Green Dragon secures deal with China oil giant

SHARES in Green Dragon Gas rocketed last week after the company announced a landmark deal with one of China’s largest state-owned oil companies.

Drummers perform at a ceremony to send off China National Offshore Oil Corp in 2012. Picture: Getty

The agreement with oil giant CNOOC came after Green Dragon last year reported unauthorised drilling on five of its coalbed methane gas licences in China.

As a result of the deal on ownership and development of the sites, Green Dragon expects to see a significant increase in its reserves.

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China United Coalbed Methane Corporation, a subsidiary of CNOOC, has also agreed to spend $100 million (£60m) on exploration of a block in return for an additional 10 per cent interest.

The company said the agreement “substantially de-risks” the company’s assets in China and paves the way for it to rapidly build on existing production and sales and to fully realise market potential.

Founder Randeep Grewal said the company now had a “well-capitalised, supportive partner” committed to developing its acreage.

Analysts also viewed the announcement positively. 
Edison said the ramifications of the agreement gave investors “much to ponder”.

Analyst Ian McLelland said the deal dispels any legacytitle issues hanging over Green Dragon’s wells and brought a “well-funded partner at just the right time”.

Edison has increased its “risked exploration net asset value” to 1,164p a share, 
although it said the “true upside on offer remains unclear, pending an imminent resource audit”. Shares in the company closed at 570p last week, compared to the year-low level of under 190p.

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Analysts at RBC Capital Markets said the statement demonstrated a “much stronger growth trend in the majority of geographies and this bodes well for better momentum” in 2015.

The brokers have increased their price target on the shares to 280p.