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ANNUAL REPORT 2013
Highlights 2
Chairman’s Statement 4
Business Review 8
Financial Review 18
Board of Directors 22
Directors’ Report 24
Statement of Directors’ Responsibilities 30
Independent Auditors’ Report 31
Consolidated Statement of Comprehensive Income 32
Consolidated Statement of Financial Position 33
Consolidated Statement of Changes in Equity 35
Consolidated Statement of Cash Flows 36
Notes forming part of the Financial Statements 38
Directors, Company Secretary and Advisors 96
HIGHLIGHTS
02
FINANCIAL & CORPORATE HIGHLIGHTS• ReportedrevenueofUS$62.2m(US$32.4GCZ2010-2012)
• 2013continuingoperationsrevenueUS$29.8m,(US$8.1mrevenuein2012),a268%increase
• Sale of non-core assets for US$65m (BeijingHuayouUnited Gas Development Co. Ltd andGiant Power International
InvestmentLimited),creatingagainondisposalofUS$33.4m
•US$70mraisedduringtheperiodunderreviewthroughtheissueofbondsandwarrants:n IssueofUS$35mbondwithwarrantstoMandolinCapitalPte.Ltd.n RaisedUS$35mthroughissueofconvertiblebondfromGICPrivateLimited
• RedeemedalloutstandingConvertibleBonds,amountingtoUS$84.2m
• CashofUS$34.6mat31December2013
• GrekaEngineering&TechnologyLtddividendinspecietoGreenDragonshareholders
OPERATIONAL HIGHLIGHTSUpstream• Reportedgasproductionof9.64Bcf(4.78BcfGCZ2010-2012)
• 2013productionof4.86Bcf(20121.78Bcf),a173%increase
• BindingMOUsignedwithPetroChinaforparticipatinginterestinGCZBlock
• BindingagreementsignedwithCNOOCandCUCBMoverGSS,GSN,GQY,GFCandGPXBlocks
• 1,867wellsdrilledacrossallblocks
• 9additionalLiFaBriCwellsdrilledacrossallblocks–bringingtotalnumberto71:n 1,578wellsacrossGSS(inclusiveofwellsatGCZasundersamePSC)n 289wellswereacrosstheexplorationblocksGFC,GQYGSN,GPX,GGZ
GREEN DRAGON GAS ANNUAL REPORT 2013 03
Gas Sales• Reportedgassalesof8.01Bcf(GCZ4.48Bcf2010-2012)
• PipedNaturalGassales(PNG):n GCZgassalesviaPNGof2.0Bcfn GSSgassalesviaPNGsalesof715MMcf
• CompressedNaturalGas(CNG)sales–retailstationsales:n 65%increaseto540MMcf(15.3millioncubicmeters)(2012:327MMcf):
n 14.3%camefromGSSblockproduction(77MMcf)n 85.7%wasacquiredfromthirdparties(463MMcf)
• CompressedNaturalGas(CNG)sales–Industrialcustomers:n Decreased32.8%to282MMcf(7.99millioncubicmeters),(2012:419MMcf/11.89millioncubicmeters)–reduction
due to suspension of sales while the government concludes new permit policies which are expected to be completed in
Q32014.
NoteMMcf means millions of cubic feet; Bcf means billions of cubic feet.
CHAIRMAN’S STATEMENT
04
INTROduCTIONThefocusof2013wastoputGreenDragoninabetterpositiontobeabletofullyrealizetheeconomicbenefitofitsverysizable
assetsintheprovincesofChina.Thiswassuccessfullyachievedthroughacombinationofresolvingthetitleconcernsoversome
oftheCompany’sassetsandstreamliningthebusinesstowardsthatofafocusedexploration&production(“E&P”)company.
All concerns over title to the Company’s assets were resolved in July with the reissue of the related licences to the Company by the
CentralGovernmentandthesubsequentwithdrawalbyCUCBM/CNOOCoftheerroneousterminationnoticesthathadappeared
onitsownwebsiteinMarch2011.
ThesubsequentdiscoveryofsignificantoperationalactivitybyCNPC/PetroChinaandCUCBM/CNOOContheCompany’slicence
areas during the intervening period led to the signing of agreements that have secured substantial economic value for the
Company, both retrospectively and in the future, and secured strong partnerships with these companies and new management
teamsthatwillpavethewayforshareholderstofullybenefitfromtheinherentvalueoftheassets.
Randeep S. GrewalFounder & Chairman
GREEN DRAGON GAS ANNUAL REPORT 2013 05
Chairman’s statement
Also,duringtheperiod,theBoardandmanagementteamundertookastrategicreviewofthebusiness.ThiswasconcludedinQ1
2013andledtothestreamliningoftheCompanytobeamorefocusedpureplayE&P.Consequently,theCompany’snon-core
pipelinebusiness,BeijingHuayou,wassoldforUS$65m,creatingaprofitonthesaleofUS$33.4m,andGrekaEngineering&
TechnologyLtdwasdemerged,becominganindependentlylistedcompany.
TheCompanysawsignificantincreasesinproduction,gassalesandrevenuesduringtheyear.Withorganicactivitymaintained,
theseincreasesarelargelyareflectionofthebindingagreementsignedwithPetroChinainDecember.ThissecuredtheCompany’s
47%interestingasbeingproducedbyPetroChinafromtheCompany’sGCZblock.
OPERATIONSTheCompanyelectedtoslowinvestmentincapitalexpenditure,inaccordancewiththetermsofitsPSCs,whileuncertainties
remainedovertitletoitsassets.AlthoughresolvedinJuly2013,furtherclaritywasthenneededastothesubsequentdiscovery
ofextensiveactivitybythirdpartiesontheCompany’slicenceareasbeforeinvestmentcouldfullyrecommence.
Assuch,duringtheperiodunderreview,9additionalLiFaBriCwellsweredrilledbringthetotalnumberto71acrossallblocks.
OurbindingagreementswithCNOOC,CUCBM,CNPCandPetroChinasubstantiallyde-riskstheCompany’sassets,pavingthe
wayforustorapidlybuildonexistingproductionandsalesandtofullyrealizethemarketpotentialforGreenDragon’sgasin
China.Wenowhavewell-capitalized,cooperativeandsupportivepartnerswithmanagementteamscommittedtodevelopingour
vastacreageandproducingthesubstantialgasresourcewithusoverthenext20years.
TheCompanynowhasadirectequityinterestinover1,800drilledwells.Theequityinterestvariesbetween47%-70%andthe
total investedcapitalexceedsUS$1billionandanadditionalUS$250millionisbudgetedtobedeployedoninfrastructureto
marketthegasresourcedeveloped.Wehaveindeedmigratedfromanexplorationcompanytoaproductioncompanywitha
substantialprovenreserveandalargeacreagepositiontodevelopfurther.
SALESTotalsalesinclusiveofshareofcumulativegassoldfromGCZamountedto8.01Bcf,ofwhich6.48Bcfwasattributabletothe
GCZBlock(2.0Bcfin2013and4.48Bcffrom2010-2012)and1.53BcfwasattributabletotheGSSMainBlock.Thisrepresents
a424%increaseovertheprioryear.67.5%ofthegassoldbytheCompany’sdistributionarmcomesfromtheGSSblock,withthe
remaining32.5%beingacquiredfromexternalparties.Gasisacquiredfromthirdpartiesinordertomeettheincreasingdemand
andovertimewillbereplacedbygasproducedfromGreenDragon’sassets.
PipedNaturalGas(PNG)salesduring2013totaled7.2Bcf.PNGSalesarefromGCZandGSSanddelivergasthoughtheWest
EastPipeline infrastructure.GSSSalesaremadeunder the20 year agreemententered into in June2011withPetroChina.
AdditionalsalesfromCNOOCandCUCBMintothewesteastpipelinewilladdtothegrossgassalesin2014andbeyond.
TheCompanyalsosellsCompressedNaturalGas(CNG)forvehicleusethroughitsseriesofCompany-ownedCNGretailstations
locatedinandaroundits licenceareas.In2013,salesofCNGthroughtheseoutletsamountedto540MMcf,representinga
65%increaseon2012anda5%increaseoverthesameperiodlastyear.Thisincreaseinsalesisprimarilyduetothenumber
ofoperatingCNGstationsincreasingto6from5ayearagoandtheexpansionofourfleetofdistributiontrucks.TheCompany
hopestobeabletobringanadditionalthreestationsintooperationduringtheremainderofthisyear.
CHAIRMAN’S STATEMENT
06
dEmERGER OF GREkA ENGINEERING & TECHNOLOGy ANd SALE OF NON-CORE OPERATIONSWecompletedthedemergerofGrekaEngineering&TechnologyLtdfromGreenDragon.Itwasourseconddividendinspecie
sinceourlistingsixyearsagoandisareflectionoftheCompany’ssuccessfulstrategyofdemergingnon-corematurebusinesses
thathavesignificantpotentialasstandalonebusinesses.IthasresultedinGDGbecomingafarmorestreamlinedandefficient
business,focusedpurelyonitscoreupstreamE&Poperations.SimilartotheGrekaDrillingLimiteddividend,whichcreatedan
independentlysuccessfuloperatingenterprisewhilstalsoprovidingGreenDragonshareholdersanopportunitytomonetizetheir
returnsattheirdiscretion,weexpectGrekaEngineering&Technologywillmirrorthissuccess,bothoperationallyandincreating
shareholdervalue.EachofthesebusinesseswerecreatedfromatechnologyandaptitudenecessitybyGreenDragontodevelop
thevastandcomplexCBMresource, thesuccessful technology isnowcontractedbyGreenDragonas is typicalwithin the
industryratherthanservicecompanyownerships.
Duringtheperiodwesuccessfullysoldthenon-coremid-streamgaspipelineinterestsforUS$65m,atarespectable14%IRR
return,creatingaUS$33.5mprofit.ThesecomprisedtheCompany’s29%interestintheBeijingHuayouUnitedDevelopmentCo
andits100%interestinGiantPowerInternationalInvestmentLimited;whichincludedtheCompany’sinterestsinthewholesale
gasdistributionpipelinenetworkunrelatedtotheupstreamCBMassets.
FINANCIALSReportedrevenuefromcontinuingoperationsincreasedtoUS$62.2m(US$8.1m:2012).Theincreaseinrevenuewasprimarily
driven by the agreement with PetroChina signed in December, which allowed for the Company’s cumulative share of the sale of
gasbyPetroChinafromtheGCZblock,amountingtoUS$48.2m(US$15.8min2013andUS$32.4mfrom2010-2012)since
commencement,recognizedin2013.
E&PcapexwasUS$12.3m.ThislowerdiscretionaryspendreflectedtheprudentapproachtakenbytheCompanytolimiting
investmentwhilethefinalbindingagreementsweresigned.
Finally,duringtheperiod,wealsosignificantlystrengthenedourbalancesheet,raisingatotalofUS$135mfromthedisposal
ofnon-coreassetsandtheissuanceofUS$70mofbondsandwarrants.US$84.2mwassubsequentlyusedtorepayinfullthe
outstandingConvertibleBonds.At31December2013,theGrouphadcashofUS$34.6m.
TheCompanyisalsopleasedtoannouncethatithas,sincetheyearend,issuedanadditionalUS$50mofconvertiblebonds
toGICPrivateLimitedfollowingthefullconversionoftheentireUS$35mconvertiblebondissuedtoGICPrivateLimitedduring
2013.GreenDragonwarmlywelcomesitsfirstsovereignwealthfundtotheshareholderregisterasaresult.
ThearbitrationtribunalrelatingtofundspaidtotheCompanybyConocoPhillipsChinaInc(COPC)inrelationtoafarm-indeal
enteredintoin2009,awardedCOPCUS$42.6mpluscostsduringtheperiod.TheCompanysubsequentlyfiledanappealwhich
focusesonthebreachofnaturalinjusticeandlackofdueprocessbythetribunal.GreenDragonwillupdateitsshareholderson
thisprocessasappropriate.
Thenon-cashfairvalueadjustmentinrelationtotheUS$35mbondissuancewithwarrantsresultedinachargeofUS$13.3m
throughyearend.
GREEN DRAGON GAS ANNUAL REPORT 2013 07
Chairman’s statement
OuTLOOkOurresultsfor2013demonstratethesignificantvalueduetoGreenDragonasaresultoftheagreementreachedwithPetroChina
duringtheyear.Subsequenttotheyearend,agreementswerereachedwithCNOOCandCUCBMwhichwillresultinfurther
increases inproductionasaresultof theirworkperformedonourGSSandGSNblocks.Whencombinedwith increases in
productionexpectedduring2014fromtheCompany’sorganicdrillingprogramme,welookforwardtoanotheryearofsignificant
progress.
AspartofouragreementswithCNOOCandCUCBM,theyhaveplannedtospendafurtherUS$250moninfrastructureatGSS
onwhichwearebeingcarried.Asourexistingwellsareconnectedtothisnewinfrastructureitisexpectedthattheassociated
reserveswillberecognisedbyNSAIwiththeirauditedreservenumbersandvaluationsmigratingtothoseestimatedbyourin-
housereservoirengineersinOctober2013.
Oneveryvaluematrix,thisisanexcitingtimeforGreenDragonandthusitsshareholders.Duringtheexplorationperiod,GDG
successfullyprovidedtwodividends,hasover1800wellsdrilledwithUS$1billion incapitaldeployedontheassets,atrack
recordwearequiteproudof.Aswetransitionintoproduction,salesandcashflow,wearecommittedtomonetizeour17years
ofeffortsinthenearterm.
Finally,Iwouldliketotaketheopportunitytothankallourshareholdersandemployeeswhohavestronglysupportedourvision
andhavebeenakeyingredienttotherealizedsuccesses.
Randeep S. GrewalFounder & Chairman
BUSINESS REVIEW
08
PROduCTION SHARING CONTRACTS ANd LICENSESInJuly2013,afterlongnegotiation,theGroupwasprovidedreissuedfourExplorationLicensescoveringtheShizhuangNorth
(Shanxi),Qinyuan(Shanxi),Fengcheng(Jiangxi)andPanxie(Anhui)blocks.TheLicenseforthecommercialproductionblock
ShizhuangSouth(Shanxi)wasalsoreissuedconcurrently.Thesere-issuedlicensestoChinaUnitedCoalbedMethaneCorporation
(“CUCBM”)onceagainshowtheGroup’ssubsidiary,GrekaEnergy(International)BV,astheExplorationUnit.Thisactionby
theChineseCentralGovernmentconfirms the full forceandeffectof theProductionSharingContracts(“PSC”),and follows
thewithdrawalbyChinaUnitedCoalbedMethaneCorporationLimited,anaffiliateofChinaNationalOffshoreOilCorporation
(“CNOOC”),oftheerroneousterminationnoticesthatappearedonitswebsiterelatedtotheCompany’sexplorationblocks.
mEmORANdum OF uNdERSTANdING WITH PETROCHINAInDecember2013,theGroupenteredintoabindingMemorandumofUnderstanding(“MOU”)withPetroChinaCompanyLtd
(“PetroChina”),regardingconfirmingtheCompany’sparticipatinginterestsintheChengzhuangblock(“GCZ”),a67squarekm
blockwithintheShizhuangSouth(“GSS”)ProductionSharingContract.
UndertheMOU,PetroChinahaveprovidedallinformationnecessaryforthepartnerstocompleteanauditsoastoconcludeand
acceptthecapitalexpendituresincurredtodeveloptheblock,thegasproduction,gassalesandrelatedrevenues.Commercial
gas sales began inMarch 2010. The parties have agreed to conclude the audits and the related definitive agreements on
paymentsin2014.Furthermore,thepartiesagreedthatPetroChinawillcontinuetobetheoperatoroftheGCZblock,whilethe
CompanywillcontinuetooperatetheGSSblock.AsaresulttheGroup’scumulativeinterestinGCZat31December2013is
reflectedinitsaccounts.
AGREEmENT WITH CuCBmInMarch2014,theGroupenteredintoanotherbindingagreementwithCUCBM,asubsidiaryofChinaNationalOffshoreOil
Corporation(CNOOC),regardingfiveofitsProductionSharingContracts(PSCs)inChina.
Thisagreementsubstantiallyde-riskstheGroup’sassets,pavingthewayforustorapidlybuildonexistingproductionandsales
andtofullyrealisethemarketpotentialforourgasinChina.TheagreementalsoallowstheGrouptoopenacooperativeand
positivechapterinrelationswithCNOOCandCUCBM.TheGroupnowhaveawell-capitalised,supportivepartnercommittedto
developingourvastacreageandproducingthesubstantialmulti-TCFgasresourcewithusoverthenext20years.WhiletheGSS
blockisalreadyincommercialandprofitableproduction,itisexpectedGSNtofollowshortly.
TheGrouphasadirectequityinterestinover1,800drilledwells.Theequityinterestvariesbetween47%-70%andthetotal
investedcapitalexceedsUS$1billion.Wehaveindeedmigratedfromanexplorationcompanytoaproductioncompanywith
asubstantialprovenreserveandalargeacreagetodevelop.Weexpecttoparticipateincashflowsfrom2014onwardsfrom
existinglegacywellsandcontinuearobustdevelopmentplanwithourcooperativepartnerCNOOCandCUCBM.
GREEN DRAGON GAS ANNUAL REPORT 2013 09
Business Review
10
Business Review
Thedetailsoftheagreementaresummarisedasfollows:
Shizhuang South Block (GSS)• Undertheagreement,operatorshipoftheGSSblockwillcontinueundertheGroupexceptforthewellsdrilledbyCUCBM
in Coal Seam 3
• Thecirca1,300legacywellsdrilledbyCUCBMwillbeoperatedbythem,withtheremaindercontinuingtobeoperated
byGDG
• GDGequityparticipationintheentireblockincreasesfrom60%to70%followingthecostrecoverytoCUCBMofUS$13
million(asprovidedbythePSC)whichwillbepaidfromtheGDGoperatedwells
• GDGandCUCBMtoeachbeentitledtocostrecoveryatapreferentialratefromwellstheyoperate–percentageofgross
profittocostrecovery,willincreasefrom75%to90%
• OptionforGDGtodelivergasdirectlyintoCUCBMinfrastructure
• GDGtocontinueasOperator in theremainingblock including theentiresecondCoalSeam15which isprevalent in
theentireblockbelowCoalSeam3.CoalSeam15 liesapproximately150metersbelowCoalSeam3.Legacywells
(asreferredtoabove)havebeenconfinedtoCoalSeam3ashavetheagreementsrelatingtocarriedinterestandnon
operated interest
• TheGovernmenthasapprovedtwoODPswithintheGSSBlock
• CUCBMexpectedtoinvestanadditionalUS$250milliontocompleteofftakeinfrastructure,enablinggassales–bringing
thetotalestimatedinvestmenttoUS$700million(subjecttoaudit),inclusiveofthe1,300wellsdrilled
Shizhuang North Block (GSN)• CUCBMhascommitted to investanadditionalUS$100million towardsexplorationandproduction inexchange fora
further10%interestinGSN,resultingineachcompanyholdinga50%participatinginterest
• CUCBMhasalreadyinvestedanestimatedUS$100millioninGSNtodrill250wellsandPSCextendedbytwoyearswith
additionalperiodextensionssubjecttogovernmentapproval
Qinyuan Block (GQY)• Sub-divided into two equal sized blocks, A & B, under the original PSC framework, with each operator bearing all
exploration expenses in their respective areas
• BlockAtobeheld90%byCUCBMand10%byGDG,withCUCBMasoperator
• BlockBtobeheld40%byCUCBMand60%byGDGwithGDGasoperator
Fencheng (GFC) and Panxie East (GPX)• Statusquo
• GDGparticipatinginteresttoremainunchangedforbothPSCs
• GDGtocontinueasoperatorwithbothpartiesagreeingtoperformtheirrespectiveobligationsunderbothPSCs
TheGroupandCUCBMhaveconvenedJointManagementCommitteemeetings foreachof thefivePSCs.Eachpartyshall
furtherdisclosetoeachotheralltechnicalinformationandrelatedOverallDevelopmentPlansunderthePSCs,followedbyathird
partyauditwithrespecttocertaincostrecoveryaspectsoftheparties’respectiveinvestmentsineachofthePSCs.
GREEN DRAGON GAS ANNUAL REPORT 2013 11
Business Review
CBm RESERVE PROGRESSIONTheGroupupdateditsCoalBedMethane(“CBM”)resourceswithinitsupstreambusinessacrossitssixblocks.Totalgasin
placeof:
• TotalOriginalGasInPlaceof25.2Tcfonsixblocks
• Net1Preservesincrease113%to126Bcf(2012:59Bcf)–1PNPV10increasetoUS$898m(2012:US$324m)
• Net2Preservesincrease22%to382Bcf(2012:314Bcf)–2PNPV10increasetoUS$2.81bn(2012:US$1.82bn)
• Net3Preservesdecrease5%to2,382Bcf(2012:2,509Bcf)–3PNPV10increasetoUS$16.12bn(2012:US$12.68bn)
TheincreaseinauditedreservenumbersandresultingNPV,incorporatesthe1300wellsapproximatelydrilledbytheGroup’s
partners,CUCBMandPetroChina,acrosstheacreage.Drilledwellsnotincommercialgasproductionasof2013year-end,were
notincludedbyNSAIintheir1Pand2Pcategories.Asthewellsde-waterandcommencecommercialgasproduction,therelated
reserveswillmigrateintothe1Pand2Pcategoryrespectively.
TheGroupestimatesitstotalreserves(includingsuchwells)tobe300Bcfin1Pand600Bcfin2Pwhichitexpectstoberealised
astherequiredinfrastructureisbuiltoverthenextfifteenmonths.CUCBMexpectstospenduptoUS$250mincompletingthis
objective.
TheGrouphadtotalOriginalGasInPlaceof25.2Tcfonallblocks.Theestimatesandevaluationofthereservesandresources
containedinthisannouncementwerepreparedbyindependentreserveengineers,NSAI.
Reserves Report Summary 2012 (Net Bcf) 2013 (Net Bcf)PSC (Block) 1P 2P 3P 1P 2P 3P
ShizhuangS(GSS) 59 285 1,317 126 353 1,341
Fengcheng(GFC) – 29 248 – 29 247
ShizhuangN(GSN) – – 944 – – 794
Qinyuan(GQY) – – – – – –
PanxieEast(GPX) – – – – – –
Baotian-Qingshan(GGZ) – – – – – –
TOTAL 59 314 2,509 126 382 2,382
Summary of Reserves ValuationPSC (Block) 2012 (Net Present Value 10%) 2013 (Net Present Value 10%)US$m 1P 2P 3P 1P 2P 3P
ShizhuangS(GSS) 324 1,578 6,517 898 2,524 8,944
Fengcheng(GFC) – 240 1,788 – 282 2,152
ShizhuangN(GSN) – – 4,371 – – 5,028
Qinyuan(GQY) – – – – – –
PanxieEast(GPX) – – – – – –
Baotian-Qingshan(GGZ) – – – – – –
TOTAL 324 1,818 12,676 898 2,806 16,124
12
Business Review
TheresourceswereevaluatedbyindependentreserveengineersNetherlandSewell&Associates(“NSAI”)asof31December
2013.Theestimatesofreservesandresourcesinthisreportwerepreparedinaccordancewithdefinitionsandguidelinesset
forth inthe2007PetroleumResourcesManagementSystemapprovedbytheSocietyofPetroleumEngineers.All resources
estimatesshownabovearenet interest to theGroup. Inaccordancewith thestandards,nocashflowsare reported for the
ContingentandProspectivecategories.Thepresentvaluefiguresshownaboverepresentestimatedfuturenetrevenuesbased
onregion-specificgaspriceparametersspecifiedbytheGroupdiscountedat10%.
WELL dRILLING ANd CBm PROduCTIONIn2013,theGroupdrilled29additionalwells,bringingthetotalnumberofwellsdrilledto426bytheendof2013.Theadditional
wellsdrilledweremostlywithintheShizhuangSouth,QinyuanandGuizhouBlocks,withtheexplorationblocksmeetingtheir
minimumcapitalcommitments.
Atotalof139,101feetwasdrilledin2013(adecreaseof70%on2012)and35,146feetdrilledwithintheproductivecoalseams
decreasing63%on2012.TheLiFaBriCmethodologyhasenabledtheGrouptosubstantiallyincreasetheaccuracyofitsdrilling
program,allowingafargreaterpercentageofproductivemetresdrilledin-seamsuccessfully.Notonlydoesthistechnologymake
drillingfarmoreefficientbutalsosignificantlyincreasesthegasproductionofindividualwells.
Asattheendof2013,thetotalnumberofwellsdrilledconsistsof:
• 71LiFaBriCwellsacrossallblocks,a14.5%increaseover2012(62LiFaBriCwellsasof31Dec2012)
• 235totalwellsacrossallblocksinclusiveofwellsatGCZ(Chengzhuang,includedwithinShizhuangSouthPSC)thathave
been reviewed by the Company
• Approximate1300thirdpartydrilledwellspendingreview
OfthetotalnumberofstandaloneLiFaBriCwells,57areatGSS(ShizhuangSouth).15ofthesearecurrentlyinfullproduction
andconnectedtoinfrastructure,19areproducinggasbutnotconnectedtoofftakeinfrastructureandtheremainderareeither
withcasingpressureordewateringaheadofstartingproduction.
Totalreportedgasproductionis9.64Bcf,ofwhich4.78BcfisattributabletoGCZblockfortheperiodfrom2010to2012.2013
productionisof4.86Bcfwhichrepresents173%increaseover2012(1.78Bcffor2012).
Standalone(excludingthirdpartydrilledacreage)annualisedyearendproductionof2.9Bcfperyear(227,271cubicmetersper
day),representingan11%increaseover2012.
ReviewedproductionfromwellsdrilledbysomeofthethirdpartiesontheCompany’sPSCacreagetodateexceeds4.40Bcf
(124.98millioncubicmeters)for2013.TheCompanyexpectstoconcludetherelatedneteconomicbenefitsfromsuchreviewed
acreagewithin2014.
GREEN DRAGON GAS ANNUAL REPORT 2013 13
Business Review
14
Business Review
GAS dISTRIBuTIONReportedsalesis8.01Bcf,ofwhich4.48BCFisattributabletoGCZblockfortheperiodfrom2010to2012.
TheGroup’sshareofGCZPNGsalesis2.0Bcf.GSSPNGsalesis715MMcf.
CNGsalesfortheyeardirecttoindustrialcustomerswere282MMcf(7.99millioncubicmeters),a32.8%decreaseover2012
(419MMcf/11.89millioncubicmetersfor2012)over2012.ThiswasasaresultofdisruptiontoroadinfrastructureatGSS,which
impactedtheabilitytodistributegastoindustrialcustomers.ThegaswasdistributedthroughPNG.OftheCNGsolddirectto
industrialcustomers:
• 87%camefromGSSproductionblock(245MMcf/6.94millioncubicmeters);and
• 13%camefromexternalpartiespurchases(37MMcf/1.05millioncubicmeters).
GrekaCNGretail stationssales in2013of540MMcf (15.3millioncubicmeters),a65.2% increaseover2012 (2012:327
MMcf/9.26millioncubicmeters).Allgasstationsarelocatedwithina250kmradiusfromtheCompany’sproductionfacilityin
ShanxiprovinceorthemidstreamoperationinZhengzhou;thelocationswereselectedbasedonmarketdemand,population,
resourceavailabilityandfleettransportationhubs.Theareacoveredbythenewstationshasacombinedpopulationofmorethan
21.5millionpeople.OftheCNGsoldthoughCNGretailstations:
• 14.3%camefromGSSproductionblock(77MMcf/2.19millioncubicmeters);and
• 85.7%camefromexternalpartiespurchases(463MMcf/13.11millioncubicmeters).
67.5%ofthegassoldbytheGroup’sdistributionarmcomesfromtheGSSblock,withtheremaining32.5%beingacquiredfrom
externalparties.Gasisacquiredfromthirdpartiesinordertomeettheincreasingdemand.
OfthegasproducedbytheGroupexcludingGCZ,37.3%hasbeensoldandtheremainderiscurrentlyeitherbeingsoldtoGreka
Engineering&TechnologyLtd.togenerateelectricityorbeingtemporarilyflared(wherewellsarenottiedin).Thegasproduction
figuresprovidedaboverepresenttotalproductionfromallwellsdrilled, includingthosewellstiedinandcontributingtosales
volumesandthoseintheprocessofbeingtiedintodistributioninfrastructure.
dIVESTmENT OF WHOLESALE GAS dISTRIBuTION NETWORkTheCompanyiscommittedtobeafocusedupstream(E&P)businessthroughthecontinueddivestitureoftheancillarybusinesses
developedandacquiredbyGreenDragonoutofnecessitytoachievethegrowthasapioneerintheChineseCBMmarket.Atthe
conclusionofthisplan,theCompanywillbeahighgrowthE&Pbusinesswithintheexponentiallygrowingunconventionalgas
marketinChinawithreducedfixedcosts.
In line with the Company’s Strategic Review, in June 2013, the Company entered into a sale and purchase agreement with
Mandolin Capital for the sale of theCompany’s 29.11%effective interest inBeijingHuayou and its 100% interest inGiant
PowerInternationalInvestmentLimited(“GPI”)whichincludedtheCompany’sinterestsinthewholesalegasdistributionpipeline
networkintheBeijingDevelopmentAreaandthewholesalegasstationsinZhengzhouandWuhu,foracashconsiderationof
US$65million.
GREEN DRAGON GAS ANNUAL REPORT 2013 15
Business Review
Theorganicdevelopmentof thebusinesswascomplementedbytheacquisitionofan interest inBeijingHuayouUnitedGas
DevelopmentCo.,Ltd(“BHY”),awholesalegasdistributionbusinessinChina’slargestmarket–Beijing.Thisacquisitionwas
envisionedtoprovidearoutetomarkettheCompany’sproducedgas.Theintentionwastoswapthegasvolumessuppliedbythe
CompanytotheCNPCwest-eastinfrastructureinShanxiforvolumesintotheBeijingjoint-ventureandthusrealizeamarketrate
fortheproducedgaswithouttheneedtodevelopownendmarkets.EvolutionofCNPCoverthelastdecadehascreatedmany
independentcompanieswithfragmentedassetownershiperodinganypotentialforgasswaps.Whilstthewholesalebusiness
hasbeenasteadilygrowingbusiness,profitable,debtfreeanddividendpaying,itaddsnoaccretivevaluetotheupstreamcore
business.Thewholesalegasdistributionbusiness,likemanylistedcompanieswithinthismarket,willprovidealowtomid-teen
yield(comparedwithupstreamyieldswhicharemateriallyhigher)andcontinuetoexpanditsfootprintwithindifferentcities.
WhilstBHYandGPIhadbeensteadilygrowing,profitable,debtfreeanddividendpayingbusinesses,theyaddednoaccretive
valuetoGreenDragon’scoreupstreambusiness.Asaresult,theCompanyhaddecidedtodivestthewholesalegasbusinessto
focusonthehighermarginupstreambusiness.Completionofdivestmentplanwillresultinafocusedexplorationandproduction
companywithreducedfixedcostbasewhichisalreadyoperationallycashflowpositive.
GREkA ENGINEERING dIVIdENd IN SPECIEGrekaEngineering&TechnologyLtd(“GrekaEngineering”)wasdemergedfromtheGroupanddistributedtoGreenDragonGas
shareholdersaspartofadividendinspecie.
TheGrekaEngineeringGroup’sbusiness includes theprovisionofengineering,procurement,constructionandmanagement
servicesforinfrastructureprojectsintheunconventionalgassectorinChina.Projectscompletedincludethedesign,construction
andmanagementofgasgatheringsystems,aCNGcompressingintegratedproductionfacility,theinstallationandcommissioning
ofa10MWgas-firedpowerfacilityandthesuccessfulbuild,maintenanceandoperationofeightCNGretailstationsin2012.All
oftheseprojectswerecompletedforGreenDragon.GrekaEngineeringhasalsocompletedagaspipelineconnectingaGreen
DragongasproducingblockinShanxiProvincetotheChinaWest-Eastpipeline,theinstallationandmaintenanceofadditional
gasgatheringequipmentandapipelinewhichconnectsproducingwellstotheCompany’sintegratedproductionfacility.
The Group is also involved in the research, development and delivery of technologies specific to the unconventional gas
sectorandincorporatingsuchtechnologiesintoindustry-specifichardwaremanufacturedin-housesuchaswell-headandgas
gathering system compressors, CNG and LNG dispensers, Integrated Circuit Card Point of Sale gas station systems and a
SCADA(supervisorycontrolanddataacquisition)systemusedforremotesupervisionandmanagementofdrillingoperations,
gasgatheringsystems,powerfacilities,vehicles,andretailgasstations.
TheGrouphasapproximately125employeesincludingdesignengineers,pipelineengineers,electricalandmechanicalengineers,
projectmanagers,facilitymanagersandoperations/fieldsupportstaff.
TheBoardbelievesthatthedemergerofGrekaEngineeringfromtheGroupwillenhanceshareholdervalueinbothcompanies.
GrekaEngineeringGroupalreadyoperatesonastand-alonebasisandtradesonanarm’slengthbasiswithotherbusinesses
within theGroup.GrekaEngineering’smanagement teamwill focusona separate strategy andbusinessdevelopmentplan
fromGreenDragonwithenhancedgrowthprospectsasanindependentcompanyservicingbothGreenDragonandthirdparty
customers.InadditiontoGreenDragon,GrekaEngineeringGrouphasalreadyprovideditsservicestoanumberofdifferent
clientsincludingPetroChina,Sinopec,CNPCandtheirvarioussubsidiariesandaffiliates.
16
Business Review
GREEN DRAGON GAS ANNUAL REPORT 2013 17
Business Review
Followingthesuccessfulimplementationofthevariousproprietarytechnologicalsolutions,GrekaEngineering,likeGrekaDrilling,
wasdistributedtoshareholdersinafurtherinspeciedividendinSeptember2013.Onceagain,theGroupbenefitsfromusing
thesetechnologiesratherthanfromsuchownership.Asanindependentserviceprovider,GrekaEngineeringGroupwillbeable
toexpandwithintheboomingunconventionalgasmarketswithinChinaandAsiainthefuture.
ARBITRATION ANd APPEALThearbitrationtribunalontheConocoPhillipsChinaInc(“COPC”)matterhasawardedUS$42.6mplusfeesandinterestagainst
theCompany.ThisrulingrequiresthereturnofallthefundspaidbyCOPCtotheCompanyintheFarmoutAgreemententered
intoinAugust2009andterminatedinNovember2010.TheCompanyhasaccruedthefullliabilityamountinitsaccountsforthe
yearend31December2013relatingtothisarbitration.ThearbitrationwasanchoredaroundtheissueoftheCompany’sabilityto
enforcetitleinitsthreeShanxiproductionsharingcontracts.TheCompanyhasalwaysconsideredthatithasvalidtitleandthis
wasconfirmedbytheCentralGovernmentofChinainJuly2013.Thearbitraltribunalwasinformedofsuchanexpectedruling
buttheydecidedtoclosethearbitrationproceedings,andproceededtodelivertheirawardwithoutconsideringthissignificant
development.
TheCompanyhasfileditsappealforrecourseagainstthearbitralawardtosetasidethearbitralaward.Atapre-trialconference,
thecourtconfirmedthatthepreviouslyannouncedarbitralawardcannotbeenforcedbyCOPCuntilthehearingoftheActionhas
concluded.
TheArbitrationtribunalwas informedof the imminent,materialandsuccessfulconclusiontotheCompany’s titlematters.As
stated previously, theBoard feel strongly that the Tribunal erred in not awaiting for thismaterial information before passing
judgement.Followinganevaluationonthemeritsofrecourseagainstthearbitralaward,wearepleasedtoreportthattheAction
hasbeenfiledandCOPCisbarredfromenforcingthearbitralawarduntiltheActionisheard.
TheCompany’sapplicationtosetasidetheAward,previouslyannouncedonthe3September2013,washeardon28November
2013.However,asthehearingcouldnotbecompletedbytheendoftheday,theSingaporeHighCourtdirectedthatthehearing
beadjournedforafurtherdayofhearing,tobefixed.
FINANCIAL REVIEW
18
RESuLTS FOR THE yEARTheGroupreportedrevenuefromcontinuingoperationsofUS$62.2million(2012:US$8.1million)andalossattributableto
equityholdersoftheparentofUS$0.8million(2012:US$20.6million)fortheyearended31December2013,whichincluded:
aneffectiveinterestchargeofUS$12.5million(2012:US$8.1million)inrespectoftheconvertiblenotesandbonds;changein
fairvalueoffinancialderivativeofUS$13.3million(2012:Nil)onrespectofwarrants.Thegeneralandadministrativeexpenses
ofcontinuingoperationsamountedtoUS$29.5million(2012:US$13.0million),whichincludedtheprovisionforarbitralawardof
US$6.9million(2012:Nil).LosspersharefromcontinuingoperationswasUS$0.251(2012:US$0.131).
OutofthereportedrevenueUS$62.2million,US$32.4GCZisattributabletoGCZfortheperiodfrom2010to2012.
LIQuIdITy ANd CAPITAL RESOuRCESAsat31December2013,theGrouphastotalassetsofUS$983.0million(2012:US$942.6million)andcurrentliabilities,non-
currentliabilitiesandequityholders’equityofUS$126.0million,US$210.3millionandUS$646.8millionrespectively(2012:
US$107.8million,US$174.8millionandUS$660.1millionrespectively).
As at 31December 2013, theGroup’s cash and cash equivalentswasUS$34.6million (2012:US$40.0million) and total
borrowingsofUS$63.8million(2012:US$79.8million).
US$100 million Raised through Disposal of Investments and Issue of Bonds and WarrantsOn3June2013, theCompanyentered intoasaleandpurchaseagreement for thesaleof theCompany’s29.11%effective
interest in Beijing Huayou United Gas Development Co., Ltd (“BHY”) and its 100% interest in Giant Power International
InvestmentLimited(“GPI”)which includedtheCompany’s interests in thewholesalegasdistributionpipelinenetwork in the
BeijingDevelopmentAreaandthewholesalegasstationsinZhengzhouandWuhu,foracashconsiderationofUS$65million.
TheCompanyacquiredBHYin2007forUS$27.1millionandGPIin2008forUS$10.8million;theseinvestmentshadbook
valuesofUS$30.6millionandUS$8.9millionrespectivelyat31December2012.TheconsiderationforthesaleofBHYandGPI
representsa65%premiumtothecarryingvalueoftheinvestment.Intheyearended31December2012,BHYgeneratedprofit
beforetaxofUS$10.5milliononturnoverofUS$109.5millionandGPIgeneratedalossofUS$61,000onturnoverofUS$10.3
million.
Onthesameday,theCompanyraisedUS$35millionthroughtheissuanceofasecuredbond.TheBondcarriesa7%coupon,
payablesemi-annually,andhasafinalmaturitydateof3December2014.TheBond is secured,unsubordinatedandnon-
convertible.InconnectionwiththeBond,theCompanyhasalsoissued13,756,000warrantstosubscribefornewordinaryshares
intheCompany.TheWarrantsareexercisableatanexercisepriceof197.216penceperordinaryshareandareexercisableat
anytimeuptoandincludingthedateofmaturityoftheBond.
GREEN DRAGON GAS ANNUAL REPORT 2013 19
Financial Review
20
Financial Review
GREEN DRAGON GAS ANNUAL REPORT 2013 21
Financial Review
Repayment of Outstanding Convertible Notes of US$84.2 millionOn7June2013,theCompanyfullyrepaidtheoutstanding7%convertiblenotesissuedin2010.Theoutstandingamountrepaid
includesoutstandingprincipalamountofUS$84.2millionandaccruedinterestofUS$1.1million.
US$35 million Raised through Issuance of Convertible NotesInDecember2013,theCompanylaunchedaconvertiblebondfacilityofuptoUS$100million.ThefirsttrancheofUS$35million
wasfullysubscribedbyGICPrivateLimited.
TheBondisunsecured,hasa7%coupon,isdueinDecember2015,andisconvertibleintoordinarysharesataconversionprice
ofUS$6.06pershare,representinga33%premiumtotheclosingpriceatpricingon10December2013.
US$50 million Raised through Issuance of Convertible NotesOn5June2014,theCompanyissuedasecondtrancheoftheconvertiblebondfacilityfirstannouncedinDecember2013.The
secondtrancheofUS$50millionhasbeenfullysubscribedbyGICPrivateLimited(“GIC”),aGovernmentofSingaporesovereign
wealthfund.
Theconvertiblebondisunsecured,hasa7%coupon,a36monthmaturity,andisconvertibleintoordinarysharesataconversion
priceofUS$9.34pershare.TheCompanyhastherightonthesecondanniversaryoftheissuedateandonwardstocallthe
convertiblebondundercertainconditions.
BOARD OF DIRECTORS
22
EXECuTIVE dIRECTOR
Randeep S. Grewal – Chairman & CEO
RandeepGrewalhasbeenChairmanandChiefExecutiveOfficerofGrekasinceitsinceptionin1999andGreenDragonGas
sinceinceptionin2006.HeisalsoChairmanandChiefExecutiveOfficerofGrekaIntegratedInc.,aUS-basedheavyoiland
gas transportation, refining and real estatebusinesswith interests in oil and gasproperties and refining assets. FromApril
1997toSeptember1997,Mr.GrewalservedasChairmanandChiefExecutiveOfficerofHorizontalVentures,Inc.,anoiland
gashorizontaldrillingtechnologycompany.InAugust1997,HorizontalVenturesmergedwithPetroUnionInc.andMrGrewal
becameChairmanandChiefExecutiveOfficerofthereorganisedcompany.ThiscompanymergedinturnwithSabaPetroleum
CorporationinMarch1999toformGrekaEnergyCorporation.From1993to1996,Mr.GrewalwasCorporateVicePresident
fortheRadaElectronicIndustriesLtdwithprincipalresponsibilityforitsglobalexpansionandrelatedoperations.Hehasalso
beeninvolvedinvariousjointventures,acquisitions,mergersandreorganizationssince1986intheUnitedStates,Europeand
theFarEastwitharangeofbusinesses.Mr.GrewalhasaBachelorofScienceDegreeinMechanicalEngineeringfromNorthrop
University.
NON-EXECuTIVE dIRECTOR
David Turnbull
David Turnbull, is Executive Chairman of Pacific Basin Shipping Limited, a Hong Kong publicly listed company,
since 1st July 2008. He has been an independent non-executive director of the Company since May 2006.
Mr. Turnbull hasbeen appointed as an independent non-executivedirector of TheWharf (Holdings) Limited, aHongKong
publiclylistedcompany,inNovember2013.Mr.Turnbullisalsoanindependentnon-executivedirectorofSandsChinaLtd.,a
HongKongpubliclylistedcompany,sinceOctober2009.Mr.TurnbullisalsoanIndependentnon-executivedirectorofGreen
DragonGasLtd(sinceJul2006)andGrekaDrillingLtd(sinceFeb2011),bothcompanieslistedontheAlternativeInvestment
Market,asub-marketoftheLondonStockExchange.
Mr.TurnbullgraduatedfromCambridgeUniversityin1976withaBachelorofArts(subsequentlyMasterofArts)degreewithHons
inEconomics.HejoinedtheSwireGroupupongraduationandheldavarietyofseniormanagementpositionswithinternational
responsibilitiescoveringaviation,shippingandpropertyduringhis30yearswiththeSwireGroup.Hewasappointedadirectorof
CathayPacificin1994andtookupthepositionsofDeputyManagingDirectorin1994,ManagingDirectorin1996andDeputy
ChairmanandChiefExecutivein1998beforehisappointmenttoChairmaninJanuary2005.Heisalsotheformerchairmanof
SwirePacificLimitedfromJanuary2005toJanuary2006,andofHongKongAircraftEngineeringCompanyLimitedfromMarch
1995toAugust2006.
GREEN DRAGON GAS ANNUAL REPORT 2013 23
Board of Directors
NON-EXECuTIVE dIRECTOR
Wayne Roberts
WayneRobertswasappointedasanon-executiveDirectorinOctober2012.Mr.RobertsisaCharteredChemicalEngineerwith
over25yearsexperienceintheoil&gasindustry.UntilApril2012,MrRobertsservedwithBGGroupasSeniorVicePresident
forAsia,Middle-EastandAfrica,withresponsibilityforgrowthassets,businessdevelopmentandcommercialactivitiesacross
theregions.Priortothat,hewasbasedinSingaporeasPresidentofBGSoutheastAsia&ChinaandChairman,BGAsiaPacific.
In these roles,hehad responsibility forBG’sE&P,powerandLNGbusinesses inThailand,Malaysia,Singapore,Chinaand
thePhilippines.Hisearliercareeralso involvedseveral internationalassignments inassetmanagement,M&A,andcorporate
financewithbothBGGroupandARCO.MrRobertsholdsanMBAfromINSEAD,France.Hebringsawealthofcommercialand
operationalgasindustryexperiencetotheGreenDragonGasBoard.
NON-EXECuTIVE dIRECTOR
Stewart John OBE
StewartJohnhasover50yearsofexperienceintheaviationindustry,halfofwhichinHongKong.HeworkedforCathayPacific
andBritishAirwaysfor17and22yearsrespectively.Mr.JohnwasDeputyChairmanofHongKongAircraftEngineeringCompany
andhasservedasnon-executivedirectorofRolls-RoyceCommercialAeroEngines,BritishAerospaceAviationServices,Airlines
ofBritainHoldings,HKAeroEngineServicesLtd,AviationExposureManagementandNewallAerospace.He iscurrentlya
non-executivedirectorofTaikooAircraftEngineeringCo.,TechnicalDirectorofAviationExposureManagementandatrusteeof
BrooklandsMuseum.
NON-EXECuTIVE dIRECTOR
Gong Da Bing
GongDaBing joinedGreka in 1999 andhas beenSeniorAdvisor since 2001. She has 27 years of international business
experience.From1992to1999shewasmanagingdirectoroftheChineseofficeofFrontanicCo.,aprivateinternationaltrading
organisation.From1989 to1992shewas thechief representative inChinaofKoorTradeLimited.From1978 to1989she
was themanager for joint ventureoperationsand importandexportBusiness forMachinery&Equipment Import&Export
Corporation.From1975to1978shewasabusinessnegotiatorfortheBeijingForeignTradeBureau,DepartmentofMachinery
Import&Export.MadamGongstudiedEnglishattheBeijingSecondForeignLanguageUniversityandhasaMasterDegreein
ComparativeLawfromtheUniversityofIllinois,USA.
DIRECTORS’ REPORT
24
TheDirectorsofGreenDragonGasLtd.havepleasureinsubmittingtheirReportwiththeauditedfinancialstatementsforthe
yearended31December2013.
PRINCIPAL ACTIVITIESGreen Dragon Gas Ltd. (the “Group”) is the ultimate holding company and the indirect parent company of Greka Energy
InternationalB.V,acompanyincorporatedintheNetherlandsandtheoperatingcompanythroughwhichtheGroupholdsitsCoal
BedMethane(“CBM”)propertiesinChina.TheprincipalactivitiesoftheGroupareexploration,developmentandproductionof
CBM,anddistributionandsalesofgasinChina.GreenDragonGasLtd.wasincorporatedintheCaymanIslandson28March
2006andwasregisteredasaPublicCompanyon17August2006.Itactsasaholdingcompanyandprovidesfinancingand
managementservicestoitssubsidiaries.ThecompanyisdomiciledintheCaymanIslands.
BuSINESS REVIEW & FuTuRE dEVELOPmENTSAsummaryoftheGroup’smainbusinessdevelopmentsfortheyearended31December2013andpotentialfuturedevelopments
iscontainedwithintheChairman’sStatement,BusinessReviewandFinancialReview.
ACCOuNTING POLICIESThefinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(asadoptedbythe
EU).
SHARE CAPITAL ANd RESERVESDetailsoftheGroup’sauthorisedandissuedsharecapitalandreservesasat31December2013arecontainedinNotes25and
26ofthefinancialstatementsrespectively.
RESuLTS ANd dIVIdENdSAnoverviewoftheGroup’sresults,coveringtheyearended31December2013,isprovidedintheFinancialReviewonpage18
andpage21.Detailedfinancialinformationisincludedfrompage32topage95ofthereport.TheDirectorsdonotproposethe
paymentofcashdividendsuntiltheGroupisinproductionandgeneratingrevenueandprofit.
EVENTS AFTER THE REPORTING dATEDetailsoftheGroup’seventsafterthereportingdatearecontainedinNote35ofthefinancialstatements.
GREEN DRAGON GAS ANNUAL REPORT 2013 25
Directors’ Report
26
Directors’ Report
GREEN DRAGON GAS ANNUAL REPORT 2013 27
Directors’ Report
dIRECTORS REmuNERATION Sharebased Other 2013 2012
Fees Salaries payments emoluments Total Total
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Executive directorRandeepGrewal – 618 – 906 1,524 1,425
Subtotal – 618 – 906 1,524 1,425
Non-Executive DirectorsDavidTurnbull 59 – – – 59 60
WayneRoberts 60 – – – 60 14
StewartJohn,OBE 63 – – – 63 65
GongDaBing 59 – – – 59 63
Subtotal 241 – – – 241 202
Total 241 618 – 906 1,765 1,627
dIRECTORS ANd THEIR INTERESTSThetablebelowsetsouttheinterestsoftheDirectorsinGreenDragonGasLtd.asat31December2013.
Number of ordinary % of issuedDirectors shares capital share capital
MrRandeepS.Grewal 88,311,961 64.68%
DavidTurnbull 8,000 0.01%
WayneRoberts – 0.00%
StewartJohn 3,000 0.00%
GongDaBing 900 0.00%
SHARE OPTIONSTheGroupoperatesashareoptionschemepursuanttowhichtheDirectorsmaybegrantedoptionstoacquireordinaryshares
intheCompanyatafixedoptionexerciseprice.
During the year ended 31 December 2013, no options were granted. In themean time, no current Director options were
exercisedduringtheyear.TheinterestsoftheDirectorstosubscribeforordinaryshareshavenotchangedsincetheyearend.
Furtherdetailsoftheaboveshareoptionschemecanbefoundinnote9.
28
Directors’ Report
dIRECTORS’ SHARE OPTIONSTheDirectorswhoheldofficeatthereportingdatehadthefollowinginterestintheshareoptionscheme:
Options held Options Options Options held Exercise at 1 January granted in exercised in at 31 December Price Exercisable Expiry 2013 the year the year 2013 US$ From Date
RandeepGrewal 1,009,375 – – 1,009,375 6.5 01/01/11 31/12/15
DavidTurnbull – – – – – – –
WayneRoberts – – – – – – –
StewartJohn – – – – – – –
GongDaBing – – – – – – –
Subtotal 1,009,375 – – 1,009,375
SuBSTANTIAL SHAREHOLdINGSTheGroup isawareof the followingbeneficialshareholdings, representing10percentormoreof the issuedordinaryshare
capitaloftheGroup,asat31December2013.
Number of ordinary % of issued share capital shares capital
GreenDragonGas(Holdings)Limited 87,401,694 64.01%
RichardChandlerCorporation 24,831,777 18.19%
THE BOARdTheBoardofDirectorsiscomposedoffourmembers,oneExecutiveDirector,whoisalsotheExecutiveChairmanandthree
Non-Executive Directors. The Board has established Audit and Remuneration Committees with formally delegated duties,
responsibilitiesandwrittentermsofreference.Fromtimetotime,separatecommitteesmaybesetupbytheBoardtoconsider
specificissuesasandwhentheneedarises.
AudIT COmmITTEETheAuditCommitteehelpstheBoarddischargeitsresponsibilitiesregardingfinancialreporting,externalandinternalauditsand
controlsaswellasreviewingtheGroup’sannualfinancialstatements.Italsoassistsbyreviewingandmonitoringtheextentofnon
auditworkundertakenbyexternalauditors,advisingontheappointmentofexternalauditorsandreviewingtheeffectivenessof
theGroup’sinternalauditactivities,internalcontrolsandriskmanagementsystems.Theultimateresponsibilityforreviewingand
approvingtheannualreportandfinancialstatementsandthehalf-yearlyreportsremainswiththeBoard.TheAuditCommittee
comprisesDavidTurnbull,StewartJohnandWayneRoberts.
REmuNERATION COmmITTEETheRemunerationCommitteeassiststheBoardindeterminingitsresponsibilitiesinrelationtoremuneration.Thisincludesmaking
recommendationstotheBoardontheGroup’spolicyonexecutiveremuneration,determiningtheindividualremunerationand
benefitspackageofeachoftheExecutiveDirectorsandrecommendingandmonitoringtheremunerationofseniormanagement
belowBoardlevel.TheRemunerationCommitteecomprisestheExecutiveDirectorandtwoNon-ExecutiveDirectors(Randeep
Grewal,StewartJohnandGongDaBing).
GREEN DRAGON GAS ANNUAL REPORT 2013 29
Directors’ Report
RELATIONS WITH SHAREHOLdERSTheDirectorsattachimportancetotheprovisionofclearandtimely informationtoshareholdersandthebroader investment
community. Informationabout thecompany isavailableon itswebsite (www.greendragongas.com).TheGroup’sannualand
interimreportswillalsobesenttoshareholdersandbemadeavailablethroughtheGroup’swebsite.
dIRECTORS ANd OFFICERS LIABILITy INSuRANCETheGrouphasinplaceaDirectorsandOfficersinsurancepolicytocoverrelevantindividualsagainstclaimsarisingfromtheir
workonbehalfofthecompany.ThecostofprovidingthiscoverisUS$25,000(2012:US$25,000).TheBoardintendstokeep
thelevelofcoverprovidedunderannualormorefrequentreview,asappropriate.
GOING CONCERNBasedon theGroup’sbudgetsandcashflowprojections for2014, theDirectorsare satisfied that theGrouphasadequate
resourcestocontinueitsoperationsandmeetitscommitmentsfortheforeseeablefuture.
ANNuAL GENERAL mEETINGThe2014AnnualGeneralMeetingwillbeheldat10:00amonWednesday,16July2014,attheofficeofSmith&Williamson
locatedat25Moorgate,LondonEC2R6AY.TheNoticeofMeeting,togetherwithanexplanationoftheitemsofspecialbusiness,
isprovidedseparatelytoshareholderswiththisreport.
AudITORSBDOLLPhasexpresseditswillingnesstocontinueinofficeasauditorsandaresolutionfortheirreappointmentwillbeproposed
attheAnnualGeneralMeeting.
OnbehalfoftheBoard
Randeep S. GrewalChairman and CEO
6 June 2014
30
STATEMENT OF DIRECTORS’ RESPONSIBILITIESTheDirectorsareresponsibleforpreparingtheDirectors’reportandthefinancialstatementsfortheGroupinaccordancewith
InternationalFinancialReportingStandards(“IFRSs”)asadoptedbytheEuropeanUnion.
TheDirectorshavepreparedthefinancialstatementsforeachfinancialyearwhichgiveatrueandfairviewofthestateofaffairs
oftheGroupandoftheprofitorlossoftheGroupforthatyear.
InternationalAccountingStandard1requiresthatfinancialstatementspresentfairlyforeachfinancialyearthecompany’sfinancial
position,financialperformanceandcashflows.This requires the faithful representationof theeffectsof transactions,other
eventsandconditionsinaccordancewiththedefinitionsandrecognitioncriteriaforassets,liabilities,incomeandexpensesset
outintheInternationalAccountingStandardsBoard’s‘Frameworkforthepreparationandpresentationoffinancialstatements’.In
virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting
Standards.AfairpresentationalsorequirestheDirectorsto:
• consistentlyselectandapplyappropriateaccountingpolicies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandableinformation;
• provideadditionaldisclosureswhencompliancewiththespecificrequirementsinIFRSsisinsufficienttoenableusers
tounderstandthe impactofparticular transactions,othereventsandconditionsontheentity’sfinancialpositionand
financialperformance;
• statethatthegrouphascompliedwithIFRSs,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancial
statements;and
• preparethefinancialstatementsonagoingconcernbasisunlessitisinappropriatetopresumethattheGroupcontinue
inbusiness.
TheDirectorsarealsorequiredtopreparefinancialstatementsinaccordancewiththerulesoftheLondonStockExchangefor
companiestradingsecuritiesontheAlternativeInvestmentMarket.
TheDirectorsareresponsibleforkeepingproperaccountingrecordswhichdisclosewithreasonableaccuracyatanytimethe
financialpositionoftheGroup,forsafeguardingtheassets,fortakingreasonablestepsforthepreventionanddetectionoffraud
andotherirregularitiesandforthepreparationoffinancialstatements.
TheDirectors are responsible for ensuring theannual report and thefinancial statementsaremadeavailable onawebsite.
Financial information ispublishedontheGroup’swebsite.Themaintenanceand integrityof thiswebsite is theresponsibility
of theDirectors.Theworkcarriedoutby theAuditorsdoesnot involveconsiderationof thesemattersand,accordingly, the
Auditorsacceptnoresponsibilityforanychangesthatmayoccurtothefinancialstatementsaftertheyareinitiallypresentedon
thewebsite.
LegislationintheCaymanIslandsgoverningthepreparationanddisseminationoffinancialstatementsmaydifferfromlegislation
inotherjurisdictions.
INDEPENDENT AUDITORS’ REPORT
GREEN DRAGON GAS ANNUAL REPORT 2013 31
INdEPENdENT AudITOR’S REPORT TO THE mEmBERS OF GREEN dRAGON GAS LTd.WehaveauditedthefinancialstatementsofGreenDragonGasLtd.fortheyearended31December2013whichcomprisethe
Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement
ofChangesinEquity,theConsolidatedStatementofCashFlowsandasummaryofsignificantaccountingpoliciesandother
explanatoryinformation.ThefinancialreportingframeworkthathasbeenappliedintheirpreparationisInternationalFinancial
ReportingStandards(“IFRS”)asadoptedbytheEuropeanUnion.
Thisreportismadesolelytothecompany’smembers,inaccordancewiththetermsofourengagementletter.Ourauditworkhas
beenundertakensothatwemightstatetothecompany’smembersthosematterswearerequiredtostatetotheminanauditor’s
reportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneother
thanthecompanyandthecompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.
RESPECTIVE RESPONSIBILITIES OF dIRECTORS ANd AudITORSAs explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the
financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial
statementsinaccordancewithapplicablelawandInternationalStandardsonAuditing(UK&Ireland).Thosestandardsrequire
ustocomplywiththeUKFinancialReportingCouncil’s(FRC’s)EthicalStandardsforAuditors.
SCOPE OF THE AudIT OF THE FINANCIAL STATEmENTSAnauditinvolvesobtainingevidenceabouttheamountsanddisclosuresinthefinancialstatementssufficienttogivereasonable
assurancethatthefinancialstatementsarefreefrommaterialmisstatement,whethercausedbyfraudorerror.Thisincludes
anassessmentof:whether theaccountingpoliciesareappropriate to thegroup’scircumstancesandhavebeenconsistently
appliedandadequatelydisclosed;thereasonablenessofsignificantaccountingestimatesmadebythedirectors;andtheoverall
presentationofthefinancialstatements.Inaddition,wereadallthefinancialandnon-financialinformationintheannualreportto
identifymaterialinconsistencieswiththeauditedfinancialstatementsandtoidentifyanyinformationthatisapparentlymaterially
incorrectbasedon,ormateriallyinconsistentwith,theknowledgeacquiredbyusinthecourseofperformingtheaudit.
OPINION ON FINANCIAL STATEmENTSInouropinion,thefinancialstatements:
• giveatrueandfairviewofthestateofthegroup’saffairsasat31December2013andofthegroup’slossfortheyear
thenended;and
• havebeenproperlypreparedinaccordancewithIFRSasadoptedbytheEuropeanUnion.
BDO LLPChartered AccountantsLondon
UnitedKingdom
6 June 2014
BDOLLPisalimitedliabilitypartnershipregisteredinEnglandandWales(withregisterednumberOC305127).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
32
Restated# Year ended Yearended 31 December 31 December Notes 2013 2012 US$’000 US$’000
Continuing operationsRevenue 4 62,181 8,125Cost of sales (40,322) (3,881)
Gross profit 21,859 4,244
Selling and distribution costs (1,616) (1,291)Administrative expenses (29,524) (13,030)
Loss from operations 5(a) (9,281) (10,077)
Otherincomeandfinanceincome 6 310 1,320Changeinfairvalueoffinancialderivative 23,32 (13,271) –Financecosts 7 (12,513) (8,086)
Loss before income tax (34,755) (16,843)
Income tax 11 507 219
Loss for the year from continuing operations (34,248) (16,624)
Discontinued operationsProfit/(loss)fortheyearfromdiscontinuedoperationsaftertax, includinggainondisposal 5(b) 33,425 (2,798)
Loss for the year (823) (19,422)Othercomprehensiveincome,netoftax:–Exchangedifferencesontranslatingforeignoperations 19,604 6,235
Total comprehensive income/(expense) for the year 18,781 (13,187)
Lossattributableto:–Ownersofthecompany (823) (20,649)–Non-controllinginterests – 1,227
(823) (19,422)
Totalcomprehensiveincome/(expense)attributableto:–Ownersofthecompany 18,781 (14,414)–Non-controllinginterests – 1,227
18,781 (13,187)
Basicearnings/(loss)pershare,arisingfrom:–Continuingoperations(US$) 12 (0.251) (0.131)–Discontinuedoperations(US$) 12 0.245 (0.020)
(0.006) (0.151)
Dilutedearnings/(loss)pershare,arisingfrom:–Continuingoperations(US$) 12 (0.251) (0.131)–Discontinuedoperations(US$) 12 0.240 (0.020)
(0.011) (0.151)
#Refertonote2fordetailsoftherestatement.
GREEN DRAGON GAS ANNUAL REPORT 2013 33
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Restated# Restated#
As at As at As at
31 December 31 December 1 January
Notes 2013 2012 2012
US$’000 US$’000 US’000
AssetsNon-current assetsProperty, plant and equipment 14 28,232 47,373 61,679
Gasexplorationandappraisalassets 15 902,537 813,262 738,349
Otherintangibleassets 16 3,821 14,343 16,757
Payments for leasehold land held
for own use under operating leases 217 719 559
Deferredtaxasset 17 1,954 1,999 1,949
936,761 877,696 819,293
Current assetsInventories 18 86 3,956 1,548
Tradeandotherreceivables 19 11,542 21,011 15,023
Otherfinancialassets – – 50,255
Cash and cash equivalents 20 34,642 39,971 86,334
46,270 64,938 153,160
Total assets 983,031 942,634 972,453
LiabilitiesCurrent liabilitiesConvertible notes 22 – 79,751 –
Derivativefinancialliability 23 20,410 – –
Bonds 23 30,390 – –
Tradeandotherpayables 21 25,623 27,712 25,136
Provisions 33 49,537 – –
Current tax liabilities 7 344 728
125,967 107,807 25,864
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
34
Restated# Restated#
As at As at As at
31 December 31 December 1 January
Notes 2013 2012 2012
US$’000 US$’000 US’000
Non-current liabilitiesConvertible notes 22 33,383 – 77,559
Otherfinancialliabilities 24 13,000 13,000 13,000
Deferredtaxliability 17 163,876 161,761 161,635
210,259 174,761 252,194
Total liabilities 336,226 282,568 278,058
Total net assets 646,805 660,066 694,395
Capital and reservesShare capital 25 14 14 14
Treasuryshares 26 – – (427)
Share premium 26 681,031 703,917 704,344
Convertible note equity reserve 22 1,746 9,198 9,198
Share based payment reserve 26 12,743 12,743 12,743
Capital and surplus reserve 26 – 1,325 1,169
Otherreserve 26 30 391 253
Foreign exchange reserve 26 65,575 45,971 39,745
Retaineddeficit 26 (114,334) (113,511) (92,577)
Total equity attributable to owners of the Parent 646,805 660,048 674,462
Non-controlling interests – 18 19,933
Total equity 646,805 660,066 694,395
ThefinancialstatementswereauthorisedandapprovedbytheBoardon6June2014andsignedontheirbehalfby
Randeep S GrewalDirector
#Refertonote2fordetailsoftherestatement.
GREEN DRAGON GAS ANNUAL REPORT 2013 35
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Capital Equity Convertible based and Foreign attributable Non- Share Treasury Share note equity payment surplus Other exchange Retained to owners of controlling capital shares premium reserve reserve reserve reserve reserve deficit the Parent interests Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
At 1 January 2012 (as previously reported) 14 (427) 704,344 9,198 12.743 1,169 253 9,170 (92,577) 643,887 19,933 663,820
Prioryearadjustment(note2) – – – – – – – 30,575 – 30,575 – 30,575
At 1 January 2012 (as restated)# 14 (427) 704,344 9,198 12,743 1,169 253 39,745 (92,577) 674,462 19,933 694,395
Lossfortheyear – – – – – 16 – – (20,665) (20,649) 1,227 (19,422)
Exchange differences on
translating foreign operations~ – – – – – (129) 138 6,226 – 6,235 – 6,235
Totalcomprehensive
lossfortheyear – – – – – (113) 138 6,226 (20,665) (14,414) 1,227 (13,187)
Elimination on disposal on
dilutionofstakeinjoint
venture(note34) – – – – – – – – – – (21,142) (21,142)
Transfertocapitalreserve – – – – – 269 – – (269) – – –
Cancellation of shares
boughtback – 427 (427) – – – – – – – – –
At 31 December 2012
(asrestated) 14 – 703,917 9,198 12,743 1,325 391 45,971 (113,511) 660,048 18 660,066
Lossfortheyear – – – – – – – – (823) (823) – (823)
Exchange differences on
translating foreign operations~ – – – – – – – 19,604 – 19,604 – 19,604
Totalcomprehensiveincome
fortheyear – – – – – – – 19,604 (823) 18,781 – 18,781
Issue of convertible notes
(note22) – – – 1,746 – – – – – 1,746 – 1,746
Transfertosharepremiumon
exerciseofconvertible – – 9,198 (9,198) – – – – – – – –
DemergerofGET(note5b) – – (32,084) – – – (23) – – (32,107) – (32,107)
Disposal of JCE and
subsidiaries(note5b) – – – – – (1,325) (338) – – (1,663) (18) (1,681)
At 31 December 2013 14 – 681,031 1,746 12,743 – 30 65,575 (114,334) 646,805 – 646,805
~ Exchangedifferencesontranslatingforeignoperationsmayberecycledthroughprofitinfutureperiodsifcertainconditionsorevents
arise.
# Refertonote2fordetailsoftherestatement.
CONSOLIDATED STATEMENT OF CASH FLOWS
36
Year ended Yearended
31 December 31 December
Notes 2013 2012
US$’000 US$’000
Operating activities
Lossaftertax (823) (19,422)
Adjustmentsfor:
Depreciation 14 12,194 3,508
Amortisation of leasehold land held for own use
under operating leases 117 76
Amortisation for intangible assets 16 1,474 2,408
Impairment of intangible assets 16 325 –
GainondisposalofJCE&subsidiaries 5(b) (33,544) –
Lossondisposalofproperty,plantandequipment 1,150 71
Otherincome 6 (25) (1,452)
Change in fair value of derivative 23, 32 13,271 –
Litigationinterestandpenalties 33 6,937 –
Taxationforcontinuedoperations (507) (219)
Taxationfordiscontinuedoperations 433 1,177
Financecosts 7 12,516 8,094
Cash generated from/(outflows) before changes in working capital 13,518 (5,759)
Movementininventory 267 (1,420)
Movementintradeandotherreceivables (9,078) 4,904
Movementintradeandotherpayables 18,412 (3,534)
Net cash used in operations 23,119 (5,809)
Income tax (597) (1,772)
Net cash generated from/(used in) operating activities 22,522 (7,581)
Investing activitiesPayments for purchase of property, plant and equipment 14 (12,325) (8,820)
Prepayments for purchase of property, plant and equipment – (7,740)
Paymentsforintangibleassets-gasstationlicense 16 (392) –
Payments for leasehold land held for own use under
operating leases (155) (387)
Proceedsuponmaturityofheld-to-maturityinvestment – 50,255
InterestinGCZ (25,504) –
Payments for exploration activities 15 (32,385) (70,011)
Disposalofasubsidiary,netofcashdisposed 5(b) 60,201 –
Cashdisposedduetodemergerofsubsidiaries 5(b) (3,576) –
Interest received 25 1,452
Net cash used in investing activities (14,111) (35,251)
Refertonote20forsignificantnon-cashitems.
GREEN DRAGON GAS ANNUAL REPORT 2013 37
Year ended Yearended
31 December 31 December
Notes 2013 2012
US$’000 US$’000
Financing activitiesCash paid to redeem convertible notes 22 (84,200) –
Cash received from issuing convertible notes 22 35,000 –
Cash received from issuing bonds 23 35,000 –
GCZblockfinanceprovidedbyPetroChina 28 1,465 –
Otherinterestpaid (5,409) (5,902)
Net cash used in financing activities (18,144) (5,902)
Net decrease in cash and cash equivalents (9,733) (48,734)
Cash and cash equivalents at beginning of year 39,971 86,334
30,238 37,600
Effect of foreign exchange rate changes 4,404 2,371
Cash and cash equivalents at end of year 20 34,642 39,971
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
38
1 GENERALGreenDragonGasLtd.(“theCompany”)wasincorporatedintheCaymanIslandson28March2006asanexempted
companywithlimitedliabilityundertheCompaniesLaw(2004revision)Chapter22oftheCaymanIslands.Theregistered
officeandprincipalplaceofbusinessoftheCompanyarelocatedatP.O.Box309GT,UglandHouse,SouthChurch
Street, George Town, Grand Cayman, Cayman Islands and Suite 3308, Two Exchange Square, Central, Hong Kong
respectively.
TheCompanyanditssubsidiariesarehereinaftercollectivelyreferredtoasthe“Group”.TheCompanyisaninvestment
holding company while the principal activities of its subsidiaries are exploration, development and production of coal bed
methaneinthePeople’sRepublicofChina(“PRC”).ThecoalbedmethaneoperationsinthePRCareconductedthrough
productionsharingarrangementswithChinaUnitedCoalBedMethaneCorporationLtd. (“CUCBM”)andPetroChina
CompanyLimited(“PetroChina”or“CNPC”),companiesestablished in thePRCand indirectlycontrolledby thePRC
Government,wherebytheGroupisentitledtoafixedpercentageofproductionoutputinaccordancewiththerespective
coalbedmethaneproductionsharingcontractsenteredintowithCUCBMandCNPC.Furtherdetailsinrelationtothese
contractsaredisclosedinnote28tothefinancialstatements.
On3June2013,theCompanyenteredintoasaleandpurchaseagreementforthesaleoftheCompany’s29.11%effective
interestinBeijingHuayouUnitedGasDevelopmentCo.,Ltd(“BHY”)andits100%interestinGiantPowerInternational
InvestmentLimited(“GPI”)whichincludedtheCompany’sinterestsinthewholesalegasdistributionpipelinenetworkin
theBeijingDevelopmentAreaandthewholesalegasstationsinZhengzhouandWuhu,foracashconsiderationofUS$65
million.Thedetailsofthetransactionareincludedinthediscontinuedoperation,whichrepresentaseparatereportable
segment,areprovidedinnotes4and5tothefinancialstatements.
On27September2013,theshareholdersapprovedthedemergerofitsengineeringandtechnologyservicesbusiness
(“GETGroup”),whichrepresentsareportablesegment innote4to thefinancialstatements,bywayofadividendin
specieoftheentiresharesinGrekaEngineeringandTechnologyLimited(“GET”)totheshareholdersoftheCompany.
Detailsareprovidedinnote5.
Thefinancial statementsarepresented inUnitedStatesdollarswhich is the sameas the functional currencyof the
Company.ThefunctionalcurrencyoftheGroup’ssubsidiariesisprimarilyRenminbi(“RMB”).
2 PRINCIPAL ACCOuNTING POLICIESBasis of preparationThefinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandardsasadopted
bytheEuropeanUnion(“IFRSs”),thatareeffectiveforaccountingperiodsbeginningonorafter1January2013.The
principalaccountingpoliciesadoptedinthepreparationoftheconsolidatedfinancialstatementsaresetoutbelow.The
policieshavebeenconsistentlyappliedtoalltheyearspresented,unlessotherwisestated.
Thefinancialstatementshavebeenpreparedunderthehistoricalcostbasis.
GREEN DRAGON GAS ANNUAL REPORT 2013 39
2 PRINCIPAL ACCOuNTING POLICIES (continued)Basis of preparation (continued)ThepreparationoffinancialstatementsinconformitywithIFRSsrequirestheuseofcertaincriticalaccountingestimates.
Italsorequiresmanagementtoexerciseits judgment intheprocessofapplyingtheGroup’saccountingpolicies.The
areasinvolvingahigherdegreeofjudgmentorcomplexityorareaswhereassumptionsandestimatesaresignificantto
theconsolidatedfinancialstatementsaredisclosedinnote3tothefinancialstatements.Actualresultsmaydifferfrom
theseestimates.
Theestimatesandunderlyingassumptionsare reviewedonanongoingbasis.Revisions toaccountingestimatesare
recognised in the period in which the estimate is revised if the revision only affects that period or in the period of revision
andfutureperiodsiftherevisionaffectsbothcurrentandfutureperiods.
Transactions under common controlTheacquisitionofGrekaGasChinaLtdanditssubsidiaries intheperiodended31December2006wasoutsidethe
scopeofIFRS3becauseitwasnotconsideredtobeabusinesscombination(GreenDragonGasLimitedwasashell
companyatthetimeofthetransaction)andallpartieswereundercommoncontrolofMr.RandeepGrewalbeforeand
afterwards.
IAS8“Accountingpolicies,changesinaccountingestimatesanderrors”requiresmanagementtodeveloparelevantand
reliablepolicyintheabsenceoftransactionsbeinginthescopeofotherIFRSstandards.Managementthereforechoseto
applypurchaseaccountingrules.Asaresulttheconsiderationgivenandtheassetsandliabilitiesacquiredwererecorded
attheirfairvalue.Theexcessoffairvalueofthenetassetsacquiredoverthenominalvalueofthesharesissuedwas
recordedassharepremium.
New and amended standards adopted by the Group:TheGrouphasadoptedseveralnewstandardsandamendmentstostandardsthataremandatoryforthefirsttimefrom
1January2013.Exceptasnoted,theimplementationofthesestandardsdidnothaveamaterialeffectontheGroup’s
currentorprioryear’sfinancialstatements.
Standard Impact on initial application Effective date
IAS1(Amendment) Presentationofitemsofothercomprehensiveincome 1July2012
IFRS 13 Fair value measurement 1 January 2013
IAS19(Amendment2011) Employeebenefits 1January2013
IFRS7(Amendment2011) Disclosures-offsettingfinancialassetsandfinancialliabilities 1January2013
IFRIC20 StrippingCostsintheProductionPhaseofaSurfaceMine 1January2013
IAS12(Amendment) DeferredTax:RecoveryofUnderlyingAssets 1January2013
IFRS(Amendments) AnnualImprovementstoIFRSs(2009-2013Cycles) 1January2013
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
40
HIGHLIGHTS
2 PRINCIPAL ACCOuNTING POLICIES (continued)New and amended standards adopted by the Group: (continued)TheamendmentstoIAS1(Revised)requiretheGrouptoseparateitemspresentedinothercomprehensiveincomeinto
thosethatmaybereclassifiedtoprofitandlossinthefutureandthosethatmaynot.
TheGroup has adopted the amendments retrospectively for the financial year ended 31December 2013. Items of
othercomprehensiveincomethatmayandmaynotbereclassifiedtoprofitandlossinthefuturehavebeenpresented
separatelyintheconsolidatedstatementofcomprehensiveincome.Thecomparativeinformationhasbeenrestatedto
complywiththeamendments.Astheamendmentsaffectpresentationonly,therearenoeffectsontheGroup’sfinancial
positionorperformance.
Prior year adjustmentTheGrouphasrestateditsresultstocorrectforforeignexchangetranslationmovementsarisingonGasExplorationand
Appraisalassets.Thecorrectionreflectstheimpactofretranslatingthefairvalueupliftoninitialacquisitionwhichwas
attributabletocompanieswithafunctionalcurrencyofRMBintoUSdollars,beingthepresentationalcurrencyofthe
Group,asrequiredbyIFRS.Noretranslationofthebalancehadtakenplacepreviously.Theretranslationofitemsfrom
functional to presentational currency are recorded within the foreign exchange reserve within equity and therefore the
restatementhadnoimpactontheGroup’sprofitor loss.Athirdconsolidatedstatementoffinancialposition,dated1
January2012,hasbeenpreparedinaccordancewithIFRS.Theimpactoftherestatementissummarisedbelow:
31 December 2012 1 January 2012
GasExplorationandAppraisalassets(aspreviouslystated) 767,641 697,582
Prioryearadjustment-exchangeretranslation 45,621 40,767
GasExplorationandEvaluationassets(asrestated) 813,262 738,349
Deferredtax(aspreviouslystated) 150,356 151,443
Prioryearadjustment-exchangeretranslation 11,405 10,192
Deferredtax(asrestated) 161,761 161,635
Foreignexchangereserve(aspreviouslystated) 11,755 9,170
Prioryearadjustment-exchangeretranslation 34,216 30,575
Foreignexchangereserve(asrestated) 45,971 39,745
Change in total assets 45,621 40,767
Change in total liabilities 11,405 10,192
Change in equity and impact on other comprehensive income 34,216 30,575
GREEN DRAGON GAS ANNUAL REPORT 2013 41
2 PRINCIPAL ACCOuNTING POLICIES (continued)Prior year adjustment (continued)Standards, amendments and interpretations, which are effective for reporting periods beginning after the current reporting
periodwhichhavenotbeenadoptedearly:
Standard Description Effective date
AmendmentstoIAS32 OffsettingFinancialAssetsandFinancialLiabilities 1January2014
IFRS 10 Consolidated Financial Statements 1 January 2014
IFRS 11 Joint Arrangements 1 January 2014
IFRS12 DisclosureofInterestsinOtherEntities 1January2014
IAS27(2011) SeparateFinancialStatements 1January2014
IAS28(2011) InvestmentsinAssociatesandJointVentures 1January2014
Amendments to IFRS 9, Hedge Accounting 1 January 2014
IFRS7andIAS39
Amendments to IFRS 10, Investment entities 1 January 2014
IFRS12andIAS27(2011)
Amendments to IAS 39 Novation of Derivatives and Continuation of 1 January 2014
Hedge Accounting
I(IFRIC)21 Levies 1January2014
Amendmentsto DefinedBenefitPlans:EmployeeContributions 1July2014
IAS19(2011)*
IFRSs(Amendments) AnnualImprovements2010-2012Cycle 1July2014
IFRSs(Amendments) AnnualImprovements2011-2013Cycle 1July2014
IFRS9* FinancialInstruments Noeffectivedate
*NotyetendorsedbytheEuropeanUnion
TheGrouphasnotyetassessedtheimpactofIFRS9.ExceptforthisandIFRS11,theabovenewstandards,amendments
andinterpretationsarenotexpectedtomateriallyaffecttheGroup’sreportingorreportedresults.
JointarrangementsunderIFRS11havethesamebasiccharacteristicsasjointventuresunderIAS31.Jointarrangements
areclassifiedaseitherjointoperationsor jointventures.WheretheGrouphasrightstotheassetsandobligationsfor
the liabilitiesof the jointarrangement, it is regardedasa jointoperatorandwill recognise its interests in theassets,
liabilities,incomeandexpensesarisingfromthejointarrangement.WheretheGrouphasrightstothenetassetsofthe
jointarrangementasawhole, it is regardedashavingan interest ina jointventureandwillapply theequitymethod
ofaccounting. IFRS11doesnotallowproportionateconsolidation. Inanarrangementstructured throughaseparate
vehicle, all relevant facts and circumstances will be considered to determine whether the parties to the arrangement
haverightstothenetassetsofthearrangement.Previously,theexistenceofaseparatelegalentitywasthekeyfactorin
determiningtheexistenceofajointlycontrolledentityunderIAS31.IFRS11willbeappliedretrospectivelywithspecific
restatementrequirementsforajointventurewhichchangesfromproportionateconsolidationtotheequitymethod.Asat
31December2013,theGrouphasnojointarrangementsstructuredthroughseparatelegalentitiesbutiscontinuingto
assesstheimpactofIFRS11forapplicationfrom1January2014.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
42
HIGHLIGHTS
2 PRINCIPAL ACCOuNTING POLICIES (continued)Basis of consolidationWheretheCompanyhasthepower,eitherdirectlyorindirectly,togovernthefinancialandoperatingpoliciesofanother
entityorbusinesssoastoobtainbenefitsfromitsactivities,it isclassifiedasasubsidiary.Theconsolidatedfinancial
statements present the results of theCompany and its subsidiaries as if they formed a single entity. Inter-company
transactions and balances between group companies are therefore eliminated in full. The financial statements of
subsidiariesareincludedintheGroup’sfinancialstatementsfromthedatethatcontrolcommencesuntilthedatethat
controlceases.
From1January2010,thetotalcomprehensiveincomeofnon-whollyownedsubsidiariesisattributedtoownersofthe
parentandtothenon-controllinginterestsinproportiontotheirrelativeownershipinterests.Beforethisdate,unfunded
losses in suchsubsidiarieswereattributed to theGroup. Inaccordancewith the transitional requirementsof IAS27
(2008),thecarryingvalueofnon-controllinginterestsattheeffectivedateoftheamendmentwasnotrestated.
SubsidiariesAsubsidiaryisanentityoverwhichtheCompanyisabletoexercisecontrol.ControlisachievedwheretheCompanyhas
thepower,directlyorindirectly,togovernthefinancialandoperatingpoliciesofanentitysoastoobtainbenefitsfromits
activities.Inassessingcontrol,potentialvotingrightsthatpresentlyareexercisablearetakenintoaccount.
TheCompany’sinterestintheGCZblockoperatedbyPetroChinaisgovernedbyaproductionsharingcontract(“PSC”).
Asdetailedinnote3,theGroupholdsa47.5%interestunderthePSCandrecordsitsshareofrevenues,operatingcosts
andrelevanttaxesinaccordancewiththePSC.TheGrouprecordsitscontributionstothecapitalexpenditureincurred
byPetroChinaindevelopingthoseassetsasproperty,plantandequipment(gasdevelopmentandproductionassets).
Jointly controlled assetsJointlycontrolledassetsarearrangementsinwhichtheGroupholdsaninterestonalongtermbasiswhicharejointly
controlledbytheGroupandoneormoreventurersunderacontractualarrangement.TheGroup’sexploration,development
andproductionactivitiesaregenerallyconductedjointlywithothercompaniesinthisway.Whenthesearrangementsdo
notconstituteentitiesintheirownright,theconsolidatedfinancialstatementsreflecttherelevantproportionofcosts,
revenues,assetsandliabilitiesapplicabletotheGroup’sinterestsinaccordancewithIAS31.
Jointly controlled entitiesA jointlycontrolledentity isacontractualarrangementwhereby theGroupandotherpartiesundertakeaneconomic
activitywhichissubjectto jointcontrolandnoneoftheparticipatingpartieshasunilateralcontrolovertheeconomic
activity.
Interests in jointly controlled entities are included in the financial statements using proportionate consolidation. The
Groups’shareofeachofthejointlycontrolledentity’sassets,liabilities,incomeandexpensesincludingtheportionof
theirsubsidiariesattributabletointereststhatarenotownedbythejointlycontrolledentitiesarecombinedline-by-line
withsimilaritemsoftheGroup.
ProfitsandlossesarisingontransactionsbetweentheGroupandjointlycontrolledentitiesarerecognisedonlytothe
extentofunrelatedinvestors’interestsintherelevantentity.Theinvestor’sshareinthejointlycontrolledentity’sprofits
andlossesresultingfromthesetransactionsiseliminatedagainsttheassetorliabilityofthejointventurearisingonthe
transaction.
GREEN DRAGON GAS ANNUAL REPORT 2013 43
2 PRINCIPAL ACCOuNTING POLICIES (continued)Foreign currency translationTransactionsenteredintobyanyofthegroupentities inacurrencyotherthanthecurrencyoftheprimaryeconomic
environment in which it operates (the “functional currency”) are recorded at the exchange rates ruling when the
transactionsoccur.Foreigncurrencymonetaryassetsandliabilitiesaretranslatedattheratesrulingatthereportingdate.
Non-monetaryitemscarriedatfairvaluethataredenominatedinforeigncurrenciesareretranslatedattheratesprevailing
onthedatewhenthefairvaluewasdetermined.Non-monetaryitemsthataremeasuredintermsofhistoricalcostina
foreigncurrencyarenotretranslated.Exchangedifferencesarisingontheretranslationofunsettledmonetaryassetsand
liabilitiesarerecognisedimmediatelyinthestatementofcomprehensiveincome.
Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are
recognisedinprofitorlossintheperiodinwhichtheyarisewiththeexceptionoftheretranslationexchangedifferences
oninter-companyloansconsideredtobeaspermanentasequity,definedasloanswhicharenotexpectedtobesettled
intheforeseeablefuture.Exchangedifferencesarisingontheretranslationofnon-monetaryitemscarriedatfairvalueare
includedinprofitorlossfortheperiodexceptfordifferencesarisingontheretranslationofnon-monetaryitemsinrespect
of which gains and losses are recognised in other comprehensive income, in which cases, the exchange differences are
alsorecognisedinothercomprehensiveincome.
Onconsolidation,theresultsofforeignoperationsaretranslatedintothepresentationcurrencyoftheGroup(i.e.United
Statesdollars)attheaverageexchangeratesfortheyear/period,unlessexchangeratesfluctuatesignificantlyduringthe
period/year,inwhichcase,therateapproximatingtothoserulingwhenthetransactionstookplaceisused.Allassets
andliabilitiesofforeignoperationsaretranslatedattheraterulingatthereportingdate.Exchangedifferencesarising
on translating the opening net assets at opening rate and the results of foreign operations at actual rate are recognised
in other comprehensive income (the “foreign exchange reserve”). Fair value adjustments arising on acquisition are
initially recorded in the functional currency of the companies to which they relate and retranslated at the rates ruling at
eachreportingdatewithexchangeratemovementsrecognisedinothercomprehensiveincome(the“foreignexchange
reserve”).
Property, plant and equipmentProperty, plant and equipment other than construction in progress are stated at cost less accumulated depreciation and
anyaccumulatedimpairmentlosses.
Gas assets (development and production)
Gasassets,which include thoseassets forwhich technical feasibilityandcommercial viabilityofextractingcoalbed
methane gas are demonstrable as detailed in gas exploration and appraisal assets below, comprise the cost of developing
such assets, together with the exploration and appraisal assets transferred from intangible exploration and appraisal
assets.
Thenet book value of suchassets are accumulated onablockbyblockbasis anddepreciatedbasedonaunit of
productionmethod, inwhich thenumerator is theproductionassociatedwith theblock towhich theyrelateand the
denominatorisreservesassessedasrelatingtothatblock.Reservesarethosewhichareconsideredtobetechnically
feasibleandcommerciallyviableforextractionandareconsideredtoincludeproved(1P)andprobable(2P)reserves.
Futurecapitalexpenditurerequiredtoextractsuchreservesisincludedinthecalculationwhenapplicable.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
44
HIGHLIGHTS
2 PRINCIPAL ACCOuNTING POLICIES (continued)Property, plant and equipment (continued)Other property, plant and equipment
Property, plant and equipment are depreciated so as to write off their costs net of expected residual value over their
estimatedusefullivesonastraight-linebasis.Theusefullivesandresidualvaluearereviewed,andadjustedifappropriate,
ateachreportingdate.Theusefullivesofproperty,plantandequipmentareasfollows:
Buildingsandstructures 20-30years
Gaspipelines 20years
Motorvehicles 5years
Fixtures,fittingsandequipment 3to10years
Construction in progress represents pipelines, buildings, structures and other plant and equipment in the course
of construction forproductionor foruseby theGrouponcompletion, and is statedat cost less impairment losses.
Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when
the asset is substantially ready for its intended use, notwithstanding any delay in the issue for the relevant commissioning
certificatesbytherelevantPRCauthorities,ifapplicable.
Nodepreciationisprovidedinrespectofconstructioninprogress.
The carrying amount of property, plant and equipment is compared to the recoverable amountwhenever events or
changesincircumstancesindicatethatthenetbookvaluemaynotberecoverableduringthedevelopmentorproduction
phase.Theaggregatecarryingvalueofthecashgeneratingunit(assessedonablock-by-blockbasis)iscomparedagainst
theexpectedrecoverableamountofthecashgeneratingunit.Expectedrecoverableamountisthehigheroffairvalueless
costtosellandvalueinuse.Valueinuseisassessedbyreferencetothepresentvalueoffuturecashflowsexpectedto
be derived from production of reserves that are considered technically feasible and commercially viable for extraction,
being1Pand2Preserves.Animpairmentisrecognizedimmediatelyinthestatementofcomprehensiveincometothe
extent that thecarryingamount ishigher than theasset’sestimated recoverableamount.Wherean impairment loss
subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount,
but so that the increased carrying amount does not exceed the carrying amount that would have been determined had
noimpairmentlossbeenrecognisedfortheassetinprioryears.Areversalofanimpairmentlossisrecognisedasincome
immediately.
Thegainorlossondisposalofproperty,plantandequipmentisthedifferencebetweenthenetsaleproceedsandits
carryingamount,andisrecognisedinprofitorlossondisposal.
Gas exploration and appraisal assetsTheGroupappliestherequirementsofIFRS6“ExplorationforandEvaluationofMineralResources”inrespectof its
explorationandappraisalexpenditure.TherequirementsofIFRS6arenotappliedtoexpenditureincurredbytheGroup
beforelegaltitletoexploreforandevaluatecoalbedmethanegasresourcesinaspecificarea,generallyreferredtoas
pre-licenceexpenditure.LikewisetheGroupdonotapplytherequirementsofIFRS6afterthepointatwhichthetechnical
feasibilityandcommercialviabilityofextractingcoalbedmethanegasaredemonstrable.
GREEN DRAGON GAS ANNUAL REPORT 2013 45
2 PRINCIPAL ACCOuNTING POLICIES (continued)Gas exploration and appraisal assets (continued)Thecostsofexploringforandevaluatinghydrocarbonresourcesareaccumulatedandcapitalisedasintangibleassets
byreferencetoappropriatecashgeneratingunits(“CGU”)otherwiseknownintheindustryaspools,generallyreferred
toasfullcostaccounting.Suchcostpoolsarebasedongeographicareasandarenotlargerthanasegment.TheGroup
currentlyhasonecostpoolbeingthePRC.
Capitalised exploration and appraisal expenditure may include, amongst other costs, costs of licence acquisition, third
party technical services and studies, seismic acquisition, exploration drilling and testing but do not include general
overheads and do not include costs incurred prior to having obtained the legal rights to explore an area, which are
expenseddirectlytothestatementofcomprehensiveincomeastheyareincurred.
Property,plantandequipmentacquiredforuseinexplorationandappraisalactivitiesareclassifiedasproperty,plantand
equipment.However,totheextentthatsuchaproperty,plantandequipmentisconsumedindevelopinganintangible
exploration and appraisal asset, the amount reflecting that consumption is recorded as part of the cost of the intangible
asset.
Intangible exploration andappraisal assets arenot depreciated andare carried forward, subject to theprovisions of
theGroup’s impairment of exploration and appraisal policy, until the technical feasibility and commercial viability of
extractingcoalbedmethanegasaredemonstrable.TheGroup’sdefinitionoftechnicallyfeasibleandcommerciallyviable
reserves(‘commercialreserves’)forsuchpurposearethosewhichareclassifiedasprovenandprobablereservesonan
entitlementbasisforwhichapprovalhasbeenobtainedfromthePRCGovernmentinrespectofthe“overalldevelopment
program”relatedtotherelevantlicense/prospect.
If commercial reserves have been discovered, the related exploration and appraisal assets are assessed for impairment
onasinglecostpoolbasisassetoutbelowandanyimpairmentlossisrecognisedinprofitorloss.Thecarryingvalue,
after any impairment loss, of the relevant exploration and appraisal assets is then reclassified as development and
productionassetswithinplantandequipment.Thecostsreclassifiedincludedirectlyattributablecoststotherelevant
commercialreservesinthespecificblockbeingtransferred,togetherwithaproportionofnon-directlyattributablecosts
including a portion of the original fair value uplift on acquisition of the licences, calculated with reference to the relative
acreageofthelicenceareaandthetotallicenceareasacquiredatacquisition.
Incircumstanceswherethirdpartiesundertakeexploration,evaluation,developmentorproductionontheGroup’slicence
areas,theGrouprecordsitsattributableshareofresultsandassetsassociatedwithsuchactivitieswhenthepartieshave
reachedanagreementregardingtheentitlementsoftheGrouptosuchproduction,resultsandassetsandtheGroup’s
attributablesharecanbereliablymeasuredandmeetsIFRSrevenuerecognitionandassetrecognitioncriteria.
Intangible exploration and appraisal assets that relate to exploration and evaluation activities that have not yet resulted
in the discovery of commercial reserves remain capitalised as intangible exploration and appraisal assets at cost less
accumulatedamortisation,subjecttomeetingapool-wideimpairmenttest.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
46
HIGHLIGHTS
2 PRINCIPAL ACCOuNTING POLICIES (continued)Gas exploration and appraisal assets (continued)TheGroup’sexplorationandevaluationassetsareassessedforimpairmentwhenfactsandcircumstancessuggestthat
thecarryingamountoftheexplorationandappraisalassetsmayexceedtheassetsrecoverableamount.Inaccordance
withIFRS6theGroupfirstlyconsidersthefollowingfactsandcircumstancesintheirassessmentofwhethertheGroup’s
explorationandappraisalassetsmaybeimpaired:
• WhethertheperiodforwhichtheGrouphastherighttoexploreinaspecificareahasexpiredduringtheperiod
or will expire in the near future, and is not expected to be renewed
• Whethersubstantiveexpenditureonfurtherexplorationforandappraisalofmineralresourcesinaspecificarea
is neither budgeted nor planned
• Whetherexplorationforandevaluationofcoalbedmethanegasinaspecificareahavenotledtothediscoveryof
commerciallyviablequantitiesofcoalbedmethaneandtheGrouphasdecidedtodiscontinuesuchactivitiesin
thespecificarea
• Whether sufficientdataexists to indicate that althoughadevelopment ina specificarea is likely toproceed,
thecarryingamountoftheexplorationandevaluationassetsisunlikelytoberecoveredinfullfromsuccessful
developmentorbysale.
IfanysuchfactsorcircumstancesarenotedtheGroup,asanextstep,performsanimpairmenttestinaccordancewith
theprovisionsofIAS36.Insuchcircumstancestheaggregatecarryingvalueoftheexplorationandappraisalassetsis
comparedagainsttheexpectedrecoverableamountofthesinglecostpoolCGU.Therecoverableamountisthehigherof
valueinuseandthefairvaluelesscoststosell.
Any impairment loss is recognised in the statement of comprehensive income as additional depreciation and separately
disclosed.
DecommissioningWhereamaterial liability for the removalofproduction facilitiesandsite restorationat theendof theproductive life
exists,aprovisionismadefordecommissioningattheoutset.Theamountrecordedisthepresentvalueofestimated
futureexpenditurebasedon local legislative requirements. Included in the relevant asset is anamount equal to the
provisionwhichisdepreciatedonaunitsofproductionbasis.Changesinestimatesarerecordedprospectivelythrough
theprovisionandassetcarryingvalue.Unwindingof theeffectofdiscountingontheprovisionisrecordedinfinance
costs.UndertheGroup’sPSC’s,decommissioningcostsarebornebytheoperator.DecommissioninginrespectofPSCs
forwhichtheGroupistheoperatorfallontheotherpartytothePSCifproductionceasesaftertheendoftheGroup’s20
yearPSCproductionperiod.Atpresent,decommissioningobligationsareassessedasimmaterial.
Other intangible assets acquired in a business combinationOtherintangibleassetsacquiredinabusinesscombinationareidentifiedandrecognisedseparatelywheretheysatisfy
thedefinitionofanintangibleasset.Thecostofsuchintangibleassetsistheirfairvalueattheacquisitiondate.
Subsequenttoinitialrecognition,intangibleassetswithfiniteusefullivesarecarriedatcostslessaccumulatedamortisation
andanyaccumulatedimpairmentlosses.Amortisationiscalculatedtowriteofftheintangibleassetovertheusefullife,
whichisestimatedtobe5-10yearsforpatents,licencesandcontractualrights.
GREEN DRAGON GAS ANNUAL REPORT 2013 47
2 PRINCIPAL ACCOuNTING POLICIES (continued)Payments for leasehold land held for own use under operating leasesPaymentsforleaseholdlandheldforownuseunderoperatingleasesrepresentup-frontpaymentstoacquirelong-term
interests in lessee-occupied properties. These payments are stated at cost less any accumulated amortisation and
impairmentloss.Theyareamortisedovertheperiodoftheleaseonastraight-linebasistoprofitorloss.
InventoriesInventoriesare initially recognisedatcost,andsubsequentlymeasuredat the lowerofcostandnet realisablevalue.
Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their
presentlocationandcondition.Costiscalculatedusingtheweightedaveragemethod.Netrealisablevaluerepresentsthe
estimatedsellingpriceintheordinarycourseofbusinesslesstheestimatedcostsnecessarytomakethesale.
Segment reportingSegments are reported in amanner consistent with the internal reporting provided to the chief operating decision-
maker.ThechiefoperatingdecisionmakerhasbeenidentifiedastheManagingDirector,FinanceManagerandtheother
executiveandnon-executiveBoardMembers.
TaxationTaxontheprofitor lossfortheyearcomprisescurrentanddeferredtax.Taxisrecognisedinprofitor lossexceptto
the extent that it relates to items recognised in other comprehensive income, in which case it is recognised in other
comprehensiveincome.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively
enactedatthereportingdate,andanyadjustmenttotaxpayableinrespectofpreviousyears.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of
financialpositiondifferstoitstaxbase,exceptfordifferencesarisingontheinitialrecognitionofanassetorliabilityina
transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable
profit;andinvestmentsinsubsidiariesandjointlycontrolledentitieswherethegroupisabletocontrolthetimingofthe
reversalofthedifferenceanditisprobablethatthedifferencewillnotreverseintheforeseeablefuture.
Recognitionofdeferredtaxassetsisrestrictedtothoseinstanceswhereitisprobablethattaxableprofitwillbeavailable
againstwhichthedifferencecanbeutilised.
Theamountoftheassetorliabilityisdeterminedusingtaxratesthathavebeenenactedorsubstantivelyenactedbythe
reportingdateandareexpectedtoapplywhenthedeferredtaxliabilities/(assets)aresettled/(recovered).Deferredtax
balancesarenotdiscounted.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
48
HIGHLIGHTS
2 PRINCIPAL ACCOuNTING POLICIES (continued)Taxation (continued)Deferred tax assets and liabilities are offset when the group has a legally enforceable right to offset current tax assets and
liabilitiesandthedeferredtaxassetsandliabilitiesrelatetotaxesleviedbythesametaxauthorityoneither:
• thesametaxablegroupcompany;or
• differentgroupentitieswhichintendeithertosettlecurrenttaxassetsandliabilitiesonanetbasis,or
• torealisetheassetsandsettletheliabilitiessimultaneously,ineachfutureperiodinwhichsignificantamountsof
deferredtaxassetsorliabilitiesareexpectedtobesettledorrecovered.
Revenue recognitionRevenuefromthesaleofgasisrecognisedwhentherisksandrewardsofownershiptogetherwitheffectivecontrolare
transferred to the customer and the amount of the revenue and associated costs incurred in respect of the relevant
transaction can be reliably measured. Revenue is not recognised unless it is probable that the economic benefits
associatedwith the sales transactionwill flow to theGroup.Revenuearisingduringpilot or test production, prior to
commercialproductionbeingestablished,isrecordedgrossandacorrespondingadjustmentismadetocostofsalesand
theexplorationandappraisalasset.
Revenuefromsalesofequipmentisrecognisedontransferofrisksandrewardsofownership,whichisatthetimeof
deliveryandthetitleispassedtocustomer.
Construction contract revenue from gas connection contracts is recognised when the outcome of the contract can be
estimated reliablyand thestageofcompletionat the reportingdatecanbemeasured reliably.Constructioncontract
revenue from gas connection contracts is recognised on the percentage of completion method, measured by reference to
thevalueofworkcarriedoutduringtheyear.Whentheoutcomeofaconstructioncontractforgasconnectioncontracts
cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable to be
recoverable.
Financial instruments(I) Financial assets
Loans and receivables
TheGroup’sloansandreceivablescomprisetradeandotherreceivables.
Theseassetsarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinan
activemarket.Theyariseprincipallythroughthesaleofgastocustomers(tradereceivables),andalsoincorporate
other types of contractual monetary asset. Loans and receivables are recognised initially at fair value and
subsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod,lessprovisionforimpairment.
GREEN DRAGON GAS ANNUAL REPORT 2013 49
2 PRINCIPAL ACCOuNTING POLICIES (continued)Financial instruments (continued)(I) Financial assets (continued)
Loans and receivables (continued)Aprovisionforimpairmentisestablishedwhenthereisobjectiveevidencethattheassetwillnotbecollectiblein
fullaccordingtotheoriginaltermsoftheinstruments.Significantfinancialdifficultiesofthecustomers,probability
thatthecustomerswillenterbankruptcyorfinancialreorganisation,anddefaultordelinquencyinpaymentsare
consideredindicatorsthattheloansandreceivablesareimpaired.Theamountoftheprovisionisthedifference
between the asset’s carrying amount and the present value of the estimated future cash flows discounted at
theoriginaleffectiveinterestrate.Thecarryingamountoftheassetisreducedthroughtheuseofanallowance
account,andtheamountofthelossisrecognisedinprofitorloss.Whenloansandreceivablesareuncollectible,
theyarewrittenoffagainsttheallowanceaccountforloansandreceivables.Subsequentrecoveriesofamounts
previouslywrittenoffarecreditedtoprofitorloss,subjecttoarestrictionthatthecarryingamountoftheasset
at the date the impairment is reversed does not exceed what the amortised cost would have been had the
impairmentnotbeenrecognised.
Otherreceivablesincludeitemssuchasrefundabledepositspaidtoacquirepropertyplantandequipment.
Held-to-maturity investments
Non-derivativefinancialassetswithfixedordeterminablematuritiesareheld-to-maturitywhentheGrouphasthe
positiveintentionandabilitytoholdthemtomaturity.Afterinitialmeasurement,held-to-maturityinvestmentsare
measuredatamortisedcostusingtheeffectiveinterestmethod,lessimpairment.Amortisedcostiscalculated
by taking into account any discount on premium and fees or costs that are an integral part of the effective
interestmethod.Theeffective interestmethodamortisation is included infinance income in thestatementof
comprehensiveincome.Thelossesarisingfromimpairmentarerecognisedinthestatementofcomprehensive
incomeinfinancecosts.
Cash and cash equivalents
Cashincludescashonhandanddemanddepositswithanybankorotherfinancialinstitutions.Cashequivalents
areshort-term,highlyliquidinvestmentsthatarereadilyconvertibletoknownamountsofcashwhicharesubject
toaninsignificantriskofchangesinvalue.
Fair value through profit or loss
ThiscategorycomprisesofwarrantsandembeddedderivativesassociatedwiththeGroup’swarrantagreements.
Theyarecarriedintheconsolidatedstatementoffinancialpositionatfairvaluewithchangesinfairvaluerecognised
intheconsolidatedstatementofcomprehensiveincome.TheGroupdoesnotholdorissuederivativeinstruments
forspeculativepurposes.Otherthanthesederivativefinancialinstruments,theGroupdoesnothaveanyliabilities
heldfortradingnorhasitdesignatedanyfinancialliabilitiesasbeingatfairvaluethroughprofitorloss.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
50
HIGHLIGHTS
2 PRINCIPAL ACCOuNTING POLICIES (continued)Financial instruments (continued)(ii) Financial liabilities
Financial liabilities held at amortised cost
• Trade payables and other short-term monetary liabilities are recognised initially at fair value and
subsequentlycarriedatamortisedcostusingtheeffectiveinterestratemethod.
• OtherfinancialliabilitiesincludeamountspayabletoCUCBMandCNPC,whichisapartytotheproduction
sharing contracts on the activities of exploration, development and production of coal bed methane, in
respectofexplorationcostsincurred.Thisamountistobesettledbyfuturerevenueonproductionfrom
theShizhuangSouthBlock in thePRC.Thisamount is recognised initiallyat fair valueandcarriedat
amortisedcostusingtheeffectiveinterestratemethod.
(iii) Convertible debts and bonds
ConvertiblenotesissuedbytheGroupthatcontainliabilityandconversionoptioncomponentsandembedded
earlyredemptionoptionsthatarenotcloselyrelatedtothehostcontractareclassifiedseparatelyintorespective
itemsoninitialrecognition.Aconversionoptionthatwillbesettledbytheexchangeofafixedamountofcash
oranotherfinancialassetforafixednumberoftheCompany’sownequityinstrumentsisclassifiedasanequity
component.
Oninitialrecognition,thefairvalueoftheliabilitycomponentisdeterminedusingtheprevailingmarketinterest
rateofsimilardebtswithoutconversionoptionandearlyredemptionoptions.Thefairvalueofembeddedearly
redemptionoptionsaredeterminedbyappropriateoptionpricingmodels.Thedifferencebetweentheproceeds
of the issue of the convertible notes, and the fair value assigned to the liability component and the fair value of the
embedded early redemption options, representing the conversion option for the holder to convert the loan notes
intoequity,isincludedinequity(convertiblenoteequityreserve).
In subsequent periods, the liability component of the convertible note is carried at amortised cost using the
effectiveinterestmethod.Theearlyredemptionoptionscomponentsaremeasuredatfairvaluewithchangesin
fairvaluerecognisedinprofitor loss.Theequitycomponent,representedbytheoptiontoconverttheliability
component into ordinary shares of the Company, will remain in convertible note equity reserve until the conversion
option isexercised (inwhichcase thebalancestated inconvertiblenoteequity reservewillbe transferred to
sharecapitalandsharepremium).Wheretheoptionremainsunexercisedattheexpirydate,thebalancestated
inconvertiblenoteequityreservewillbereleasedtotheretainedearnings.Nogainorlossisrecognisedinprofit
orlossuponconversionorexpirationoftheconversionoption.
Transaction costs that relate to the issue of the convertible note containing liability and equity components
plus embedded early redemption options are allocated to the liability and equity components and embedded
earlyredemptionoptionsinproportiontotheallocationoftheproceeds.Transactioncostsrelatingtotheequity
component are charged directly to convertible note equity reserve. Transaction costs relating to the liability
component are included in the carrying amount of the liability portion and amortised over the period of the
convertiblenoteusingtheeffectiveinterestmethod.
GREEN DRAGON GAS ANNUAL REPORT 2013 51
2 PRINCIPAL ACCOuNTING POLICIES (continued)Financial instruments (continued)(iii) Convertible debts and bonds (continued)
BondsissuedbytheGroupareinitiallyrecordedatfairvalueandsubsequentlymeasuredatamortisedcost.In
instanceswhere theGroup issueswarrantswith thesamecounterpartyat thesamedate, thosewarrantsare
consideredtorepresentatransactioncostofthebondinstrument;thewarrantisinitiallyrecordedatfairvalue,
derivedusingvaluationtechniques,recordedasaderivativefinancialliabilityandareductioninthecarryingvalue
ofthebond.Subsequently,thereducedcarryingvalueofthebondsisamortisedusingtheeffectiveinterestrate
andrecordedinfinancecosts.
Employee benefits(i) Defined contribution pension plan
Contributionstodefinedcontributionpensionplanarerecognisedasanexpenseinprofitorlossastheservices
givingrisetothecompany’sobligationsarerenderedbytheemployees.
TheemployeesoftheoperationsinthePRCarerequiredtoparticipateinacentralpensionschemeoperatedby
thelocalmunicipalgovernment.TheGroupisrequiredtocontributeacertainpercentageofitspayrollcoststo
thecentralpensionscheme.Thecontributionspayablearechargedtoprofitorlosswhentheybecomepayable
in accordance with the rules of the central pension scheme and are disclosed under Employer’s national social
securitycontributionsinnote8.
(ii) Other benefits
Otherbenefits,beingbenefitsinkind,arechargedtoprofitorlossintheperiodtowhichtheyrelate.
Share based paymentsWhereshareoptionsareawardedtoemployees,thefairvalueoftheoptionsatthedateofgrantischargedtoprofitor
lossoverthevestingperiodwithacorresponding increase inthe“sharebasedpaymentreserve”withinequity.Non-
marketvestingconditionsaretakenintoaccountbyadjustingthenumberofequityinstrumentsexpectedtovestateach
reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of
optionsthateventuallyvest.Marketvestingconditionsarefactoredintothefairvalueoftheoptionsgranted.Aslongasall
othervestingconditionsaresatisfied,achargeismadeirrespectiveofwhetherthemarketvestingconditionsaresatisfied.
Thecumulativeexpenseisnotadjustedforfailuretoachieveamarketvestingcondition.
Wherethetermsandconditionsofoptionsaremodifiedbeforetheyvest,theincreaseinthefairvalueoftheoptions,
measured immediatelybeforeandafter themodification, is alsocharged toprofitor lossover the remaining vesting
period.
Whereequityinstrumentsaregrantedtopersonsotherthanemployees,profitorlossischargedwiththefairvalueof
goodsorservicesreceivedunlessthegoodsorservicesqualifyforrecognitionasassets.Acorrespondingincreasein
equityisrecognised.Forcash-settledsharebasedpayments,aliabilityisrecognisedatthefairvalueofthegoodsor
services received.Ateach reportingdate, the liability is re-measuredat its fairvalueuntil the liability issettled,with
changeinfairvaluerecognisedinincomestatement.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
52
HIGHLIGHTS
2 PRINCIPAL ACCOuNTING POLICIES (continued)LeasesWheresubstantiallyalloftherisksandrewardsincidentaltoownershipareretainedbythelessor(an“operatinglease”),
thetotalrentalspayableundertheleasearechargedtoprofitorlossonastraight-linebasisovertheleaseterm.
Thelandandbuildingselementsofpropertyleasesareconsideredseparatelyforthepurposeofleaseclassification.
Borrowing costsBorrowing costs comprise interest payable and transaction costs on the issue of bank borrowings, loan notes and
convertiblenotesandother liabilities that areof thenatureofborrowing.Borrowingcostsattributabledirectly to the
acquisition, construction or production of qualifying assets which require a substantial period of time to be ready for
theirintendeduseorsale,arecapitalisedaspartofthecostofthoseassets.Incomeearnedontemporaryinvestments
ofspecificborrowingspendingtheirexpenditureonthoseassetsisdeductedfromborrowingcostscapitalised.Allother
borrowingcostsarerecognisedinprofitorlossintheperiodinwhichtheyareincurred.
Discontinued operationsAdiscontinuedoperationisacomponentoftheGroup’sbusinessthatrepresentsaseparatemajorlineofbusinessor
geographical area of operations, which has been disposed of or is held for sale, or is a subsidiary acquired exclusively with
aviewtoresale.Classificationasadiscontinuedoperationoccursupondisposalorwhentheoperationmeetsthecriteria
tobeclassifiedasheldforsale,ifearlier.Whenanoperationisclassifiedasadiscontinuedoperation,thecomparative
statementofcomprehensive income is re-presentedas if theoperationhadbeendiscontinued from thestart of the
comparativeperiod.
Treasury sharesConsiderationpaid/receivedforthepurchase/saleoftreasurysharesisrecogniseddirectlyinequity.Thecostoftreasury
sharesheldispresentedasaseparatereserve(the“Treasuryshares”reserve).Anyexcessoftheconsiderationreceived
onthesaleoftreasurysharesovertheweightedaveragecostofthesharesiscreditedtoretainedearnings.
Demerger under common controlTheGroup’scontrollinginterestinGrekaEngineeringandTechnologyLimited(“GET”)wasdemergedviaadividendin
specieandisatransactionundercommoncontrolasdefinedinIFRS3BusinessCombinations.TheDirectorsnotethat
transactions under common control are outside the scope of IFRIC 19 and that there is no guidance elsewhere in IFRS
coveringsuchtransactions.HavingconsideredtherequirementsofIAS8thetransactionbywhichtheGroupdemerged
itscontrolling interest inGEThasbeenaccounted forbydemerging theGETgroupatbookvalues,witha reduction
recordedagainstsharepremium.Nofairvalueadjustmentshavebeenmade.
GREEN DRAGON GAS ANNUAL REPORT 2013 53
3 CRITICAL ACCOuNTING ESTImATES ANd JudGEmENTSTheGroupmakesestimatesandassumptionsregardingthefuture.Estimatesandjudgementsarecontinuallyevaluated
based on historical experiences and other factors, including expectations of future events that are believed to be
reasonableunderthecircumstances.Inthefuture,actualexperiencemaydeviatefromtheseestimatesandassumptions.
Theestimatesandassumptionsthathaveasignificantriskorcauseamaterialadjustmenttothecarryingamountsof
assetsandliabilitieswithintheperiodaftertheyear/periodareasfollows.
PetroChina GCZ block interestJudgementhasbeenrequiredintherecognitionoftheGroup’sattributableshareoftheresultsandassetsoftheGCZblock
asatyearend.FurthertotheidentificationofdrillingactivitiesbythirdpartiesontheGroup’sblocks,theGroupentered
intoabindingMemorandumofUnderstanding(MOU)withPetroChinaCompanyLtd(“PetroChina”)duringDecember
2013,confirmingtheCompany’srightsovertheChengzhuangblock(“GCZ”)underthepre-existingPSC.UndertheMOU
PetroChinacontinuestobeoperatoroftheblockandthepartiesagreedtoathirdpartyauditprocesstoverifythecapital
expenditureincurredtodeveloptheblock,thegasproduction,gassalesandrelatedrevenuesandcosts.Thisaudited
information is thenusedby theparties toestablish theGroup’sattributableshareof suchproduction, revenuesand
expenditures.Subsequenttotheaudit,whichhasnowbeencompleted,theGroupwillenterfinalagreementsdefiningthe
paymentsandfuturecooperation.TheGroupconsidersthat,followingtheMOU,theGroup’sentitlementwasestablished
under the existing PSCs and the attributable share of revenues and expenditures can be reliably measured based on
information obtained through the audit. Accordingly, the Group has recognised its attributable share of cumulative
revenues,capitalexpenditureandoperatingcostsintheyear.
LitigationTheGrouphasrecordedaprovisionofUS$49.5millioninrespectoflitigationwithConocoPhillipsChinaInc(“COPC”)
arisingfromadisputeinrespectofthefarm-outagreement,andthefindingsofthearbitrationtribunal,asdetailedin
note33.WhilsttheDirectors’remainconfidentofasuccessfulappeal,aprovisionhasbeenconservativelymadeinthe
financialstatements.TheoriginalUS$42.6millionreceivedwassetagainst theexplorationassetsand,consequently,
thishasbeenreversed.FullinterestandpenaltieshavebeenprovidedforandareshownintheConsolidatedStatement
ofComprehensiveIncome.TheappealistobeheardintheSingaporeHighCourtinthecomingmonthsandshouldthe
appealsetasidetheruling,nopaymentwouldbemadeinrespectoftheprovision.
Transfer of exploration and appraisal assets and depreciation of the gas production assetsThe Group has exercised judgement in determining the relevant assets transferred from exploration and evaluation
intangibleassetstoproperty,plantandequipmentinrespectoftheproducingGCZblock.Thecoststransferredincluded
aportionofthefairvalueupliftonacquisitionoftheGroup’slicenceinterestsasawholeconsideredattributabletothe
GCZblock,basedontherelativeacreageoftheGCZblockandthetotallicenceareas.Theproperty,plantandequipment
associatedwithGCZhasbeendepreciatedonaunitsofproductionbasis.Judgementwasrequiredindeterminingthe
reservesusedinthiscalculationandtheGroupconsiders2Preservestobecapableofextractionusingtheassetsand
thereforeanappropriateestimateoftheasset’slife.Itisnotedthatsignificant3Preserveshavebeenestimatedtoexist
andsuchreserveswouldsignificantlyextendtheestimateusefullife.However,3Preservesarenotincludeduntilsuch
timeastheyaretransferredto2PreservesaspartoftheGroup’sindependentreservesaudit.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
54
HIGHLIGHTS
3 CRITICAL ACCOuNTING ESTImATES ANd JudGEmENTS (continued)Impairment reviewsExploration and appraisal costs are assessed for indicators of impairment using the criteria detailed in note 2. The
assessmentbytheBoardrequiresjudgementandisdependentuponanassessmentoftherightstotheGroup’sassets
and renewal of such rights, expected levels of expenditure, interpretation of exploration and appraisal activity in the year
andfutureintentions.Noimpairmentindicatorswerenoted.Theseassessmentsareinherentlyjudgementalandrequire
estimationandthereforemaychangeovertimeresultinginsignificantchargestoprofitorloss.
TheGrouptestsitsproperty,plantandequipmentassets,whichincludeoilandgasdevelopmentandproductionassets
for impairment when circumstances suggest that the carrying amount may exceed its recoverable value and in accordance
withthepolicydetailedinnote2.Thisassessmentinvolvesjudgementastothelevelofreservesthatarecapableofbeing
extractedcommerciallyandwhicharetechnicallyviablewithreferencetotheGroup’sindependentcompetentperson’s
report, estimates of future gas prices, operating costs, capital expenditure necessary to extract those reserves and the
discountratetobeappliedtosuchrevenuesandcostsforthepurposeofderivingarecoverablevalue.TheGroupuses
proven(1P)andprobable(2P)reservesinsuchimpairmenttests.TheimpairmenttestsontheGroup’sproducinggas
developmentandproductionassetswereperformedbasedontheGCZblocktowhichtheyrelated.
Fair values of convertible notesThe fair valueof the liabilitycomponenton initial recognition is thepresentvalueof thestreamof futurecashflows
(includingbothcouponpaymentsandredemption)discountedatthemarketrateofinterestthatwouldhavebeenapplied
to an instrument of comparable credit rating with substantially the same cash flows, on the same terms, but without the
conversionoption.Theapplicableratesofinterest,whichareamatterofjudgement,aredisclosedinnote22.
Valuation of derivatives and warrantsTheGroupdeterminedthevalueofderivativesandwarrants(atinceptionandatyearend)usingvaluationtechniques.
Thosetechniquesaresignificantlyaffectedbytheassumptionsused, includingsharepricevolatilities,discountrates,
probabilitiesofwarrantexerciseorredemption,andassumptionsregardingthebehaviourofpartiessubjecttocontractual
arrangements.Inthatregard,fairvaluesbasedonestimatescannotalwaysbesubstantiatedbycomparisontoindependent
markets.Detailsofthesignificantestimatesandassumptionsaredisclosedinnote23andnote32.
Demerger of Greka Engineering and Technology LimitedAsdetailedinnote2,judgmenthasbeenappliedindeterminingtheGroup’saccountingpolicyforthedemergerofGET
andissubsidiariesinatransactionundercommoncontrol.IFRSdoesnotcontainspecificguidanceontheaccounting
forcommoncontroltransactions.HavingconsideredtherequirementsofIAS8andtherelatedUKandUSguidancethe
transactionbywhichtheGroupdemergeditscontrollinginterestinGEThasbeenaccountedforbydemergingtheGET
groupatbookvalue,withareductionrecordedagainstsharepremium.Nofairvalueadjustmentshavebeenmade.This
isamaterialaccountingpolicyselection.
GREEN DRAGON GAS ANNUAL REPORT 2013 55
4 REVENuE ANd SEGmENT INFORmATIONTheGroup’sreportablesegmentsassetoutbelow.Theoperatingresultsofeachofthesesegmentsareregularlyreviewed
bytheGroup’schiefoperatingdecisionmakersinordertomakedecisionsabouttheallocationofresourcesandassess
theirperformance.
DuringtheyearrevenueofUS$48,179,000(2012:Nil)wasrecognisedbytheSaleofCBMgassegmentinrespectof1
(2012:Nil)customersrepresenting10%ormoreoftheGroup’stotalrevenuefortheyear.
Theaccountingpoliciesofthesesegmentsareinlinewiththosedescribedinnote2.
Refertonote5fordiscontinuedoperations.
For the year ended 31 December 2013
Sale of Retailing gas CBM gas station sales Corporate Sub-total Eliminations Consolidated US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Segmentrevenue:Sales to external customers 48,179 14,002 – 62,181 – 62,181Inter-segmentsales 7,664 – – 7,664 (7,664) –
55,843 14,002 – 69,845 (7,664) 62,181
Depreciation 10,093 571 63 10,727 – 10,727Amortisation – 830 – 830 – 830
(Loss)/profitfrom operations 12,193 (3,074) (11,463) (2,344) – (2,344)
Otherincome 2 283 25 310 – 310
Litigationinterest and penalties – – (6,937) (6,937) – (6,937)
Change in fair value derivative – – (13,271) (13,271) – (13,271)
Finance costs – – (12,513) (12,513) – (12,513)
Income tax credit 332 175 – 507 – 507
Profit/(loss)fortheyear 12,527 (2,616) (44,159) (34,248) – (34,248)
Assets 928,308 16,890 697,388 1,642,586 (659,555) 983,031
Liabilities 191,496 5,535 311,849 508,880 (172,654) 336,226
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
56
HIGHLIGHTS
4 REVENuE ANd SEGmENT INFORmATION (continued)For the year ended 31 December 2012
Sale of Retailing gas
CBMgas stationsales Corporate Sub-total Eliminations Consolidated
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Segmentrevenue:
Sales to external
customers – 8,125 – 8,125 – 8,125
Inter-segmentsales 4,721 1,020 – 5,741 (5,741) –
4,721 9,145 – 13,866 (5,741) 8,125
Depreciation 15 70 78 163 – 163
Amortisation – 826 – 826 – 826
(Loss)/profitfrom
operations (1,436) (3,414) (5,227) (10,077) – (10,077)
Otherincome 4 9 1,307 1,320 – 1,320
Change in fair value
derivative – – – – – –
Financecosts – – (8,086) (8,086) – (8,086)
Gainondisposal – – – – – –
Incometaxcredit 55 164 – 219 – 219
Lossfortheyear (1,377) (3,241) (12,006) (16,624) – (16,624)
Assets 929,227 19,588 572,853 1,521,668 (579,034) 942,634
Liabilities 213,470 2,712 221,499 437,681 (155,113) 282,568
GREEN DRAGON GAS ANNUAL REPORT 2013 57
5 LOSS FROm OPERATIONS(a) Loss from operations from continuing operations is stated after charging/
(crediting):
Year ended Yearended
31 December 31 December
2013 2012
US$’000 US$’000
Auditors’remuneration:
Fees payable to the Company’s auditors for the audit
oftheannualfinancialstatements 200 200
Fees payable to the Company’s auditors for the review
of the interim results 20 10
Staffcosts(note8) 4,798 6,593
Depreciation of property, plant and equipment 12,194 3,508
Operatingleaseexpense(property) 1,171 1,387
Amortisation of leasehold land held for own use
under operating leases 117 76
Amortisation of intangible assets 713 750
Impairment of intangible assets 325 –
Foreignexchange(gain)/loss,net (285) 959
Othercosts 6,937 3,369
During the year theGroup incurred other costs ofUS$6,937,000 in respect of interest and costs related to
the litigationdetailed innote3.Theamountsshownin2012relatetoprofessional fees incurred inrespectof
fundraisingandrefinancingadvice.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
58
HIGHLIGHTS
5 LOSS FROm OPERATIONS (continued)(b) Discontinued operations
Summary
On30September2013,theshareholdersapprovedthedemergeroftheGroup’sengineeringbusinessbymeans
ofadividendinspecieofsharesinGrekaEngineering&TechnologyLtd(“GrekaEngineering”or“GET”))toGreen
DragonGasshareholders.
AsummaryoftheassetsandliabilitiesofGETdistributedbytheCompanyasaresultofthedemergerisasfollows:
US$’000
Netassetsdistributed:
Property,plantandequipment 27,173
Otherintangibleassets 2,519
Inventories 2,140
Tradeandotherreceivables 7,155
Cashandcashequivalents 3,576
Tradeandotherpayables (9,813)
Currenttaxliabilities (13)
Deferredtaxliability (630)
32,107
On 3 June 2013, the Company entered into a sale and purchase agreement for the sale of the Company’s
29.11%effectiveinterestinBeijingHuayouUnitedGasDevelopmentCo.,Ltd(“BHY”)andits100%interestin
GiantPowerInternationalInvestmentLimited(“GPI”)whichincludedtheCompany’sinterestsinthewholesale
gasdistributionpipelinenetworkintheBeijingDevelopmentAreaandthewholesalegasstationsinZhengzhou
andWuhu,foracashconsiderationofUS$65million,togetherwithsettlementofinter-companyliabilitiesand
contingentconsideration.TheCompanyacquiredBHYin2007forUS$27.1millionandGPIin2008forUS$10.8
million.
GREEN DRAGON GAS ANNUAL REPORT 2013 59
5 LOSS FROm OPERATIONS (continued)(b) Discontinued operations (continued)
Summary (continued)Detailsofthecarryingamountofidentifiableassetsandliabilitiesdisposedofandsalesconsiderationis,asfollows:
US$’000
Property, plant and equipment 30,103
Otherintangibleassets 6,596
Payment for leasehold land held for own use
under operating leases 546
Inventories 1,463
Cash and cash equivalents 5,633
Tradeandotherreceivables 8,178
Tradeandotherpayables (8,437)
Currenttaxliabilities (163)
Deferredtaxliability (1,706)
Capitalandsurplusreserve (1,325)
OtherReserve (338)
Non-controllinginterest (18)
40,532
Consideration,satisfiedbycash 65,834
Consideration,settledbyotherpayables 3,716
Contingent consideration 4,526
Netassetsdisposedof (40,532)
Gainondisposal 33,544
Cashflowsinrelationtothedisposal:
–Considerationreceived 65,834
–Cashdisposedof (5,633)
Net cash inflow 60,201
Underthetermsoftheagreement,contingentconsiderationexistedastheGroupisentitledtotheshareofpre-
disposaldatedividendsthataredeclaredsubsequenttothedisposalbytheacquirer.Thecontingentconsideration
hasbeendeterminedbasedonestimatedfuturereceipts.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
60
HIGHLIGHTS
5 LOSS FROm OPERATIONS (continued)(b) Discontinued operations (continued)
Summary (continued)Therevenue,resultsandcashflowsofthediscontinuedoperationsaredisclosedasfollows:
Disposal of Demerger of BHY/GPI GET From From 1 January to 1 January to 30 September 3 June 2013 2013 Total US$’000 US$’000 US$’000
Revenue 20,017 2,958 22,975Expenses (18,376) (4,285) (22,661)
Profit/(loss)beforeincometax 1,641 (1,327) 314Taxation (488) 55 (433)
Profit/(loss)fortheyearfrom
discontinued operations 1,153 (1,272) (119)
Gainondisposal 33,544 – 33,544
Total 34,697 (1,272) 33,425
Operatingcashflows (3,462) 4,656 1,194Investing cash flows (1,092) (1,287) (2,379)Financing cash flows (3) (3,946) (3,949)
Net cash flows (4,557) (577) (5,134)
GREEN DRAGON GAS ANNUAL REPORT 2013 61
5 LOSS FROm OPERATIONS (continued)(b) Discontinued operations (continued)
Summary (continued) Disposal of Demerger of
BHY/GPI GET
2012 2012 Total
US$’000 US$’000 US$’000
Revenue 64,613 1,331 65,944
Expenses (60,229) (7,336) (67,565)
Lossbeforeincometax 4,384 (6,005) (1,621)
Taxation (1,195) 18 (1,177)
Profitfortheyearfromdiscontinued
operations 3,189 (5,987) (2,798)
Operatingcashflows 6,161 11,973 18,134
Investingcashflows (1,411) (18,341) (19,752)
Financingcashflows (7) 3,945 3,938
Netcashflows 4,743 (2,423) 2,320
6 OTHER INCOmE ANd FINANCE INCOmE Year ended Yearended
31 December 31 December
2013 2012
US$’000 US$’000
Continuing operationsBankinterest 25 1,320
Exchange gain 285 –
310 1,320
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
62
HIGHLIGHTS
7 FINANCE COSTS Year ended Yearended
31 December 31 December
2013 2012
US$’000 US$’000
Continuing operationsAcceleratedfinancecharge 4,449 –
Convertiblenotes(couponat7%pluseffectiveinterestadjustments) 4,174 8,086
Bonds(couponat7%pluseffectiveinterestadjustments) 3,890 –
12,513 8,086
8 STAFF COSTS Year ended Yearended
31 December 31 December
2013 2012
US$’000 US$’000
Continuing operationsStaffcosts(includingdirectors’emoluments)comprise:
Wagesandsalaries 4,300 6,243
Employer’s national social security contributions 435 1,193
Otherbenefits 1,209 1,303
5,944 8,739
Less:expensescapitalisedasgasexplorationandappraisalassets (1,146) (2,146)
Totalstaffcostschargedtoprofitorloss(note5(a)) 4,798 6,593
GREEN DRAGON GAS ANNUAL REPORT 2013 63
9 SHARE BASEd PAymENTS – PRIOR yEARSInDecember2007,theRemunerationCommitteeproposedandtheBoardoftheCompanyapprovedandadoptedashare
optionscheme(the“ShareOptionScheme”) for theCompany’sdirectors,managementandemployees.Theoptions
becameexercisableoverafive-yearperiodfromthedatethattheyvested.Thoseawardedin2008areoutstandingshares
oftheCompanywithafixedpriceofUS$6.5pershare.10%oftheallocatedOptionsweregrantedon28February2008
and1October2008,andvestedon31December2008,tokeyemployees,management,officersanddirectorspursuant
totheShareOptionSchemeapprovedbytheBoardinDecember2007.Afurther15%oftheallocatedOptionswere
grantedandvestedon31December2009.Another20%oftheallocatedoptionsweregrantedandvestedon25January
2011.Noawardshavebeengrantedorvestedsince.Detailsoftheshareoptionsgrantedhistoricallyareasfollows:
No. of Exercise price share optionsDate of grant Exercise period per share granted
28February2008 1January2009–31December2013 US$6.50 731,000
1October2008 1January2009–31December2013 US$6.50 45,000
31December2009 1January2010–31December2014 US$6.50 1,134,500
25January2011 1January2011–31December2015 US$6.50 1,498,250
3,408,750
Numberofshareoptionsgrantedhistorically 3,408,750
Numberofshareoptionsexercisedhistorically (2,029,375)
Number of share options outstanding at 1 January 2012,
31December2012and31December2013 1,379,375
The share options granted under the Share Option Scheme are equity-settled share based remuneration schemes
operatedbytheGroup.
Theshareoptionsdonotconferanyrightsontheholderstodividendsortovoteatshareholders’meetings.Thefairvalue
oftheshareoptionsgrantedwascalculatedusingtheBlack-Scholespricingmodel.Theinputsintothemodelwereas
follows:
25 January 31 December 28 February 1 OctoberShare options granted on 2011 2009 2008 2008
Weightedaverageshareprice US$11.13 US$6.67 US$6.04 US$8.25
Weightedaverageexerciseprice US$6.50 US$6.50 US$6.50 US$6.50
Expectedvolatility 35% 25% 39% 44%
Riskfreerate 0.27% 2.76% 3.08% 4.06%
Expecteddividendyield N/A N/A N/A N/A
Thevolatilityassumption,measuredatthestandarddeviationofexpectedsharepricereturns,wasbasedonastatistical
analysisofdailysharepricesovertheyearpriortogrant.
Therehavebeennomovementsinthe1,379,375outstandingshareoptionssince1January2012,whichhadaweighted
averageexercisepriceofUS$6.5.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
64
HIGHLIGHTS
9 SHARE BASEd PAymENTS – PRIOR yEARS (continued)Theweightedaverage remainingcontractual lifeof theoptionsoutstandingat theendof theyearwas1.9years (31
December2012:2.9years).
Ofthetotalnumberofoptionsoutstandingat31December20131,379,375(31December2012:1,379,375)hadvested
andwereexercisableattheendoftheyear.
10 dIRECTORS’ ANd OTHER kEy mANAGEmENT REmuNERATIONTheremunerationofdirectorsfortheyearended31December2013issetasfollowed:
Share
based Other
Fees Salaries payments emoluments 2013 2012
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Executive directorsRandeepGrewal – 618 – 906 1,524 1,425
Sub-total – 618 – 906 1,524 1,425
Non executive directorsDavidTurnbull 59 – – – 59 60
WayneRoberts 60 – – – 60 14
StewardJohn,OBE 63 – – – 63 65
GongDaBing 59 – – – 59 63
Sub-total 241 – – – 241 202
Total 241 618 – 906 1,765 1,627
Keymanagementareconsideredtobethedirectors.
11 TAXATION Year ended Yearended
31 December 31 December
2013 2012
US$’000 US$’000
Continuing operationsCurrent tax - PRC Enterprise TaxCharges for current year – 479
Deferred taxTemporarytimingdifferences(note17(b)) (617) (637)
Previously unrecognised deferred tax assets assessed
asrecoverableattheendoftheyear(note17(a)) 110 (61)
Totaltaxcharge (507) (219)
OthercomprehensiveincomeincludesUS$4,702,281(2012:US$1,213,379(restated))ofdeferredtaxmovementsin
respectofexchangegainsonretranslationofforeignsubsidiaries.
GREEN DRAGON GAS ANNUAL REPORT 2013 65
11 TAXATION (continued)Thereasonsforthedifferencebetweentheactualtaxchargefortheyearandthestandardrateofcorporationtaxinthe
CaymanIslandsappliedtotheprofit/(loss)fortheperiodareasfollows:
Year ended Yearended
31 December 31 December
2013 2012
US$’000 US$’000
Lossbeforetaxfromcontinuingoperations (34,755) (16,843)
Profit/(loss)beforetaxfromdiscontinuedoperations 33,858 (1,621)
Accounting loss before tax (897) (18,464)
Expected tax charge based on the standard rate
ofcorporationtaxintheCaymanIslandsof0%(2012:0%) – –
Effectof:
Differenttaxratesappliedinoverseasjurisdictions 1,239 1,656
Temporarydifferencesappliedinoverseasjurisdictions
at different tax rates (1,165) (698)
Income tax 74 958
Income tax credit related to continuing operations 507 219
Income tax charge related to discontinued operations (433) (1,177)
TaxationfortheGroup’soperationsinthePRCisprovidedattheapplicablecurrenttaxrateof25%(2012:25%)onthe
estimatedassessableprofitsfortheyear.
12 EARNINGS ANd LOSS PER SHAREThecalculationofthebasicanddilutedlosspershareattributabletoownersoftheCompanyisbasedonthefollowing
data:
Year ended Yearended
31 December 31 December
2013 2012
US$’000 US$’000
Profit/(loss)fortheyearattributabletoownersoftheCompany
usedinbasicanddilutedearnings/(loss)pershare:
–Continuingoperations (34,248) (16,624)
–Discontinuedoperations 33,425 (2,798)
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
66
HIGHLIGHTS
12 EARNINGS ANd LOSS PER SHARE (continued) Year ended Yearended
31 December 31 December
2013 2012
Number Number
Weightedaveragenumberofordinarysharesfor
basic earnings per share 136,540,711 136,540,711
Effects of dilution 2,733,161 –
Weightedaveragenumberofordinarysharesfor
diluted earnings per share 139,273,872 136,540,711
Thedilutionapplicabletodiscontinuedearningspersharerelatestotheeffectofthedilutiveelementofthewarrants
Potentialordinarysharesof8,052,037arisingfromoutstandingshareoptionsandconvertiblebondshavebeenexcluded
fromthecalculationaboveastheyareconsideredtobeanti-dilutive.Nodilutionappliestothebasiclosspershareor
2012discontinuedlosspershareastheeffectisantidilutive.
Year ended Yearended
31 December 31 December
2013 2012
Basicearnings/(loss)pershare(UScents)
–Continuingoperations (0.251) (0.131)
–Discontinuedoperations 0.245 (0.020)
Dilutedearnings/(loss)pershare(UScents)
–Continuingoperations (0.251) (0.131)
–Discontinuedoperations 0.240 (0.020)
Therehavebeennoothertransactionsinvolvingordinarysharesorpotentialordinarysharesbetweenthereportingdate
andthedateofapprovalofthesefinancialstatements.
13 dIVIdENdS ANd dIVIdENdS IN SPECIEOn30September2013, theCompanycompleted theproposeddemergerof itsengineeringbusinessbymeansofa
dividendinspecieofsharesinGrekaEngineering&TechnologyLtd(“GrekaEngineering”or“GET”))toGreenDragon
Gasshareholders.Thetransaction,detailedinnote5(b)resultedinareductioninsharepremiumandotherreservesas
detailedintheConsolidatedStatementofChangesinEquityandderecognitionoftheassetsandliabilitiesofGET.
GREEN DRAGON GAS ANNUAL REPORT 2013 67
NOTES FORMING PART OF THE FINANCIAL STATEMENTS14 PROPERTy, PLANT ANd EQuIPmENT
Fixtures, Buildings and Motor fittings and Construction Gas assets structures Pipelines vehicles equipment in progress Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Cost
At1January2012 – 7,545 50,576 3,301 10,779 2,855 75,056
Additions – 371 – – 721 7,728 8,820Reclassification – – 1,556 99 326 (1,981) –Disposalsondilutionofstake injointventure – (1,837) (21,245) (185) (518) (759) (24,544)Disposals – (86) – – (8) – (94)Exchangedifferences – (1) (1) (1) (1) 2 (2)
At31December2012 – 5,992 30,886 3,214 11,299 7,845 59,236
Additions – 54 – 497 343 19,171 20,065InterestinGCZblockassets (note3) 25,504 – – – – – 25,504Transferfromexploration& appraisalassets 5,506 – – – – – 5,506Derecognised upon demergerofGET(note5) – (1,636) – (2,547) (5,496) (19,995) (29,674)Reclassification – – – – 1,719 (1,719) –DisposalsonBHY&GPI groups(note5) – (3,420) (30,886) (315) (2,083) (2,789) (39,493)Disposals – – – – (371) (872) (1,243)Exchangedifferences – 55 – 52 235 135 477
At31December2013 31,010 1,045 – 901 5,646 1,776 40,378
Depreciation
At1January2012 – 845 10,303 863 1,366 – 13,377
Providedfortheyear – 318 1,595 438 1,157 – 3,508Disposalsondilutionofstake injointventure – (196) (4,662) (80) (60) – (4,998)Eliminatedondisposals – (17) – – (6) – (23)Exchangedifferences – (1) – – – – (1)
At31December2012 – 949 7,236 1,221 2,457 – 11,863
Providedfortheyear 9,949 246 664 294 1,041 – 12,194Derecognised upon demergerofGET(note5) – (288) – (747) (1,466) – (2,501)DisposalsonBHY&GPI groups(note5) – (549) (7,900) (183) (758) – (9,390)Eliminatedondisposals – – – – (93) – (93)Exchange differences – 6 – 21 46 – 73
At31December2013 9,949 364 – 606 1,227 – 12,146
Net book value
At31December2013 21,061 681 – 295 4,419 1,776 28,232
At31December2012 – 5,043 23,650 1,993 8,842 7,845 47,373
Construction in progress refers to gas stations under development which were derecognised as part of the demerger of
theGETbusiness.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
68
15 GAS EXPLORATION ANd APPRAISAL ASSETS Restated US$’000
Cost
At1January2012 738,349
Additions 74,732
Revenueadjustment (4,721)
Exchange differences 4,902
At 31 December 2012 813,262
Additions 40,049
Revenueadjustment (7,664)
Reversal of PSC partner contributions 42,600
Transfertoproperty,plantandequipment (5,506)
Exchangedifferences 19,796
At31December2013 902,537
Net book value
At31December2013 902,537
At 31 December 2012 813,262
At1January2012 738,349
Revenues of US$7.7m (2012: US$4.7m) arising on blocks included in exploration and appraisal assets represents
pre-commercialproductionpilotgasproductionandisconsideredtoformpartofcontinuedevaluationoftheGroup’s
assets.Assuch,anamountequaltothemarginonsuchrevenuesisdeductedfromtheexplorationandevaluationasset
expenditureintheyear.
TheUS$42.6mreversalisduetothelitigationwithConocoPhillipsdetailedinnote3.TheGrouppreviouslyrecorded
contributionsbyConocoPhillipsunderthetermsoftheapplicablePSCswithinexplorationandevaluationassets.Further
to the Court Ruling and decision to conservatively provide for repayment of those amounts to Conoco Phillips, the
repaymentisconsideredtorepresentareversalofthepreviouslyrecordedasset.
Amounts transferred to property, plant and equipment refer to the relevant share of exploration and appraisal costs related
totheGCZblock.Refertonote3fordetailsofthesignificantjudgementsmadeinthisregard.
GREEN DRAGON GAS ANNUAL REPORT 2013 69
16 OTHER INTANGIBLE ASSETS Gas station operation Gas supply License Patents license contract right Total US$’000 US$’000 US$’000 US$’000 US$’000
Cost
At1January2012 4,946 7,125 12,017 538 24,626
Exchangedifferences – – – (9) (9)
At31December2012 4,946 7,125 12,017 529 24,617
Additions – 392 – – 392
Impairment – – – (529) (529)
EliminatedupondemergerofGET
(note5) (4,946) – – – (4,946)
DisposalofBHY&GPI(note5) – – (12,017) – (12,017)
At31December2013 – 7,517 – – 7,517
Accumulated amortisation
At1January2012 1,560 2,271 3,831 207 7,869
Chargefortheyear 494 712 1,202 – 2,408
Exchangedifferences – – – (3) (3)
At31December2012 2,054 2,983 5,033 204 10,274
Chargefortheyear 373 713 388 – 1,474
Impairment – – – (204) (204)
EliminatedupondemergerofGET
(note5) (2,427) – – – (2,427)
DisposalofBHY&GPI(note5) – – (5,421) – (5,421)
At31December2013 – 3,696 – – 3,696
Net book value
At31December2013 – 3,821 – – 3,821
At 31 December 2012 2,892 4,142 6,984 325 14,343
ImpairmentchargesrefertolicenceswhicharenotconsideredtohavecontinuingvaluetotheGroup.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
70
17 dEFERREd TAXATION(a) Deferred tax assets
US$’000
At 1 January 2012 1,949
Exchangedifferences (11)
Originationoftemporarydifferenceinrespectofoverseastaxlosses(note11) 61
At 31 December 2012 1,999
Exchange differences 65
Originationoftemporarydifferenceinrespectofoverseastaxlosses(note11) (110)
At 31 December 2013 1,954
(b) Deferred tax liabilities Restated US$’000
At 1 January 2012 161,635
Reversaloftemporarydifference (637)
Exchangedifferences 763
At31December2012 161,761
Reversaloftemporarydifference (617)
Exchange difference 5,068
Reversaloftemporarydifferenceinrespectofdisposalsanddemerger (2,336)
At31December2013 163,876
GREEN DRAGON GAS ANNUAL REPORT 2013 71
17 dEFERREd TAXATION (continued) Restated
As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Recognised deferred tax (liabilities) and assets at PRC rate of 25%
Deferredtaxassetsandliabilitiesareattributabletothefollowing:
Fairvalueadjustmentsonexplorationandevaluationassets (163,249) (160,510)
Accrued income – (624)
Undistributedprofits (627) (627)
(163,876) (161,761)
Taxlosses–overseas 1,954 1,999
Unrecognised deferred tax assetsDeferred tax assets have not been recognised in respect
ofthefollowing:
Taxlosses–overseas 17,153 11,321
PotentialunrecognisedtaxbenefitatPRCrateof25% 4,288 2,830
ThedeductibletemporarydifferencesandCaymantaxlossesdonotexpireundercurrenttaxlegislation.PRCtaxlosses
expireafter5years.Deferredtaxassetshavenotbeenrecognisedinrespectofthefullvaluetheseitemsbecauseatthis
pointintheGroup’sdevelopmentitisnotvirtuallycertainthatfuturetaxableprofitswillbeavailableagainstwhichthe
Groupcompaniescanutilisethebenefitsofthesetaxlossesinthenearfuture.TheGrouphasnotoffsetdeferredtax
assetsandliabilitiesacrossdifferentjurisdictions.
PRCtaxlossesinrelationtotheoverseassubsidiariesexpireasfollows:
Financial Year Expire (year) $’000
2010 2015 1,050
2011 2016 1,415
2012 2017 4,241
2013 2018 5,241
UnderPRCEnterpriseIncomeTax(“EIT”)Law,withholdingtaxisimposedondividendsdeclaredinrespectofprofits
earnedbythePRCsubsidiariesfrom1January2008onwards.Deferredtaxhasnotbeenprovidedforintheconsolidated
statementofcomprehensiveincomeinrespectoftemporarydifferencesattributabletoaccumulatedprofitsofthePRC
subsidiariesasat31December2013amounting toUS$17,153,000 (2012:US$11,321,000)as theGroup isable to
control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not
reverseintheforeseeablefuture.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
72
18 INVENTORIES As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Raw materials and consumables 31 3,057
Work-in-progress – 399
Finished goods 55 500
86 3,956
19 TRAdE ANd OTHER RECEIVABLES As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Tradereceivables 1,401 5,647
Prepayments 3,808 11,832
Otherreceivables 4,526 3,504
Amountduefromrelatedcompany(note29) 1,807 28
11,542 21,011
TheGroup’smaximumexposuretocreditriskisasdisclosedinnote32(d).Thefairvaluesoftradereceivablesandother
financialassetsapproximatetheirrespectivecarryingamountsatthereportingdatesduetotheirshortmaturities.No
impairmentprovisionsareheldagainstthereceivablesascreditqualityisconsideredtobehigh.
20 CASH ANd CASH EQuIVALENTSAnanalysisofthebalancesofcashandcashequivalentsisasfollows:
As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Short-termbankdeposits – 717
Cashandbankbalances 34,642 39,254
34,642 39,971
Shorttermbankdepositsat31December2012ofUS$717,000wererestrictedbyLettersofCreditwhichwereissuedby
certainbankstothisvalueonbehalfoftheGroup.
GREEN DRAGON GAS ANNUAL REPORT 2013 73
20 CASH ANd CASH EQuIVALENTS (continued)Theeffectiveinterestrateonshort-termbankdepositsasat31December2013is3.5%(2012:3.5%)perannum.These
depositshaveanaveragematurityofapproximatelythreemonths.Thesedepositsareredeemableatanytime.
Significantnon-cashtransactionsareasfollows:
Year ended Yearended
31 December 31 December
2013 2012
US$’000 US$’000
Operatingactivities
NetincomefromGCZBlock* 24,401 –
Investing activities
ReversalofCOPCcontributionsonexplorationactivities (42,600) –
CapitalinvestmentonGCZblock* 25,509 –
* RefertoNote28fordetails
21 TRAdE ANd OTHER PAyABLES As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Tradepayables 8,906 12,285
Othercurrentliabilities 7,306 12,178
Amountsduetorelatedparties(note29) 9,411 3,249
25,623 27,712
Trade and other payables are expected to be settledwithin one year. Their fair values approximate their respective
carryingamountsattheendofeachreportingperiodduetotheirshortmaturities.Theamountsduetotherelatedparties
areunsecured,interest-freeandrepayableondemand.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
74
22 CONVERTIBLE NOTES As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Brought forward from prior year 79,751 77,559
Additionalfinancechargeonearlyredemptionofconvertiblenotes 4,449 –
Issue of convertible notes 33,119 –
Accrued interest 264 8,086
Repayments of convertible notes and interest (84,200) (5,894)
33,383 79,751
As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Repayable within 1 year – 79,751
Repayable over 1 year 33,383 –
33,383 79,751
Asat31December2013,theCompanyhadone(2012:two)convertiblenotesinissue.
Convertible loan note issued 2013(a) US$35 million 7% coupon convertible note due 2015
On11December2013(“IssueDate”),theCompanyissuedatwoyearconvertiblenotehavingafacevalueof
US$35,000,000withamaturitydateof16December2015(“MaturityDate”).Thenotebearsinterestat7%per
annum,payableonasemi-annualbasis.AttheMaturityDate,thetotalsumof100%oftheoutstandingprincipal
amount of the convertible note and the accrued interest shall become payable, unless previously converted or
redeemed.
TheconvertiblenotecanbeconvertedintoordinarysharesoftheCompanyatthenoteholder’soptionatanytime
from11December2013tothe14dayspriortotheMaturityDateatUS$6.06pershare.
GREEN DRAGON GAS ANNUAL REPORT 2013 75
22 CONVERTIBLE NOTES (continued)Convertible loan note issued 2013 (continued)(b) Accounting for convertible notes
Oninitialrecognition,thefairvalueoftheliabilitycomponentofeachoftheconvertibleloannoteswasdetermined
usingtheprevailingmarketinterestrateofsimilardebtswithoutconversionoptionandearlyredemptionoptions.
Fornotesissuedduring2013,therateconsideredtobecomparablewas10%.Theloansaresubsequentlycarried
atamortisedcost.
Theequityelementarisingfromtheconversionoptionsoftheirtwoconvertiblenotes,beingtheresidualvalueat
initialrecognition,ispresentedintheequityheading“convertiblenoteequityreserve”,asdisclosedinnote26to
thefinancialstatements.
TransactioncostsamountingtoapproximatelyUS$142,000wereincurredinrelationtotheissueoftheconvertible
note.Theywereallocatedtotheliabilitycomponentandequityelementinproportiontotheallocationofproceeds.
The amount attributable to the liability component, approximatelyUS$135,000, is amortised to profit or loss
overthelifeoftheconvertiblenotesandiscarriedintheconsolidatedstatementoffinancialpositionnetofthe
balanceofconvertiblenoteundernon-currentliabilities.Theamortisationisincludedinfinancecostsinnote7as
accretionexpensecalculatedusingtheeffectiveinterestmethod.ApproximatelyUS$7,000isattributabletothe
equityelementandhasbeenchargedtoequitydirectly.
Convertible loan note in issue 2012 and repaid in 2013Asat31December2012,theCompanyhadtwoconvertiblenotesinissue:
(a) US$50 million 7% coupon convertible note due 2015
On 7 June 2010 (“Issue Date”), the Company issued a five year convertible note having a face value of
US$50,000,000withamaturitydateof7June2015(“MaturityDate”).Thenoteboreinterestat7%perannum,
payableonasemi-annualinarrearsbasison31Marchand30September.AttheMaturityDate,thetotalsum
of100%oftheoutstandingprincipalamountof theconvertiblenoteandtheaccruedinterestwastobecome
payable,unlesspreviouslyconvertedorredeemedinaccordancewiththefollowingconditions.Theconvertible
note could be converted into ordinary shares of the Company at the note holder’s option at any time from 19 July
2010tothesevendayspriortotheMaturityDateatUS$9.10pershare.
At any time on or after third anniversary of the Issue Date, the Company had the right at its option, to repurchase
allbutnotsomeoftheconvertiblenoteat100%ofitsprincipalamount,togetherwithaccruedbutunpaidinterest.
OnthethirdanniversaryoftheIssueDate,thenoteholderhadtherightatitsoption,torequiretheCompanyto
redeemallorsomeoftheconvertiblenoteat100%ofitsprincipalamount,togetherwithaccruedbutunpaid
interest.
On17Mayand21June2011,convertiblenoteamountingtoUS$11,300,000andUS$4,500,000wasconverted
into1,412,500and562,500respectivelyordinarysharesoftheCompanyatUS$8.00pershare.
On7June2013,theremaining loannoteandaccruedinterestwasrepaidandextinguishedatnilgainor loss
accordingly.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
76
22 CONVERTIBLE NOTES (continued)Convertible loan note in issue 2012 and repaid in 2013 (continued)(b) US$50 million 7% coupon convertible note due 2015
On 17 September 2010 (“Issue Date”), the Company issued a convertible note having a face value of
US$50,000,000withamaturitydateof7June2015(“MaturityDate”).Thenoteboreinterestat7%perannum,
payableonasemi-annualinarrearsbasison31Marchand30September.AttheMaturityDate,thetotalsumof
100%oftheoutstandingprincipalamountoftheconvertiblenoteandtheaccruedinterestwaspayable,unless
previouslyconvertedorredeemedinaccordancewiththefollowingconditions.
TheconvertiblenotecouldbeconvertedintoordinarysharesoftheCompanyatthenoteholder’soptionatany
timefrom17September2010tothesevendayspriortotheMaturityDateatUS$9.10pershare.Atanytimeon
or after third anniversary of the Issue Date, the Company had the right at its option, to repurchase all but not some
oftheconvertiblenoteat100%ofitsprincipalamount,togetherwithaccruedbutunpaidinterest.
On7June2013,theloannoteandaccruedinterestwasrepaidandextinguishedatnilgainorlossaccordingly.
23 BONdS ANd dERIVATIVE FINANCIAL INSTRumENTOn3June2013,theCompanyissuedan18monthbondofUS$35,000,000withamaturitydateof3December2014
(“MaturityDate”).ThebondholdermaynotifytheCompanytoextendtheoriginalmaturitydatetoadatefallingnotlater
thantwelvemonthsaftertheoriginalmaturitydate.Thebondbearsinterestat7%perannum,payablesemi-annually.At
theMaturityDate,thebondswillberedeemedattheirprincipalamount,unlesspurchasedandcancelledorredeemed.
TheCompanyissued13,756,000warrantsatthesamedatetothebondholderunderaseparatewarrantagreementwith
anexercisepricefixedatGBP1.97216,whichcanbeexercisedintheexerciseperiodupto3December2014.Theholder
isentitledtorequirerepurchaseofthewarrantsatanytimeduringthe30-dayperiodprecedingtheexercisedateof3
December2014ataUSDollaramountequaltotheaggregateinterestpayableonthePrincipalamount,equivalenttoUS$
2.54perwarrant,atanannualisedinterestrateof15%fromthedateofissue,representingaputoption.
Thebondwasinitiallyrecordedatfairvalueandissubsequentlycarriedatamortisedcost.
Thefairvalueofthewarrantsandtheputoptionhavebeencalculatedasatthedateofinceptionusingvaluationmodels.
Thefairvalueoftheinstrumentswasconsideredtorepresentatransactioncostofthebondandtheinceptionvalueof
US$7,142,000hasbeensetoffagainsttheprincipalamountofthebondofUS$35mandisthereafteramortisedaspart
oftheeffectiveinterestratechargetothematuritydate.Thewarrantsandputoptionhavebeenclassifiedasderivative
financialliabilitiesandwerefairvaluedat31December2013withchangesinthefairvaluerecordedinprofitandloss.
Refertonote32.
GREEN DRAGON GAS ANNUAL REPORT 2013 77
24 OTHER FINANCIAL LIABILITIESOtherfinancial liabilitiesofUS$13,000,000(2012:US$13,000,000)representamountspayabletoCUCBM,whichis
a party to the production sharing contracts on the activities of exploration, development and production of coal bed
methaneasdisclosedinnote28,inrespectofexplorationcostsincurred.Thisamountistobesettledbyfuturerevenue
onproductionfromtheShizhuangSouthBlockinthePRC.Thebalanceisunsecured,interest-freeandisnotexpected
toberepayablewithinthenexttwelvemonths.
25 SHARE CAPITAL Authorised Issued and fully paid Number of Number of shares US$ shares US$
At 31 December 2012 and 31 December 2013,
ordinarysharesofUS$0.0001each 500,000,000 50,000 136,540,711 13,654
26 RESERVES(a) Nature and purposes of reserves
(i) Treasury Shares
Where any group company purchases the Company’s equity share capital (treasury shares), the
considerationpaid,includinganydirectlyattributableincrementalcosts(netofincometaxes)isdeducted
fromequityattributabletothecompany’sequityholdersuntilthesharesarecancelledorreissued.Where
such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable
incremental transaction costs and the related income tax effects, is included in equity attributable to the
Company’sequityholders.
(ii) Share premium
Theamountrelatestosubscriptionfororissueofsharesinexcessofnominalvalue.Theapplicationofthe
sharepremiumaccountisgovernedbytheCompaniesLawoftheCaymanIslands.
(iii) Convertible note equity reserve
Theamount represents thevalueof theunexercisedequitycomponentof theconvertiblenote issued
bytheCompanyrecognisedinaccordancewiththeaccountingpolicyadoptedinnote2tothefinancial
statements.
(iv) Share based payment reserve
Theamountrelatestothefairvalueoftheshareoptionsthathavebeenexpensedthroughtheincome
statementlessamounts,ifany,thathavebeentransferredtotheretainedearnings/deficituponexercise.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
78
26 RESERVES (continued)(a) Nature and purposes of reserves (continued)
(v) Capital and surplus reserve
TheamountrepresentstheGroup’sshareofsubsidiariesandJCEsstatutorycapitalandsurplusreserve.
PRCrulesandregulationsrequirethat10percentofprofitsineachperiodbereservedforfuturecapital
expenditure.Theamountisnon-distributable.
(vi) Other reserve
In accordance with the regulations of the State Administration of Work Safety, the Group’s share of
subsidiaries and JCEs has a commitment to provide reserve for enhancement of safety production
environmentandimprovementoffacilities(“WorkSafetyCost”).Inprioryears,theworksafetyexpenditures
arerecognizedonlywhenacquiringthefixedassetsorincurringotherworksafetyexpenditures.
(vii) Foreign exchange reserve
The amount represents gains/losses arising from the translation of the financial statements of foreign
operationthefunctionalcurrencyofwhichisdifferentfromthepresentationcurrencyoftheGroup.The
reserveisdealtwithinaccordancewiththeaccountingpolicysetoutinnote2tothesefinancialstatements.
(viii) Retained deficit
Theamountrepresentscumulativenetgainsandlossesrecognisedinconsolidatedprofitorlosslessany
amountsreflecteddirectlyinotherreserves.
(b) Distributable reservesAccording to theCompanies Law of theCayman Islands and theCompany’sArticles, they allowpayment of
dividends,ordistributionfromthesharepremiumaccountarepermitted.
GREEN DRAGON GAS ANNUAL REPORT 2013 79
27 SuBSIdIARIESTheprincipalsubsidiariesoftheCompany,allofwhichhavebeenincludedintheseconsolidatedfinancialstatements,
areasfollows:
As at 31 December As at 31 December 2013 2012 Percentage of Percentage of ownership ownership Place of interest held interest heldName incorporation Principal activities directly indirectly directly indirectly
GrekaGasChinaLimited CaymanIslands Investmentholding 100% – 100% –
GrekaEnergy(International)B.V. Amsterdam, Exploration,development – 100% – 100% Netherlands and production of coal bed methane
GrekaTransportLimited BritishVirginIslands Investmentholding – 100% – 100% (formerlyknownas “GrekaLanhaiLtd”)
GrekaTransportand BritishVirginIslands Investmentholding – Note 1 – 100% InfrastructureLtd.
GrekaGasDistributionJVLtd BritishVirginIslands Investmentholding – Note 2 – 100%
GreatBuyInvestmentsLtd. BritishVirginIslands Investmentholding – 100% – 100%
GrekaGasDistributionLtd. BritishVirginIslands Investmentholding – 100% – 100%
GrekaShanxiLtd BritishVirginIslands Investmentholding – 100% – 100% (formerlyknownas “GrekaLandLtd.”)
GrekaJXULtd. BritishVirginIslands Notyetcommencebusiness – Note 1 – 100%
GrekaExplorationand CaymanIslands Investmentholding – 100% – 100% ProductionLtd.
GrekaLNGLtd BritishVirginIslands Notyetcommencebusiness – 100% – 100%
GrekaTechnologyand BritishVirginIslands Investmentholding – Note 1 – 100% ManufacturingLtd.
ZhengzhouGrekaGasCo.,Ltd. ThePRC Supplyanddistributionof – 100% – 100% natural gas
ZhengzhouGrekaPetro ThePRC Supplyanddistributionof – Note 1 – 100% EquipmentLtd. gas equipment
ZhengzhouGrekaScience ThePRC Supplyanddistributionof – Note 1 – 100% andTechnologyLtd. gas control system
GiantPowerInternational HongKong Investmentholding – Note 2 – 100% InvestmentLtd.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
80
27 SuBSIdIARIES (continued) As at 31 December As at 31 December
2013 2012
Percentage of Percentage of
ownership ownership
Place of interest held interest held
Name incorporation Principal activities directly indirectly directly indirectly
PingDingShanGrekaGas ThePRC Supplyanddistribution – 100% – 100%
Co.,Ltd. of natural gas
GongyiGrekaTransportation ThePRC Investmentholding – Note 1 – 100%
Co.,Ltd.
GrekaGuizhouE&PLtd BritishVirginIslands Exploration,development – 100% – 100%
(formerlyknownas and production of
“AsiaCanadaEnergyInc.”) coal bed methane
BeijingBaiheZhuangyuan ThePRC Investmentholding – Note 2 – 100%
TechnologyConsultancy
Co.,Ltd.
YanjinChangdaGasStation ThePRC Supplyanddistribution – 100% – 100%
of natural gas
Note:
(1) ThecompaniesweredemergedfromtheGroupbymeansofadividend inspecie to theGroup’sshareholders to formthe
engineeringandtechnologybusinessunderGrekaEngineeringandTechnologyLimited(‘GET’)whichwaslistedonAIMofthe
LondonStockExchangeduringtheyearended31December2013.Refertonote5.
(2) Thecompaniesweredisposedofduringtheyearended31December2013.Refertonote5.
(3) Thefollowingsubsidiaries’shareshavebeenpledgedtothebondholder(note23):
• aCaymanIslandslawgovernedfirstrankingequitablesharemortgageoversharesinGrekaGasChinaLtd
• aCaymanIslandslawgovernedfirstrankingequitablesharemortgageoversharesinGrekaExplorationandProduction
Ltd;and
• aBritishVirginIslandslawgovernedfirstrankingequitablesharemortgageoversharesinGrekaGasDistributionLtd
GREEN DRAGON GAS ANNUAL REPORT 2013 81
28 PROduCTION SHARING CONTRACTSTheGroupcurrentlyhassix(2012:six)productionsharingcontracts(“PSCs”)inthePRC.
On8January2003,theGroupenteredintofourPSCswithCUCBMtoexplore,developandproducecoalbedmethane
infiveblocksinthelocationsofShizhuangSouth,Chengzhuang,ShizhuangNorth,QinyuanandPanxieEast.Shizhuang
South,Chengzhuang,ShizhuangNorthandQinyuanarelocatedinShanxiProvince,thePRC,whilePanxieEastislocated
inAnhuiProvince,thePRC.
Alsoduring2003,therightsasaforeigncontractortoanotherPSC,whichwasoriginallyenteredintobetweenCUCBM
andSabaPetroleumInc.,arelatedcompanywithcommoncontrollingshareholder,Mr.RandeepGrewal,totheGroup,
on13August1999,toexplore,developandproducecoalbedmethaneinablockinFengcheng,JiangxiProvince,the
PRC,wasassignedtotheGroup.
PursuanttothesefivePSCs,theGroup,astheoperator,agreedtoprovidefundsandapplyitstechnologyandmanagerial
experiencetoco-operatewithCUCBM,whichiseligibletoapplyforexclusiverighttoexploitationofcoalbedmethanein
theareasasdefinedinthecontracts,toexplore,developandproducecoalbedmethane.
Inaddition,pursuanttothesefivePSCs,allthecostsincurredintheexplorationstageshallbebornebytheGroup.Upon
submission of the overall development programme and approval by the relevant Chinese authorities, the operation shall
enter the stage of development and since then, all the development and operating costs shall be borne in the proportion
of60%bytheGroupand40%byCUCBM,exceptfortheFengchengBlockintheproportionof49%bytheGroupand
51%byCUCBM.Shareintheproductionoutputshallbeallocated(afterdeductionofvalue-addedtaxandroyaltypayable
to theChinese taxauthority)firstly towardsoperatingcosts recovery in theproportionabovementioned(the“Sharing
Proportion”),secondlytowardsexplorationcostsrecoverysolelybytheGroupandthereafterintheSharingProportion
towardsdevelopmentcostsrecoveryandprofit.TheGroupisobligedtopayenterpriseincometaxinthePRConitsshare
ofproductionoutput.
These five PSCs each have a term of thirty years, with production period notmore than twenty consecutive years
commencingonadatedeterminedbytheJointManagementCommitteewhichwassetupbytheGroupandCUCBM,
pursuanttothePSCs,tooverseetheoperationsinthecontractedarea.Currentlyallthesixblockscoveredbythesefive
productionsharingcontractsareintheexplorationstage.
Chengzhuang block (“GCZ”)Duringtheyear,theGroupenteredintoabindingMemorandumofUnderstanding(“MOU”)withPetroChinaCompany
Ltd(“PetroChina”),confirminga47%participatinginterestbyGDGintheChengzhuangblock(“GCZ”),ablockincluded
withintheShizhuangSouthPSC.UnderthetermsoftheMOU,theGroupformallyacknowledgedPetroChinaasoperators
oftheGCZblock,areentitledtotheirshareofhistoricandfuturerevenuesarisingfromthesaleofgasandagreedto
contributetowardstheassociatedcapitalandoperationalcostsrelatingtotheGCZblock.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
82
28 PROduCTION SHARING CONTRACTS (continued)Chengzhuang block (“GCZ”) (continued)ThefollowingtablesummarisestheGroup’scumulativeshareofthecapitalexpenditureandnetrevenuesarisingfrom
theGCZblocksinceinception.
Total US$’000
Capital expenditure 25,504
Revenue 48,179
Totaloperationalcostsandexpenses (24,140)
NetProfit 24,039
Net payable 1,465
Thecapitalexpenditure,revenueandcostsrepresentcumulativeamountsfrom2009to2013.Giventheaffirmationof
thestatusoftheGroup’sPSCsinJuly2013,allamountsrelatingtotheGCZblockhavebeenrecognisedinthe2013
financialstatementsandnoprioryearadjustmentshavebeenmade.
Total revenue and operational costs from theGCZblock for the year ended 2013 amounted to $15.8m and $7.4m
respectively.
Subsequenttotheyearend,theGroupsignedanotheragreementwithCUCBMtovarythetermsofcertainofitsfivePSCs
withCUCBM.Refertonote35.
Inaddition,GrekaGuizhouE&PLtd,asubsidiaryoftheCompany,hasaPSCwithPetroChinaCBMtoexploreforand
developcoalbedmethaneresourcesintheprovinceofGuizhou,thePRC.Itcanearna60%interestinthepropertyby
fundinguptoUS$8,000,000foranexplorationpilotprogramme.
GREEN DRAGON GAS ANNUAL REPORT 2013 83
29 RELATEd PARTy TRANSACTIONS(a) Amounts due from/(to) related parties and corresponding transactions
Amountsduefrom/(to)relatedpartiescomprise:
As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Amountsduefromrelatedcompany,(includedinnote19)
Greka(Zhengzhou)TechnicalServicesCoLtd(“GTS”)(ii) – 28
ZhengzhouGrekaPetro-EquipmentLtd.(“GMC”) 54 –
GrekaIntergatedProductsLtd(“GIP”)(ii) 1,753 –
1,807 28
Amountsduetorelatedcompany,(includedinnote21)
PetroChina(i) – (118)
GTS(ii) (5,517) (3,131)
GrekaMitchellDrillingCompany(“GMD”)(ii) (773) –
GrekaTechnologyandManufacturingLtd(“GTM”)(ii) (46) –
GongyiGrekaTransportationCo.Ltd.(“GTI”)(ii) (1,610) –
CNPC(iii) (1,465) –
(9,411) (3,249)
Notes:
(i) The prior year balance represented prepayments/payables to gas purchased from PetroChina, which was a joint
venturepartnerofBHY,ajointlycontrolledentityoftheGroup.
(ii) The balance represents amounts due from/(to) companies that are subsidiaries of Greka Drilling Ltd. and Greka
Engineering&TechnologyLtd.whicharecompaniesundercommonmanagementandcontrol.
(iii) ThebalancerepresentsamountspayabletoCNPC,whichisapartytotheproductionsharingcontractsontheactivities
of exploration, development and production of coal bed methane as disclosed in note 28, in respect of exploration
costsincurred.ThisamountistobesettledbyfuturerevenueonproductionfromtheChengzhungBlockinthePRC.
Thebalanceisunsecuredandinterest-free.
TheGrouphasamastercontractwithGrekaDrillingLtd.,which isundercommonmanagementandcontrol,
regardingdrillingservices.Thereisnominimumexpenditurecommittedinthecontractwithinthenexttwelve
months.
ThedemergerofGETrepresentsarelatedpartybyvirtueofcommonmanagementandcontrol,anddetailsare
providedinnote5.
TheholderoftheGroup’sbondsandwarrantsdetailedinnote23,ChandlerGroup,isconsideredtorepresenta
relatedpartybyvirtueofits18%shareholdingandwarrantswhichconferpotentialrightsto10%oftheGroup’s
sharecapital.ChandlerGroupwasthepurchaserofBHYandGPIdetailedinnote5.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
84
29 RELATEd PARTy TRANSACTIONS (continued)(b) Subsidiary companies
TransactionsbetweentheCompanyanditssubsidiaries,whicharerelatedpartiesoftheCompany,havebeen
eliminatedonconsolidationandarenotdisclosedinthisnote.DetailsoftransactionsbetweentheGroupandother
relatedpartiesaredescribedabove.
(c) Key management personnelKeymanagementpersonneloftheGrouparethedirectors.Directors’remunerationisdisclosedinnote10tothe
financialstatements.
30 OPERATING LEASE COmmITmENTSAtthereportingdates,theGrouphadcommitments,aslessee,forfutureminimumleasepaymentsundernon-cancellable
operatingleaseinrespectoflandandbuildingswhichfalldueasfollows:
As at As at
31 December 31 December
2013 2012
US$’000 US$’000
No later than 1 year 1,326 1,231
Laterthan1yearandnolaterthan5years 1,258 1,090
Morethanfiveyears 287 354
2,871 2,675
31 CAPITAL COmmITmENTS As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Capital expenditure contracted
but not provided for in respect of
–additionstoexplorationcostsandappraisalassets 2,731 1,483
–acquisitionofproperty,plantandequipment 1,753 3,016
4,484 4,499
TheaboveamountincludedtheGroup’sproportionateshareofthecapitalcommitmentsofitsjointlycontrolledentities
asfollows:
As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Capital expenditure contracted
but not provided for in respect of
–acquisitionofproperty,plantandequipment – 17
GREEN DRAGON GAS ANNUAL REPORT 2013 85
32 FINANCIAL INSTRumENTS As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Financial AssetsLoansandreceivables:
Tradeandotherreceivables 7,734 9,179
Cash and cash equivalents 34,642 39,971
Totalfinancialassets 42,376 49,150
Financial LiabilitiesAtamortisedcost:
Tradeandotherpayables 25,623 27,712
Bonds 30,390 –
Convertible notes 33,383 79,751
Otherfinancialliabilities 13,000 13,000
Atfairvalue:
Derivativefinancialliability 20,410 –
Totalfinancialliabilities 122,806 120,463
Level 3 fair value measurementsThe derivative financial instruments detailed in note 23 are recurring valuations until maturity of the contract. The
valuationisbasedonlevel3valuationasitusesnon-observableinputs.Notransfersbetweenlevelshaveoccurred.The
instruments include
• 13,756,000warrantsissuedtothebondholderdetailedinNote23underaseparatewarrantagreementwithan
exercisepricefixedatGBP1.97216,whichcanbeexercisedintheexerciseperiodupto3December2014.The
fairvalueofthewarrantshasbeendeterminedusingaBlackSholespricingmodel.Thekeyinputsusedare
At inception Year end
Share price US$2.85 US$4.55
Exercise price US$3.02 US$3.25
Expected volatility 36% 36%
Riskfreerate 2.60% 2.60%
Expected dividend yield N/A N/A
ExercisepricemovementisduetothefluctuationintheGBP/USDexchangerate.A10%changeintheGBP/USD
exchangeratewouldresultinachangeofUS$1.0minthefairvalue.A10%changeinthevolatilitywouldresult
inaUS$424,000changeinfairvalue.A10%changeintheriskfreeratewouldresultinaUS$80,000change
in fair value
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
86
32 FINANCIAL INSTRumENTS (continued)Level 3 fair value measurements (continued)• Aputoptionastheholderisentitledtorequirerepurchaseofthewarrantsdetailedaboveatanytimeduringthe
30-dayperiodprecedingtheexercisedateof3December2014ataUSDollaramountequaltotheaggregate
interestpayableontheprincipalamount,equivalenttoUS$2.54perwarrant,atanannualisedinterestrateof
15%fromthedateof issue,representingaputoption.Themaximumfairvalueof the instrument is therefore
US$7,339,000 and theminimum is nil. The fair value has been determined through an assessment of the
probabilityofredemptionbeingrequiredbytheholder,consideringfactorssuchastheGroup’ssharepriceversus
theexerciseprice.TheGroupassessedtheprobabilityofredemptiontobe10%atinceptionand5%atyearend.
A10%changeintheredemptionprobabilitywouldresultinaUS$734,000changeinthefairvalue.
ThelossonthederivativeinstrumentsbetweeninceptionandyearendisUS$13.3m.
(a) Interest rate riskTheGroup’sincomeandoperatingcashflowsaresubstantiallyindependentofchangesinmarketinterestrates.
TheGroup’sbondsandconvertibleloannotesbearsfixedinterest.TheGrouphasnotenteredintoanycashflow
interestratehedgingcontractsoranyotherderivativefinancialinstrumentsforhedgingpurposes.However,the
managementcloselymonitorsitsexposuretofuturecashflowasaresultofchangesinmarketinterestrates,and
willconsiderhedgingsuchchangesshouldtheneedarise.
TheinterestrateprofileoftheGroup’sfinancialassetsateachyearendwasasfollows:
As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Cash
USdollars Non-interestbearing – 2
USdollars Floatingrate 32,546 26,825
RMB Non-interestbearing 23 18
RMB Floatingrate 1,421 11,532
HKD Non-interestbearing 3 773
HKD Floatingrate 649 821
Other financial assets
USdollars Non-interestbearing – –
USdollars Fixedrate – –
RMB Non-interestbearing 7,732 7,587
RMB Fixedrate – 462
HKD Non-interestbearing 2 283
CAD Non-interestbearing – 102
SGD Non-interestbearing – 745
42,376 49,150
Theweightedaverageinterestrateearnedduringtheyearwas0.21%(2011:0.21%)onfloatingrateUSdollar
cashbalances,and0.5%(2011:0.5%)onfloatingrateRMBbalances.Attheyearend,theGrouphadcashon
short-termdepositforperiodsofbetweenover-nightandoneweek.
GREEN DRAGON GAS ANNUAL REPORT 2013 87
32 FINANCIAL INSTRumENTS (continued)(a) Interest rate risk (continued)
TheinterestrateprofileoftheGroup’sfinancialliabilitiesateachyearendwasasfollows:
As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Loans and borrowings, convertible notes and bonds and derivative financial liability
USdollars Fixedrate 63,773 79,751
Other financial liabilities
USdollars Non-interestbearing 35,028 14,429
RMB Non-interestbearing 23,569 25,848
GBP Non-interestbearing 134 60
HKD Non-interestbearing 8 98
SGD Non-interestbearing 294 277
122,806 120,463
Theweightedaverageinterestratespayableduringtheyearwas7%(2012:10.00%)onUSdollarsconvertible
notes.Ifallinterestrateshadbeen50basispointshigher/lower,withallothervariablesheldconstant,post-tax
profitwouldhavebeenUS$320,000higher/lowerandtherewillbenoimpactonothercomponentsofequity.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
88
32 FINANCIAL INSTRumENTS (continued)(b) Foreign currency risk
While theGroupcontinuallymonitors itsexposure tomovements incurrencyrates, itdoesnotutilisehedging
instrumentstoprotectagainstcurrencyrisks.ThemaincurrencyexposurerisktotheGrouphasbeeninrelationto
thetradepayableandotherpayablesdenominatedinRMB.Thedirectorsconsidertheforeigncurrencyexposure
tobelimited.ReceivablesaregeneratedinRMB,operationalcashbalancesareheldinRMB,revenuesandfuture
revenuesfromcertainsubsidiaryoperationswillbegeneratedinRMB.
In SGD In CAD In USD In RMB In GBP In HKD Total in USDAs at 31 December 2013 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Financial AssetsTradeandotherreceivables – – – 7,732 – 2 7,734Cash and cash equivalents – – 32,546 1,444 – 652 34,642
– – 32,546 9,176 – 654 42,376
Financial LiabilitiesTradeandotherpayables 294 – 1,618 23,569 134 8 25,623Otherfinancialliabilities – – 13,000 – – – 13,000Convertible notes and bonds – – 63,773 – – – 63,773Derivativefinancialliability – – 20,410 – – – 20,410
294 – 98,801 23,569 134 8 122,806
InSGD InCAD InUSD InRMB InGBP InHKD TotalinUSD
Asat31December2012 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Financial AssetsTradeandotherreceivables 745 102 – 8,049 – 283 9,179
Cashandcashequivalents – – 26,827 11,550 – 1,594 39,971
745 102 26,827 19,599 – 1,877 49,150
Financial LiabilitiesTradeandotherpayables 277 – 1,429 25,848 60 98 27,712
Otherfinancialliabilities – – 13,000 – – – 13,000
Convertiblenotes – – 79,751 – – – 79,751
277 – 94,180 25,848 60 98 120,463
TheaboveRMBcash,tradeandotherreceivables,tradeandotherpayablesandotherfinancialliabilitiesbalances
aredenominatedinacurrencyotherthanUSdollars.A4%increaseordecreaseintheUSdollar/RMBexchange
ratewouldresultinreportedprofitsfortheyearended31December2013beingUS$575,000higherorlower
respectively(2012:US$250,000).
GREEN DRAGON GAS ANNUAL REPORT 2013 89
32 FINANCIAL INSTRumENTS (continued)(c) Liquidity risk
Theliquidityriskofeachgroupentityismanagedcentrallybythegrouptreasuryfunction.Theinvestmentbudgets
andworkplansaresetbytheoperatingteamsinthePRCandagreedbytheboardannuallyinadvance,enabling
theGroup’scashrequirementstobeanticipated.Wherefacilitiesofgroupentitiesneedtobeincreased,approval
mustbesoughtfromtheboard.
All surplus cash is held centrally to maximise the returns on deposits through economies of scale while required
cashwillberemittedtothePRCbasedonmonthlycash-callbasis.
ThematurityprofileoftheGroup’sfinancialliabilitiesatthereportingdatesbasedoncontractualundiscounted
paymentsaresummarisedbelow:
Six months Six months Within one Over Undiscounted Carrying or less to one year to five years five years payments Adjustments balance US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
(notei) (noteii) (noteiii)
At 31 December 2013
Tradeandotherpayables 25,623 – – – 25,623 – 25,623Otherfinancialliabilities – – – 13,000 13,000 – 13,000Convertible notes
and bonds – 39,900 37,450 – 77,350 (13,577) 63,773Derivativefinancialliability – 24,422 – – 24,422 – 24,422
25,623 64,322 37,450 13,000 140,395 (13,577) 126,818
At 31 December 2012
Tradeandotherpayables 20,170 2,301 5,241 – 27,712 – 27,712
Otherfinancialliabilities – – – 13,000 13,000 – 13,000
Convertiblenotes 37,150 52,950 8,850 – 98,950 (19,199) 79,751
57,320 55,251 14,091 13,000 139,662 (19,199) 120,463
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
90
32 FINANCIAL INSTRumENTS (continued)(c) Liquidity risk (continued)
Notes:
(i) UndiscountedpaymentsaredrawnupbasedontheearliestdateonwhichtheGroupcanberequiredtopay.They
includebothprincipalandinterestcashoutflows.
(ii) In the year ended 31 December 2012, adjustments in relation to the loan notes payable represent the possible
futureinterestpaymentbasedontheeffectiveinterestrateprevailingatthereportingdates.Adjustmentinrelation
totheconvertiblenoterepresentsthereversalofthepossiblefuturepaymentoftheGroupupontheexerciseofthe
noteholder’s or issuer’s early redemption option in accordancewith the terms and conditions of the note. In the
year ended31December2013, theadjustment to theconvertiblenotes andbonds represents the impact of the
unamortisedtransactioncosts.
(iii) Carryingbalancerepresentsthebalanceperconsolidatedstatementoffinancialpositionattheendofeachreporting
period.
(d) Credit riskTheGroup’smaximumexposuretocreditriskbyclassofindividualfinancialinstrumentisshownbelow:
31 December 2013 31 December 2012
Carrying Maximum Carrying Maximum
value exposure value exposure
$’000 $’000 $’000 $’000
Current assetsCash and cash equivalents 34,642 34,642 39,971 39,971
Tradeandotherreceivables 7,734 7,734 9,179 9,179
42,376 42,376 49,150 49,150
Inrelationtoitscashandcashequivalents,theGrouphastomanageitscurrencyexposuresandthecreditrisk
associatedwiththecreditqualityofthefinancialinstitutionsinwhichtheGroupmaintainsitscashresources.As
at31December2013theGroupholdsapproximately98%(2012:90%)ofitscashinUSdollarswithBaa2(2012:
Baa2)orhigher(Moody’s)ratedinstitutions.TheGroupcontinuestomonitoritstreasurymanagementtoensure
anappropriatebalanceofthesafetyoffundsandmaximisationofyield.
Noneoftheothertradeandotherreceivableshadbeenimpaired.Tradeandotherreceivablesarepredominantly
non-interest bearing. The Group does not hold any collateral as security and the Group does not hold any
significantprovisionintheimpairmentaccountfortradeandotherreceivablesastheymainlyrelatetocustomers
withnodefaulthistory.
GREEN DRAGON GAS ANNUAL REPORT 2013 91
32 FINANCIAL INSTRumENTS (continued)(e) Capital risk management
TheGroup’sobjectiveswhenmanagingcapitalaretoensuretheabilityoftheentitiesintheGrouptocontinue
as a going concern in order to provide returns for equity holders andbenefits for other stakeholders and to
maintainanoptimalcapitalstructuretoreducethecostofcapital.Inordertomaintainthecapitalstructure,the
Groupconsidersthemacroeconomicconditions,prevailingborrowingratesinthemarketandadequacyofcash
flowsgeneratedfromoperationsandmayadjusttheamountofdividendspaidorpayabletoequityholders,raise
fundingthroughcapitalmarket,adjusttheamountofotherborrowingsasnecessary.Nochangesweremadeto
theobjectivesorpoliciesduringtheyear/period.
TheGroupmonitorscapitalonthebasisofthedebt-to-equityratio.Thisratioiscalculatedasnetdebtsdivided
byequityattributabletotheCompany’sequityholders.Netdebtsincludescurrentandnon-currentliabilitiesless
cashandcashequivalents,asshownintheconsolidatedstatementsoffinancialposition.Equityincludesequity
attributabletoequityholdersoftheCompany.Debt-to-equityratiosasat31December2013and2012areas
follows:
As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Current liabilities 125,967 107,807
Non-currentliabilities 210,259 174,761
Cash and cash equivalents (34,642) (39,971)
Net debt 301,584 242,597
Equity 646,805 660,066
Debt-to-equityratio 0.47 0.37
(f) Fair valueThecarryingamountsofsignificantfinancialassetsandliabilitiesapproximatetheirrespectivefairvaluesasat31
December2013and2012.
The carrying values of cash and bank balances, trade and other receivables, and trade and other payables
approximate their respective fair values because of their shortmaturities. The carrying amount of the other
liabilitiesapproximatetheirfairvalueastheeffectofdiscountingisimmaterial.Thecarryingamountsofloanand
borrowings and convertible notes approximate their fair values because the effective interest rates of the debts
areapproximatetotheprevailingmarketinterestratesatthereportingdatesforsimilarborrowingsavailableto
theGroup.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
92
33 PROVISIONSTheGrouphaslitigationwithConocoPhillipsChinaInc(“COPC”)arisingfromafarm-outagreement.COPCpaidUS$42.6
milliontotheGroupunderthefarm-outagreement.
On8November2010,theGroupterminatedthefarm-outagreementasCOPChadnotmadetherequiredpayments
underthefundingarrangements.COPChavedemandedfullrepaymentoftheUS$42.6million
ThedisputewassubjecttoarbitrationinSingaporeand,on10July2013,thearbitrationtribunalruledinCOPC’sfavour.
The arbitration tribunal has awardedUS$42.6m plus fees and interest of approximatelyUS$6.9million against the
Group.ThearbitrationwasanchoredaroundtheissueoftheGroup’sabilitytoenforcetitleinitsthreeShanxiproduction
sharingcontracts(“PSCs”).TheGrouphasalwaysconsideredthatithasvalidtitleandthiswasconfirmedbytheCentral
GovernmentofChina.Thearbitrationtribunalwasinformedofsuchanexpectedrulingbuttheydecidedtoclosethe
arbitration proceedings, and proceeded to deliver their award without considering this significant development. The
tribunalpanelwasinformedofamaterialconclusionastotitlewhichappearsnottohavebeentakenintoconsideration.
TheDirectorsconsiderthis,amongothermatters,asagroundforachallengeagainsttheawardandtotakeallnecessary
stepsforapotentialfilingtosetasidetheaward.
On3September2013,theGroupsuccessfullylodgedanappealagainstthetribunalrulingincludingapreventionorder
againstCOPCfromenforcingsettlement.Thetribunalisduetobeheardinthecomingmonths.
Whilst theDirectors’ remain confident of a successful appeal, a provisionhasbeenprudentlymade in the financial
statements.TheoriginalUS$42.6millionreceivedwassetagainsttheexplorationassetsand,consequently,thishas
been reversed. Full interest and penalties have been provided for and are shown in the Consolidated Statement of
ComprehensiveIncome.
34 INTEREST IN JOINTLy CONTROLLEd ENTITIESInterests in jointlycontrolledentitiesareaccountedforbyproportionateconsolidation.Thefollowingamountsrelating
tothesejointlycontrolledentitieshavebeenrecognisedintheGroup’sconsolidatedstatementoffinancialpositionand
consolidatedstatementofcomprehensiveincome.Asdetailedinnote5,theentitywasdisposedofduringtheyear.
As at As at
31 December 31 December
2013 2012
US$’000 US$’000
Non-currentassets – 43,907
Current assets – 21,657
Current liabilities – (14,631)
Non-currentliabilities – (2,860)
Net assets – 48,073
Income 20,017 64,613
Expenses (18,864) (61,424)
Profitfortheyear 1,153 3,189
GREEN DRAGON GAS ANNUAL REPORT 2013 93
34 INTEREST IN JOINTLy CONTROLLEd ENTITIES (continued)TheGrouphadinterestsinthefollowingsignificantjointlycontrolledentitiesuntildisposal:
Proportion of nominal value Form of of registered Business Place of capital heldName Structure registration by the Group Principal activity
KesiHengran(Beijing) Sino-foreignequity People’sRepublic 49.0% Investmentholdings
TechnologyCo.,Ltd. jointventure ofChina
ZhengzhouPetro-China Sino-foreignequity People’sRepublic 35.0% WholesaleofCNG
HengranPetro-Gas jointventure ofChina
CompanyLimited
AnhuiPetro-China Sino-foreignequity People’sRepublic 50.6% WholesaleofCNG
HengranPetro-Gas jointventure ofChina
CompanyLimited
TheGroup’sinterestsintheKesiHengran(Beijing)TechnologyCo.,Ltdgroup(“KHBT”)wererestructuredduringthe
yearended31December2012.
Beforetherestructuring,theinterestinKHBTwasrecognisedasaninterestinajointlycontrolledentity.KHBTisaholding
company,withitsonlysignificantassetbeinga59%equityinterestinBeijingHuayouUnitedGasDevelopmentCo.,Ltd
(“BHY”),whichwasengagedinthesupplyofdownstreamgasdistributioninBeijing,thePRC.Thenetassetsandresult
ofoperationswereaccountedforintheseconsolidatedfinancialstatementsusingproportionateconsolidation.KHBTwas
abletocontrolBHYand,therefore,KHBTconsolidatedBHYandrecognisedanon-controllinginterestfortheproportion
ofBHY’snetassetsthatKHBTcouldnotcontrol.
Aspartoftherestructuring,KHBTsurrendereda10%equityinterestinBHYtotheother41%shareholderofBHY.In
ordertocompensatetheGroupforthedilutionof its interest inBHY,theGroupreceiveda100%equity interest ina
subsidiary,BeijingBaiheZhuangyuanTechnologyConsultancyCo.,Ltd.(“BAIHE”),fromKHBT.BAIHEinturndirectly
holdsa10%interestinBHY.
On28November2012,therestructuringformallycompleted.Afterthecompletionoftherestructuring,theGroupretained
its49%interestinKHBT,whichinturnholds39%inBHY,andtheGroupheld100%inBAIHE,whichinturnholdsa
10%ofinterestinBHY.TheGroupthereforehelda29.11%effectiveinterestinBHY,withKHBTnolongerabletocontrol
BHY,andtheGroupstartedtoaccountforthenetassetsandresultsofoperationsofBHYintheseconsolidatedfinancial
statementsusingproportionateconsolidationmethodeffectivefromthecompletiondate.TheGroup’sinterestwassold
inthecurrentyear.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
94
35 SuBSEQuENT EVENTS(a) Agreement signed with CUCBM
InMarch2014,theGroupenteredintoabindingagreementwithCUCBM,asubsidiaryofChinaNationalOffshore
OilCorporation(CNOOC),regardingfiveofitsProductionSharingContracts(PSCs)inChina.
TheGrouphasadirectequityinterestinover1,800drilledwells.Theequityinterestvariesbetween47%-70%
andthetotalinvestedcapitalexceedsUS$1billion.
Thedetailsoftheagreementaresummarisedasfollows:
Shizhuang South Block (GSS)
• Undertheagreement,operatorshipoftheGSSblockwillcontinueundertheCompanyexceptforthewells
drilledbyCUCBMinCoalSeam3
• Thecirca1,300legacywellsdrilledbyCUCBMwillbeoperatedbythem,withtheremaindercontinuing
tobeoperatedbyGDG
• GDGequityparticipationintheentireblockincreasesfrom60%to70%followingthecostrecoveryto
CUCBMofUS$13million(asprovidedbythePSC)whichwillbepaidfromtheGDGoperatedwells
• GDGandCUCBM toeachbeentitled tocost recoveryatapreferential rate fromwells theyoperate -
percentageofgrossprofittocostrecovery,willincreasefrom75%to90%
• OptionforGDGtodelivergasdirectlyintoCUCBMinfrastructure
• GDGtocontinueasOperatorintheremainingblockincludingtheentiresecondCoalSeam15whichis
prevalentintheentireblockbelowCoalSeam3.CoalSeam15liesapproximately150metersbelowCoal
Seam3.Legacywells(asreferredtoabove)havebeenconfinedtoCoalSeam3ashavetheagreements
relating to carried interest and non operated interest
• TheGovernmenthasapprovedtwoODPswithintheGSSBlock
• CUCBMexpectedtoinvestanadditionalUS$250milliontocompleteofftakeinfrastructure,enablinggas
sales-bringingthetotalestimatedinvestmenttoUS$700million(subjecttoaudit),inclusiveofthe1,300
wells drilled
Shizhuang North Block (GSN)
• CUCBMhas committed to invest an additionalUS$100million towards exploration andproduction in
exchange for a further 10% interest in GSN, resulting in each company holding a 50%participating
interest
• CUCBMhasalreadyinvestedanestimatedUS$100millioninGSNtodrill250wellsandPSCextendedby
twoyearswithadditionalperiodextensionssubjecttogovernmentapproval
Qinyuan Block (GQY)
• Sub-dividedintotwoequalsizedblocks,A&B,undertheoriginalPSCframework,witheachoperator
bearing all exploration expenses in their respective areas
• BlockAtobeheld90%byCUCBMand10%byGDG,withCUCBMasoperator
• BlockBtobeheld40%byCUCBMand60%byGDGwithGDGasoperator
GREEN DRAGON GAS ANNUAL REPORT 2013 95
35 SuBSEQuENT EVENTS (continued)(a) Agreement signed with CUCBM (continued)
Fencheng (GFC) and Panxie East (GPX)
• Statusquo
• GDGparticipatinginteresttoremainunchangedforbothPSCs
• GDGtocontinueasoperatorwithbothpartiesagreeingtoperformtheirrespectiveobligationsunderboth
PSCs
TheGroupandCUCBMhaveconvenedJointManagementCommitteemeetingsforeachofthefivePSCs.Each
partyshallfurtherdisclosetoeachotheralltechnicalinformationandrelatedOverallDevelopmentPlansunder
the PSCs, followed by a third party audit with respect to certain cost recovery aspects of the parties’ respective
investmentsineachofthePSCs.
(b) Full conversion of US$35 million convertible notesOn3June2014,theCompanyreceivednoticefromGICPrivateLimited,asovereignwealthfundestablishedby
theGovernmentofSingapore,oftheconversionintoordinarysharesoftheentireUS$35millionconvertiblebond
issuedbytheCompanyinDecember2013.Thebondscarrieda7%interestrateandweredueinDecember
2015,thisisanearlyconversion.
TheCompanyissued5,775,578newordinarysharestoGICPrivateLimitedasaresultofthisconversion.
FollowingtheadmissiontotradingonAIMofthenewordinaryshareson6June2014,theCompany’sissuedshare
capitalwillconsistof142,316,289ordinaryshares.
(c) US$50 million raised through issuance of convertible notesOn 5 June 2014, the Company issued a second tranche of the convertible bond facility first announced in
December2013.ThesecondtrancheofUS$50millionhasbeenfullysubscribedbyGICPrivateLimited(“GIC”),
aGovernmentofSingaporesovereignwealthfund.
Theconvertiblebond isunsecured,hasa7%coupon,a36monthmaturity,and isconvertible intoordinary
sharesataconversionpriceofUS$9.34pershare.TheCompanyhastherightonthesecondanniversaryofthe
issuedateandonwardstocalltheconvertiblebondundercertainconditions.
96
DIRECTORS, COMPANY SECRETARY AND ADVISORSdIRECTORSExecutive Director, Chairman and CEORandeepS.Grewal
Non-Executive DirectorDavidTurnbull
Non-Executive DirectorWayneRoberts
Non-Executive DirectorStewartJohn,OBE
Non-Executive DirectorGongDaBing
LEGAL AdVISORSAs to Chinese LawGuantaoLawFirm
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YingtaiCenter,NO.28,
FinanceStreet,XichengDistrict,
Beijing100140,PRChina
As to Cayman Islands & BVI LawTraversThorpAlberga
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CentralHongKong
As to English LawFreshfieldsBruckhausDeringerLLP
65FleetStreet,LondonEC4Y1HS
UnitedKingdom
REGISTEREd OFFICEInternationalCorporationServicesLtd.
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COmPANy SECRETARyInternationalCorporationServicesLtd.
NOmINATEd AdVISOR ANd CO-BROkERSmith&WilliamsonCorporateFinanceLimited
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LondonEC2R6AY
CO-BROkERSMacquarieCapital(Europe)Limited
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LondonEC2Y9HD
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LondonEC2Y5ET
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