position.

Exploration and appraisal

The most significant exploration and appraisal activity in recent months has been the successful drilling of GDG’s first LiFaBriC well into Coal Seam 15. This was an important well as GDG had to demonstrate it could drill into the deeper coal seam, while not intersecting the adjacent water-bearing limestone and drawing in water. In its results presentation, GDG reported CS15 as containing 1.2tcf of gas in place (GIP), hence the potential impact on 1P and 2P reserves is significant, although it remains too early to understand how quickly the recoverable gas within CS15 can be commercially exploited. Coal seam 15 will be produced through existing GSS/GCZ surface infrastructure, hence reducing full-cycle development costs. GDG believes that it may even be able to use/extend existing well bores in order to minimise associated drilling costs.

Beyond CS15, GDG has presented its work programme for the remaining exploration blocks, namely GGZ, GQY, GFC and GPX. The most advanced of these is GGZ where the company drilled eight vertical exploration wells in 2015, producing from six of these to test commerciality. GDG is seeking to move to reserves evaluation and development plan preparation in 2017 at GGZ.

Financials and risks

Our short-term forecasts change materially from our last published outlook note (January 2016) due to several modelling assumptions, including: realised gas prices, LiFaBriC type curves, financing assumptions and timing of ODP approval. Our core base case NAV falls from 328p/share to 227p/share as a result. We note that 80p/share of the change is driven by our lower gas price assumptions.

We see significant uncertainty in our short-term forecasts, which are to a large extent driven by the pace and success of well optimisation and drilling activity. Our base case forecasts are predicated on GDG achieving GSS/GCZ ODP approval in 2017 and getting access to an RBL borrowing base as discussed previously in this note. Without additional funding, our short-term forecasts are likely to be significantly below our base case forecasts and we flag this as a key investment risk.

Exhibit 20: Financial summary (base case assumes GSS/GCZ ODP approval in 2017 and access to RBL debt)

 

 

US$m

2015

2016e

2017e

2018e

2019e

Year end 31 December

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

32.7

24.5

38.1

80.0

136.3

Cost of Sales

(5.4)

(8.5)

(8.7)

(16.3)

(21.2)

Gross Profit

27.3

16.0

29.5

63.7

115.1

EBITDA

 

 

20.1

8.7

22.1

55.8

107.1

Operating Profit (before amort. and except.)

15.0

5.2

23.4

52.1

96.4

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Operating Profit

15.0

5.2

23.4

52.1

96.4

Net Interest

(15.1)

(13.2)

(14.0)

(17.3)

(21.1)

Profit Before Tax (norm)

(0.1)

(8.0)

9.4

34.7

75.3

Profit Before Tax (FRS 3)

(0.1)

(8.0)

9.4

34.7

75.3

Tax

0.2

(1.4)

(4.5)

(10.5)

(21.8)

Profit After Tax (norm)

0.1

(9.4)

4.9

24.3

53.5

Profit After Tax (FRS 3)

(41.9)

(25.1)

4.9

24.3

53.5

Average Number of Shares Outstanding (m)

156.1

156.1

156.1

156.1

156.1

EPS - normalised (c)

 

0.0

(0.0)

0.0

0.0

0.0

EPS - normalised and fully diluted (c)

0.1

(6.0)

3.2

15.5

34.3

EPS - (IFRS) (c)

 

(0.0)

(0.0)

0.0

0.0

0.0

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

83%

65%

77%

80%

84%

EBITDA Margin (%)

61%

36%

58%

70%

79%

Operating Margin (before GW and except.) (%)

46%

21%

61%

65%

71%

BALANCE SHEET

Fixed Assets

 

1,321.2

1,305.2

1,341.3

1,399.0

1,469.3

Intangible Assets

3.0

4.4

4.4

4.4

4.4

Tangible Assets

1,315.9

1,298.3

1,334.4

1,392.1

1,462.4

Investments

2.4

2.4

2.4

2.4

2.4

Current Assets

 

51.5

23.1

24.7

29.2

40.9

Stocks

0.1

0.2

0.2

0.4

0.6

Debtors

22.5

13.5

12.4

21.7

33.3

Cash

26.9

7.4

10.0

5.0

5.0

Other

2.0

2.0

2.0

2.0

2.0

Current Liabilities

 

(15.4)

(2.0)

(2.4)

(4.4)

(20.7)

Creditors

(15.4)

(2.0)

(2.4)

(4.4)

(20.7)

Short term borrowings

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

(659.8)

(653.9)

(686.3)

(722.2)

(734.4)

Bonds

(86.8)

(86.8)

(86.8)

(86.8)

(86.8)

Long term debt (RBL or eq.)

0.0

0.0

(36.1)

(84.2)

(137.4)

Convertible debt

(48.4)

(50.0)

(50.0)

(50.0)

(50.0)

Deferred Tax Liabilities

(154.4)

(150.9)

(150.9)

(150.9)

(150.9)

Other long term liabilities

(370.2)

(366.3)

(362.6)

(350.4)

(309.3)

Net Assets

 

 

697.4

672.4

677.3

701.5

755.1

CASH FLOW

Operating Cash Flow

 

12.4

6.1

19.0

37.9

89.9

Net Interest

(12.3)

(12.9)

(14.0)

(17.3)

(21.1)

Tax

0.0

0.0

0.0

0.0

0.0

Capex

(47.8)

(8.5)

(34.8)

(61.5)

(81.0)

Acquisitions/disposals

0.2

(0.0)

0.0

0.0

0.0

Equity financing and convertible debt

0.0

0.0

0.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

0.1

1.5

(3.7)

(12.2)

(41.0)

Net Cash Flow

(47.3)

(14.0)

(33.5)

(53.1)

(53.3)

Opening net debt/(cash)

52.3

108.3

127.8

161.3

214.4

FX

(5.8)

(5.5)

0.0

0.0

0.0

Other

(2.9)

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

108.3

127.8

161.3

214.4

267.7

Source: Green Dragon Gas accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Green Dragon Gas and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney, NSW 2000

Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Green Dragon Gas and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney, NSW 2000

Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney, NSW 2000

Australia

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