China-focused CBM developer Green Dragon Gas reported a net loss of US$12.1 million for 2016, on the back of a decline in its downstream business and a drop in the exchange rate. This was despite the fact that recurring upstream business recorded a net profit of US$16.5 million.
The company, one of the largest independent producers of CBM in China, saw its revenue fall from US$37.7 million in 2015 to US$29.1 million in its 2016 audited results. This, it said, was owing to a roughly 23% decrease year on year in downstream sales and a 7% decline in the yuan/US dollar exchange rate. The company’s net loss for 2016 compared with a net profit of US$100,000 for 2015.
Green Dragon’s net profit from upstream operations fell from the US$18.6 million recorded in 2015, and cash generated from operating activities amounted to US$8.5 million for the year, down from US$12.4 million a year earlier.
Despite the company’s trouble with its downstream side, total net gas sales for 2016 rose by 5.6% to 3.41 bcf (96.57 mcm), up from 3.23 bcf (91.47 mcm). Gas sales from company-operated wells in the Shizhuang South Block (GSS) expanded by 34% to 1.88 bcf (53.24 mcm), owing to the installation of well head compressors.
Furthermore, the overall development plan (ODP) for the adjacent Chengzhuang Block (GCZ) was approved by China National Petroleum Corp. (CNPC) and the joint management committee. Over the next two years, commercial operations in GCZ will be expanded with the drilling of 147 production wells.
One of Green Dragon’s stated objectives is to evolve into a purely upstream business with the sale of its downstream assets. The company holds assets in eight blocks in China.
Green Dragon “established its downstream business in order to provide a route to market for its gas where previously there were limited options”, company chairman Randeep S Grewal said in his statement. “With a number of entities developing downstream operations within the Qinshui Basin adjacent to our GSS block this optionality is no longer needed. Consequently, we have taken the decision to focus on our core upstream assets with our downstream assets non-core and held for sale.”
Once the sale is complete, which should be during the first half of 2017, the company’s evolution into a “pure play upstream E&P company will be complete”, Grewal said.
He added that Chinese government policy was “steadfast” regarding its continuing support for CBM development and production. The policy provides for a cash subsidy of around US$2 per 1,000 cubic feet (US$70.6 per 1,000 cubic metres) at the current exchange rate.
“In developing the large asset base across 7,600 square km with over 25 tcf [708 bcm] of original gas in place [GIP], the government’s continued support throughout the two-decade development cycle has been a key ingredient to the successful de-risking of CBM projects. The large de-risked assets with mature technology are now ready for significant commercial monetisation,” he said.