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G3E working on divestment of Green Dragon assets

Snapshot

China asset GGZ will be spun off in 2020 as a dividend in specie

China

Quick facts: G3 Exploration Ltd

Price: 16.5 GBX

LSE:G3E
Market: LSE
Market Cap: £25.75 m
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  • Spin-off the producing side of its Chinese coal bed methane (CBM) business 

  • Shareholders to receive cash or a share in Green Dragon Gas, the producing business

  • G3E will retain the remaining development and exploration blocks

  • GGZ (Guizhou) will be spun off first as another dividend in specie

What it owns

Estimated 25 Tcf gas in place currently, of which 2.5tcf will be divested with Green Dragon Gas (GDG)

Green Dragon owns a 47% stake in Block GCZ (Chengzhuang) in China with proven probable reserves (2P) of US$157mln and where its partner is PetroChina.

At Block GSS (Shizhuang South) proven reserves (1P) alone are worth an estimated US$580mln with Green Dragon owning 60% and CNOOC its partner.

Money from any sale will be used in the first instance to pay off US$270mln of debt owing to G3E, which will enable it to clear US$150mln of Nordic bonds and convertible loans.

The remaining US$120mln will fund G3's development of the Guizhou Block (GGZ – 60% owned by G3), which is scheduled to start production this year.

How it’s doing

In September, G3 Exploration PLC (LON:G3E) said it was examining a US$250mln reserve-based loan (RBL) as an option to refinance its balance sheet.

The China-focused gas group says this became an option following field development approval and an experienced bank has been appointed to move an RBL loan forward.

A US$250mln loan would enable G3 to pay off its inter-company debt and carry out the spin-off of production subsidiary Green Dragon Gas through a dividend in specie.

That would leave an exploration arm, where G3E has invested approximately US$270mln on its portfolio which it estimates has a 2P/mean value of over US$816mln. 

Revenues for the half-year to June 2019 were US$11mln (US$13.7mln) with a net loss of US$7mln (US$6.3mln).

What the boss says: Randeep Grewal, chairman

“We are eager to focus on this portfolio and systematically migrate it into commercial production and thereafter farm-outs or sales.

“Each of these transactions should provide shareholders with a dividend.

“Our current portfolio in China provides a solid five-year backlog of projects. 

“The most advanced of these, the Guizhou exploration block (GGZ), is expected to commence test gas sales before the end of this year.” 

Inflexion points

  • Spin-out of Green Dragon/GSS, GCX

  • GGZ/Guizhou, where G3E has a 60% stake, is scheduled to start production this year

  • Plan is to spin off GGZ  eventually

Blue Sky

Potential proceeds from asset sales exceed expectations

Development potential of the other Chinese acreage can boost G3's value

 

 

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