interim results october 2018 - g3 exploration/media/files/g/green-dragon-gas/...gdg overview –h1...

Interim Results

October 2018

This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any shares of G3 Exploration Ltd. (the

“Company”) in any jurisdiction. The Company’s shares have not been and will not be registered under the US Securities Act of 1933 (the “Securities Act”)

and may not be offered or sold within the United States absent registration under the Securities Act or an exemption from registration.

The information contained in this presentation is given in good faith but no representation or warranty is made in relation to the accuracy or

completeness of the information, or any oral information provided in connection therewith, or the data it generates and no responsibility, obligation or

liability is or will be accepted by the Company or its affiliates or advisors or by any of their respective officers, employees or agents in relation to it.

This presentation contains certain forward looking statements with respect to the financial condition, results, operations and businesses of the Company.

The statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There

are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking

statements and forecasts.

Past performance is no guide to future performance and persons needing advice should consult an independent financial advisor.

This presentation and the information contained in it are confidential and should not be distributed, published or reproduced, in whole or in part, or

disclosed by recipients directly or indirectly to any other person.

Disclaimer

-3-

Overview

Operational highlights

Financial highlights

2018 outlook

Appendix

Table of contents

-3-STRICTLY CONFIDENTIAL & PROPRIETARY

SUBJECT TO CONFIDENTIALITY AGREEMENTS

-4-

• Two producing assets selling gas at high margins, including government subsidies which highlights

their support for increased production

• Large acreage, with substantial gas reserves, located inland and well positioned to serve the main

manufacturing and population centres of the world’s largest energy consumer

• Attractive PSCs, protected by Holland-PRC bilateral treaty, providing gas, mainly to large SOEs on

long-term GSAs, at prices insulated from international markets

High margin gas

production in

China

Well established

operations

positioned for

growth

Strengthened

corporate and

operational

management

• Drilling and completion techniques tailored to deal with the brittle coal and faulted geology of China -

LiFaBriC

• Gas production to increase significantly with further development drilling and by implementing well-

completion upgrades and production optimisation of existing well stock

• Sales ramp up supported by enhanced well-to-market infrastructure and increased processing

capacity

• Highly experienced operational team with strong track record within coal bed methane

• Corporate management team strengthened with solid energy sector expertise

• High quality shareholder base including Aberdeen, Clermont, Fidelity, GAGH, GIC and Platinum

Asset Management

-4-

Summary

STRICTLY CONFIDENTIAL & PROPRIETARY


-5-

Assets in Commercial Chinese CBM Basins

Blocks’ summary Geographic location

GSS

Greka Interest: 60%1

Partner: CNOOC

Operator: Greka

Total: Wells 1,339 wells2

GCZ

Greka Interest: 47%

Partner: PetroChina

Operator: PetroChina

Total Wells: 114 wells2

GSN

Greka Interest: 50%

Partner: CNOOC

Operator: CNOOC


GQY (B)

Greka Interest: 60%

Partner: CNOOC

Operator: Greka


GFC

Greka Interest: 49%

Partner: CNOOC

Operator: Greka


GPX

Greka Interest: 60%

Partner: CNOOC

Operator: Greka


GGZ

Greka Interest: 60%

Partner: PetroChina

Operator: Greka

Total Wells: 45wells2

Capital of Province

Group Coalbed Methane Blocks

P

D

EA

Production

Development/Pilot Stage

Exploration and Appraisal

Xinjiang

Tibet

Qinghai

Gansu

Ningxia

Sichuan

YunnanGuangxi Guangdong

Hong Kong

Fujian

Zhejiang

Shanghai

Jiangsu

Shandong

Tianjin

Beijing

Liaoning

Inner Mongolia

Jilin

Heilongjiang

Hainan

Chongqing

Hubei

Shaanxi

Hunan

Henan

Guizhou

Anhui

Shanxi

Jiangxi

Baotian-

Qingshan Block

(GGZ) 947km2

Qinyuan Block

(GQY A&B)

3,665km2

Shizhuang

North Block

(GSN) 375km2

Shizhuang

South Block

(GSS)

388km2

Chengzhuang

Block (GCZ)

67km2

Panxie East

Block (GPX)

584km2

Fengcheng

Block (GFC)

1,541km2

P

P

EA

EA

D

GQY (A)

Greka Interest: 10%

Partner: CNOOC

Operator: CNOOC


Notes:

1. Can be increased to 70% on option exercise

2. Includes non-operated wells

Gre

en

Dra

go

n G

as

G3

Exp

lora

tio

n


SUBJECT TO CONFIDENTIALITY AGREEMENTS-5-

D

EA

-6-

Overview – H1 2018 Operational Achievements



GSS & GCZTotal Gas Sales

2.7 Bcf

GSS & GCZDrilled Wells 1453Online Wells 1121

Connected Wells 1063

GSS Infrastructure Build Ahead of Schedule

479 New Wells connected234 New Wells Online

GCZ ODP Approved, ODP in Progress

4 IPF1 Operational 1 in Test Run

3 Under Construction

56 Wellhead Compressors;GSS 46 Units GCZ 10 Units

Source: Company

1. IPF: Integrated Production Facility (Gas Mother Stations in GSS and GCZ block)

GSS & GCZ95% Online Wells

Connected to Infrastructure

GSS Gathering SystemGas Pipelines: 677kmPower lines: 608km

-7-

Overview – Operational Achievements


SUBJECT TO CONFIDENTIALITY AGREEMENTSSource: Company

GSS Greka and CNOOCTotal Pipelines: 677km

Total Power lines: 608km

• Guizhou Block exploration program successfully accomplished, next phase being discussed with Petro China• Jiangxi, Anhui, Shanxi exploration blocks’ development potential re-assessed with non prospective acreage identified• Composition of board of directors enhanced with the addition of Bryan Smart and Zhao LiGuo

• Revenue of US$13.7 million (H1 2017 - US$11.2 million), 22 % increase• Gross revenue of US$8.7/mcf (H1 2017 - US$7.2/mcf), 21% increase• EBITDA of US$8.7 million (H1 2017 - US$6.1 million), 43% increase• 1,063 wells of 1,453 connected to pipelines, four gas mother stations operational at GSS and GCZ block by Greka, CNOOC and CNPC

G3 Exploration

Green Dragon Gas

-8-

GDG Overview – H1 2018 Financial Achievements



RevenueU$13.7 million

22%

EBITDAUpstream Business

U$8.7 million43%

Net ProfitUpstream Business

U$5.3 million18%

Sales PriceGCZ $9.2/McfGSS $8.9/Mcf

Net AssetsGDG - U$322 millionG3E – U$652 million

Source: Company

-9-

GFC

Net: 24

PV10:

US$363m

GSN

Net: 601

PV10:

US$2,929m

GFC

Net: 215

PV10:

US$3,133m

GQY

Net 1C: 4

Net 2C: 17

Net 3C: 30

GQY

Low Est: 194

Best Est: 817

High Est : 1,880

GFC

Low Est: 98

Best Est: 214

High Est: 731

GPX

Low Est: -

Best Est: 17

High Est: 442

GGZ

Low Est: 440

Best Est: 494

High Est: 556

Net: 5Bcf

PV10: US$34m

Capex: USD3m

Net: 70 Bcf

PV10: US$879m

Capex: USD56m

Net: 920 Bcf

PV10: US$7,526m

Capex: USD574m

Net 1C: 667 Bcf

Net 2C: 762 Bcf

Net 3C: 1,099 Bcf

Low: 732 Bcf

Best: 1,543 Bcf

High: 3,611 Bcf

GSN

Net: 16

PV10:

US$89m

GGZ

Net: 30

PV10:

US$427m

GGZ

Net: 104

PV10:

US$1,464m

GSN

Net 1C: 1

Net 2C: 3

Net 3C: 187

GFC

Net 1C: -

Net 2C: 5

Net 3C: 57

GGZ

Net 1C: 662

Net 2C: 737

Net 3C: 825

-9-

Source:

NSAI estimates as of yearend 2017STRICTLY CONFIDENTIAL & PROPRIETARY


Eight Blocks with 2P Value of $2.4 billion USD

GGZ

Net: 1

PV10:

US$9m

GSS

Net: 276

PV10:

US$1,385m

GSS

Net: 1,068

PV10:

US$4,935m

GSS

Net: 78

PV10:

US$369m

GCZ

Net: 56 Bcf

PV10:

US$288m

GCZ

Net: 14 Bcf

PV10:

US$72m

GCZ

Net: 31 Bcf

PV10:

US$155m

1P

Net: 92 Bcf

PV10: US$441m

Capex: USD52m

Net: 307 Bcf

PV10: US$1,539m

Capex: USD156m

Net: 1,125 Bcf

PV10: US$5,223m

Capex: USD765m

2P

3P

Contingent

Prospective

1P

2P

3P

GSN

Net: 4.5

PV10:

US$25m

GDG net 2P reserves of 307 bcf with PV10 value of U$1.5 billion

G3E net 2P reserves of 70 bcf with PV10 value of U$879 million

-10-

Overview



2018 outlook

Appendix

Table of contents



-11-

Guizhou Block Moving Towards First Gas

-11-

Source:

NSAI estimates as of yearend 2017STRICTLY CONFIDENTIAL & PROPRIETARY


3,264

1,130 1,141 1,179

762 775 884 1,066

840

380360

552

290 300

380400

0

100

200

300

400

500

600

700

800

900

-

500

1,000

1,500

2,000

2,500

3,000

3,500

BQ 19 BQ18E BQ16 D1 BQ1D1 BQ2 BQ17 BQ16E BQ16 D1

Peak production ( m3/day) Casing pressure (Kpa)

De-risked 7 major coal seams

8 wells showing commercial gas rates, First Sales in Q4 2018

NSAI 3P reserves $ 1,464 million

Chinese Reserve Reportsubmitted to PCCBM,

ODP in progress

GGZ Block

Location Guizhou Province

PSC Area 947 km2

G3E Working Interest 60% (operator)

Chinese Partner PetroChina

PSC Expiry 2035

GIIP 6,038 Bcf

Wells Drilled 45 + 585 (slim holes)

Major Coal Seams Seven major coal seams

Wells Produced 15 wells

NSAI 1P (net volume/PV10) 1 bcf / $10 million

NSAI 2P (net volume/PV10) 30 bcf / $427 million

NSAI 3P (net volume/PV10) 104 bcf / $1,464 million

Chinese Reserves Report Submitted to PCCBM

ODP In progress (H1 2019)

-12--12-

GDG – 1453 Wells Drilled, 95% of CNOOC Online Wells

Connected to Sales Channels

Notes:

1. Well counts as of 31 Aug 2017STRICTLY CONFIDENTIAL & PROPRIETARY


GSS Greka

• Gas sales increment from existing

wells

• Application of continuous

compression at wellheads

• One mother station operational

GSS CNOOC

• Infrastructure construction and

pipeline connections ahead of

schedule

• Two mother stations operational

• 78% of drilled wells are online

• 95% of online wells are connected to

sales channels

CNPC

• 10 wellhead compressors running to

reduce wellhead pressures

• Targeting coal seam 15 to increase

sales volumes from existing wells,

superb results with high gas sales

volumes

• ODP implementation in progress

Total Wells1

CNOOC

Operated1,139

250

850

330

39 19

70

111

105

200

889 130

Pending

completion

Pending

completionOnlineOnline

Infrastructure

Connected

Sales Wells Sales Wells

0

12

102

85

114

102

Pending

completionOnline

Sales Wells

1,453

GDG

Operated

CNPC

Operated

Infrastructure

Connected

Infrastructure

Connected

-13--13-

Source:

NSAI estimates as of yearend 2017

* Can be increased to 70% on option exercise



GDG – Producing Assets Located in Prolific Qinshui Basin

GSS Block GCZ Block

Location Shanxi Province Shanxi Province

PSC Area 388 km2 67 km2

G3E Working Interest 60% (operator)* 47%

Chinese Partner CUCBM (CNOOC) PetroChina

PSC Expiry 2033 2033

GIIP 3,163 Bcf 275 Bcf

Equity Wells 1,339 114

Major Coal Seams Two major coal seams Two major coal seams

NSAI 1P (net volume/PV10) 77 bcf / $369 million 14 bcf / $72 million

NSAI 2P (net volume/PV10) 275 bcf / $1,385 million 31 bcf / $154 million

NSAI 3P (net volume/PV10) 1,068 bcf / $4,936 million 56 bcf / $288 million

GDG – Gas Sales Track Record

Source: Company - 15 -

143

162 156

175 161 162 160

171 174 164 169

145

125 126 139

152 152 157 153 156

0

20

40

60

80

100

120

140

160

180

200

Greka GSS Sales Volume (Mmcf)

65 60 68

59

73 81 83

90 90 95 87 85

95 91 101

109

126 135

148 154

0

20

40

60

80

100

120

140

160

180

CNOOC GSS Sales Volume (Mmcf)

249 229

251 244 250 239 246 239

224 231 219 218 211

184 206

195 203 190 190 186

020406080

100120140160180200220240260280

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

No

v-1

7

Dec

-17

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

CNPC GCZ Sales Volume (Mmcf)

GSS CNOOC

• Infrastructure construction and pipeline connections

ahead of schedule

• Two mother stations operational, one in test run

• 78% of drilled wells are online

• 95% of online wells are connected to sales channels

-15--15-

Focus on infrastructure built and connections

of existing well stock to sales channels

Notes:

Data as of 31 Aug 2018

IPF: 3 Online, 1 Test run, 3 In construction

Online IPF

• Three mother stations (IPF)

operational, one in test run

• 111 Greka wells connected to

sales channels

• 850 CNOOC wells connected to

sales channels

• Total of seven IPFs to be

operational by yearend 2019

• Infrastructure construction

progress is monitored through

quarterly arranged JMCWells need infrastructure connections

Test run IPF In construction IPF

-16--16-

GSS GDG Well GSS Greka IPF

GSS Greka Compressor

GSS Block – Field Operations

GSS GDG Wellhead

Source: Company

-17--17-

GSS IPF - 2

GSS IPF - 3 GSS IPF - 4

GCZ IPF - 1

GDG – Infrastructure Build: Last Milestone

Source: Company

Operational Operational

Operational Operational

-18--18-

GSS IPF - 8

Satellite imageLand lease acquired, civil work in progress

GSS IPF - 6

Satellite imageLand lease acquired, civil work in progress

GSS IPF - 7

Satellite imageLand lease in progress

GSS IPF - 5

IPF completed,under test run

GDG – Infrastructure Built: Last Milestone

Source: Company

-19--19-

GDG – GCZ Block ODP Approved by NDRC

Source: Company

Block area; 67 km², ODP covers; 33 km² GIIP; 294 Bcf, EUR; 176 Bcf Drilled wells; 114 , Online selling gas; 85 wells Drill additional 147 production wells in next two years Future development of both coal seam #3 & coal seam #15 Gross production capacity; 6.35 Bcf per year Two years development period Total future development cost; c. US$55 million CNPC and Company to invest according to participating interest Block is jointly operated by CNPC and the Company through a Joint Management Team based in Jincheng, Shanxi

-20-

Overview



2018 outlook

Appendix

Table of contents



-21--21-STRICTLY CONFIDENTIAL & PROPRIETARY


GDG - Highlights of Financial Performance

Source: Company

(US$ million) H1 2018 H1 2017 %

Revenue (No elimination) 13.7 11.2 22%

Cost of sales (3.5) (4.5) (22%)

Gross profit 10.2 6.7 52%

Margin 74% 60% 24%

Other income 0.2 0.2 0%

SGA (1.7) (0.8) >100%

DDA (3.4) (1.6) >100%

Profit from operations 5.3 4.5 18%

Margin 39% 40% (1%)

Finance costs - -

PBT 5.3 4.5 18%

Income tax - - -

Net profit 5.3 4.5 18%

EBITDA 8.7 6.1 43%

GDG – Highlights of Financial Performance

- 22 -Source: Company

(US$ million) H1 2018

Property, plant and equipment140.4

Gas exploration and appraisal

assets 216.3

Total assets369.4

Trade and other payables18.5

Deferred tax liabilities28.9

Total liabilities47.5

Total equity321.9



G3E - Highlights of Financial Performance

Source: Company

(US$ million) H1 2018 H1 2017 %

Revenue - - -

Cost of sales - - -

Gross profit - - -

Other income - - -

SGA (1.6) (1.7) (6%)

DDA - - -

Loss from operations (1.6) (1.7) (6%)

Net finance costs (9.2) (2.6) (>100%)

LBT (10.8) (4.3) (>100%)

Income tax - - -

Net (loss) from continuing operation (10.8) (4.3) (>100%)

Net (loss)/profit from discontinued operation 4.5 4.7 (3%)

Net loss for the year (6.3) 0.4 (>100%)



G3E - Highlights of Financial Performance

Source: Company

(US$ million) H1 2018 YE 2017 %

Property, plant and equipment 0.3 0.0 >100%

Gas exploration and appraisal assets 613.8 617.9 (1%)

Assets of disposal group classified as

held-for-sale 372.0 380.1 (2%)

Total assets 996.9 1,009.2 (1%)

Convertible notes 55.9 53.1 5%

Bonds 104.0 95.9 8%

Liabilities of disposal group classified

as held-for-sale 50.0 50.5 (1%)

Total liabilities 345.2 337.4 2%

Total equity 651.6 671.8 (3%)

-25-

Overview



2018 outlook

Appendix

Table of contents



-26-

2018 Outlook: Recapitalize Balance Sheet



• Repay two bonds from debt and equity issuance in Green Dragon Gas • Conclude evolution to exploration and development business• Finalise Dividend in Specie for producing assets• First gas in Guizhou Block• Expand into additional geography

• Infrastructure focus to monetize invested capital• Expedite mother stations construction and sales increment from CNOOC wells• Launch GSS LiFaBric drilling programme to further increase sales volumes• Commence GCZ ODP to drill 147 wells through yearend 2019

G3 Exploration

Green Dragon Gas

Source: Company

-27-

Overview



2018 outlook

Appendix

Table of contents



-28-

First License

First Gas

Gas production

commences at

GSS

Greka commences

Chinese operations

First PSC signed on the

GFC block

Acquisition of four

additional

licenses

Commenced operations

on the ground

Signing of four other

licenses including

Shizhuang South

Public Floating on AIM

The Company listed on

the Alternative

Investment Market in

London on August 17,

2006.

Technological

Breakthrough

MWD (Measurement While

Drilling) and LWD (Logging

While Drilling) facilitate

LiFaBriC development

Signed an agreement with

Conoco Philips

LiFaBriC

Lined Faulted

Brittle Coal

Improved

drainage factor

Greka Drilling Dividend

8th March demerger of

Greka Drilling

Addition of 2 CNG stations

in Pindingshan

Upgrade of Infrastructure

Production Facilities to

support 28 new wells of gas

production

Landmark

Government Ruling

Chinese Government rules in favor of

Green Dragon on validity of PSC

Greka Engineering and

Technology Dividend

30th Sept demerger of

Greka Engineering

Zhengzhou Greka Gas

Co Ltd entered into a

20-year agreement with

PetroChina Huabei

Oilfield

Binding Agreements with

CNOOC and

PetroChina

Landmark agreements lead to shareholder

participation in 1,800 wells

FTSE 250 Foundation for Success

Strengthening cooperation with

Chinese Partners

GCZ ODP Implementation

Continuous compression at

GSS along with CNOOC

infrastructure built

Guizhou first test gas sales

1997-

1999

2000 -

20022008 20092003 2006 2012 2013 2014 2015 2018

-28-

History and Corporate Milestones


SUBJECT TO CONFIDENTIALITY AGREEMENTSSource: Company

-29-

Government Objectives

Increase CBM consumption to 10% of energy mix by 2020

Increase investment in CBM development, adding 420 BCM by 2020 to national proved

reserves

Increase production to 24 BCM in 2020, an increase of 33% from 2015

Decrease colliery gas incidents by 15% by 2020

Benefits to G3 Exploration

Blocks named priority CBM Blocks/“The Key Projects”

Increased investment certainty - support actions with special funds for CBM projects

Continued support in increased subsidy expected

Relaxed VAT rules on imported CBM equipments

Source: NEA

-29-

Impact of 13th Five Year Plan on G3 Exploration



-30-

• Conventional gas prices have historically been tightly regulated by the

NDRC, which set a base price for different onshore fields and pipelines

based on types of end users supplied

In recent years, the NDRC has undertaken a number of reforms to

raise the legacy base price of natural gas in order to encourage its

greater production and general adaptation

• Unconventional gas prices (including CBM) are unregulated2 and are

driven by demand and supply trends in the respective regional markets

with reference to prevailing natural gas prices

Each province sets prices for natural gas within its territory based on

the NDRC guidance

The retail CNG pricing follows the city-gate pricing levels set by the

Central Government

Supportive Pricing and Regulatory Environment

-30-

China City Gate Gas Prices1 ($/Mcf) China Gas Prices and Market Structure

10.6

8.1

9.810.1

8.89.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

201

5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

202

3

202

4

Shanghai Xinjiang Inner Mongolia

Jilin Beijing Sichuan

Hubei GCZ GSS

The process of market and series of 2010-15 price reforms, combined with increasing demand for gas, have substantially

increased average realised gas prices received by gas producers in China post 2015

GSS and GCZ Blocks Contract Pricing (2018)

RMB/m3 $/MCF

AreaContract

PriceSubsidy

Received

Price

Contract

PriceSubsidy

Received

Price

GSS 1.70 0.40 2.10 7.52 1.77 9.30

GCZ 1.81 0.40 2.21 8.01 1.77 9.78

• GDG’s prices are under long-term GSAs with Greka Integrated Production

Ltd. and CNPC for GSS and GCZ Blocks, respectively, and include

subsidies issued by the MOFC3 and the Shanxi provincial government

Sources:

1. IHS Energy, China's Energy Statistical Yearbooks, updated August 2016.

2. Except when combined with conventional domestic or imported pipeline gas after pipeline transport.

3. Ministry of Commerce, People’s Republic of China.

Inclusive of VAT

-31-

Strong China Gas Fundamentals

-31-

Gas Share of China’s Total Primary Energy Mix The Energy Strategy Targets

Growing energy demand and heightened interest for clean energy sources are driving the growth in China’s natural gas

industry

Gas Demand Factors Gas Supply Factors

• Gas share of China’s 2016 total energy mix has grown consistently since 2005

(from 2.4% to 6.4%)1

• However, it remains substantially below the average 29.5%2 share of gas in the

global energy mix

UrbanisationGrowth in

manufacturing

Industries

Coal-to-Gas switch

Gas-to-Power

switch

Electricity for

electric vehicles

Steam assisted

gravity drainage

LNG & CNG

powered vehicles

Small loads

LNG market

development

Gas market

liberalisation

• The Energy Strategy will encourage the removal and/or reduction of non-market

obstacles to the growth of Gas’ share in China’s energy mix, and consequently

will further enhance demand for Gas to 2030

6%0%15%

0%

2016 2030

Gas share of the primary energy mix

• Lack of both domestic supplies and the infrastructure to move bulk supplies of

gas cheaply into and within China.

• China experienced acute gas shortage in the winter of 2017 when demand for

domestic and household gas led to supplies being withheld from industrial users

Conventional productionUnconventional production

(CBM, CMM, Coal-to-Gas)

Net pipeline imports LNG import

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Sources:

1. China’s National Bureau of Statistics.

2. BP Statistical Review of World Energy 2017 (excluding China).

2-3x

interim results october 2018 - g3 exploration/media/files/g/green-dragon-gas/...gdg overview –h1...

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