Chinese coal bed methane developer Green Dragon Gas (AIM: GGG) is now debtless after raising US$75 million via an equity issue to repay US$55 million to redeem in full the only remaining outstanding convertible bond.
The shares were issued to BlackRock at a price of US$6.25 per share, representing a discount from the stock’s Monday closing price of US$7.18, also making the energy focused investment company the second largest shareholder in Green Dragon.
The remaining proceeds of the equity raise will be used to place orders on new equipment, execute agreements with engineering firms to permit and build infrastructure to handle vastly increased levels of gas production at Shizhuang South block, where production is currently exceeding expectations following the deployment of the Surface to Inseam (SIS) proprietary Dymaxion technology.
“The company's success in the GSS drilling program has resulted in production levels surpassing our infrastructure resulting in either rising casing pressures on the wells or a necessity to flare the production. In view of the current capital on hand, we are in position to immediately commit to permitting the infrastructure enhancements and construction so as to begin our commercial sales by mid 2010,” said Chairman and Chief Executive of Green Dragon Gas Randeep Grewal.
The normalised (unrestricted) production at the Zaoyan station within the GSS block has exceeded 70.6 mmscf (million cubic feet) per month as gas production continues to rise as the water table is reduced.
The deployment of the SIS wells drilled in the GSS block has resulted in increased production with the first well, GSS008, which has been online for 626 days, having produced 115.78 mmscf in total, currently producing at a rate of 0.3 mmscf per day, while GSS010 is currently producing 0.28 mmscf per day with both wells exceeding expectations. Green Dragon said that other wells showed similar results, adding that the drilling and production success of the SIS wells was a “significant catalyst” to developing a larger resource more rapidly.
Five SIS wells have so far been drilled in the GSS block with six laterals. The company expects to drill five fewer vertical wells for each SIS horizontal well drilled.
Green Dragon Gas posted interim revenues of US$18.7 million this year compared to US$2.4 million for H1 2008 with the growth coming predominantly from its downstream operations, while pre-tax losses narrowed to US$10.9 million from US$13 million a year earlier.