Green Dragon Gas: Recapitalising To Maximise Value
Edison | Feb 20, 2017 04:12AM ET
Green Dragon Gas Ltd (SG:G3J)
has laid the foundations for what could be a world-class CBM development; however, the company’s ability to develop and monetise the resource before PSC expiry in 2035 is contingent on funding. 2P reserves (net 549bcf) continue to rise as GDG proves gas deliverability from incremental coal seams. As it stands, GDG is funding rather than resource constrained. In this note we look at three valuation scenarios; in our base case we assume that GDG uses RBL debt capacity (contingent on overall development plan approval) to drill additional LiFaBriC wells on the GSS block, driving a group core valuation of 227p/share – assuming well deliverability in line with company type curves. We see blue-sky potential for this to rise to a RENAV of 591p/share if GDG had no funding constraints and drilling activity on GSS/GCZ and GSN was stepped up materially, accessing 3P CBM reserves.
Existing GSS investment provides a solid foundation
We estimate that gross GSS production could reach 13bcf with minimal investment, underpinning our ‘minimal capex’ GSS asset value of $136m. Sales growth is driven by upstream facility optimisation including well-head compression and new gas connections. Incremental value requires capital investment in new LiFaBriC well-stock in order to maximise 2P reserve recovery within the licence period.
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