Green Dragon Gas (LON:GDG) is funding growth throughout the gas value chain, according to Evolution Securities analyst Keith Morris.
The Chinese coal bed methane (CBM) producer announced a US$103 million institutional fundraising on Friday, placing 8.8 million new shares, the equivalent to 7.3 per cent of its equity base, at US$11.68 each.
GDG now plans to accelerate its drill programme in the Shizhuang South block in China. To do this, it is buying an additional 25 drilling rigs, to complement the existing seven, with delivery set for the end of next year.
“This increase in the drilling fleet is to deliver on the previously announced strategic goals with a production exit rate of 18 mmcfd (gross) at end 2011 compared to 1bcf gross at end 2010,” Morris said.
“This follows the recent midstream and downstream acquisitions designed to provide outlets for the produced upstream CBM gas to extract the maximum returns in the gas value chain from well head to consumer.”
He adds: “We would expect the revised reserve report to be provided on the basis of year end data in conjunction with the proposed Hong Kong listing in 1Q11 to produce an increase in the recoverable 2P and 3P reserves, with consequent increase in NAV per share.”
Morris rates the stock as a ‘buy’ and this morning he upped his target from US$18 to US$19.