ANNUAL REPORT 2013 - G3 Exploration/media/Files/G/Green-Dragon-Gas/reports...GREEN DRAGON GAS ANNUAL REPORT 201307 Chairman’s statement OuTLOOk Our results for 2013 demonstrate the

ANNUAL REPORT 2013

Highlights 2

Chairman’s Statement 4

Business Review 8

Financial Review 18

Board of Directors 22

Directors’ Report 24

Statement of Directors’ Responsibilities 30

Independent Auditors’ Report 31

Consolidated Statement of Comprehensive Income 32

Consolidated Statement of Financial Position 33

Consolidated Statement of Changes in Equity 35

Consolidated Statement of Cash Flows 36

Notes forming part of the Financial Statements 38

Directors, Company Secretary and Advisors 96

HIGHLIGHTS

02

FINANCIAL & CORPORATE HIGHLIGHTS• ReportedrevenueofUS$62.2m(US$32.4GCZ2010-2012)

• 2013continuingoperationsrevenueUS$29.8m,(US$8.1mrevenuein2012),a268%increase

• Sale of non-core assets for US$65m (BeijingHuayouUnited Gas Development Co. Ltd andGiant Power International

InvestmentLimited),creatingagainondisposalofUS$33.4m

•US$70mraisedduringtheperiodunderreviewthroughtheissueofbondsandwarrants:n IssueofUS$35mbondwithwarrantstoMandolinCapitalPte.Ltd.n RaisedUS$35mthroughissueofconvertiblebondfromGICPrivateLimited

• RedeemedalloutstandingConvertibleBonds,amountingtoUS$84.2m

• CashofUS$34.6mat31December2013

• GrekaEngineering&TechnologyLtddividendinspecietoGreenDragonshareholders

OPERATIONAL HIGHLIGHTSUpstream• Reportedgasproductionof9.64Bcf(4.78BcfGCZ2010-2012)

• 2013productionof4.86Bcf(20121.78Bcf),a173%increase

• BindingMOUsignedwithPetroChinaforparticipatinginterestinGCZBlock

• BindingagreementsignedwithCNOOCandCUCBMoverGSS,GSN,GQY,GFCandGPXBlocks

• 1,867wellsdrilledacrossallblocks

• 9additionalLiFaBriCwellsdrilledacrossallblocks–bringingtotalnumberto71:n 1,578wellsacrossGSS(inclusiveofwellsatGCZasundersamePSC)n 289wellswereacrosstheexplorationblocksGFC,GQYGSN,GPX,GGZ

GREEN DRAGON GAS ANNUAL REPORT 2013 03

Gas Sales• Reportedgassalesof8.01Bcf(GCZ4.48Bcf2010-2012)

• PipedNaturalGassales(PNG):n GCZgassalesviaPNGof2.0Bcfn GSSgassalesviaPNGsalesof715MMcf

• CompressedNaturalGas(CNG)sales–retailstationsales:n 65%increaseto540MMcf(15.3millioncubicmeters)(2012:327MMcf):

n 14.3%camefromGSSblockproduction(77MMcf)n 85.7%wasacquiredfromthirdparties(463MMcf)

• CompressedNaturalGas(CNG)sales–Industrialcustomers:n Decreased32.8%to282MMcf(7.99millioncubicmeters),(2012:419MMcf/11.89millioncubicmeters)–reduction

due to suspension of sales while the government concludes new permit policies which are expected to be completed in

Q32014.

NoteMMcf means millions of cubic feet; Bcf means billions of cubic feet.

CHAIRMAN’S STATEMENT

04

INTROduCTIONThefocusof2013wastoputGreenDragoninabetterpositiontobeabletofullyrealizetheeconomicbenefitofitsverysizable

assetsintheprovincesofChina.Thiswassuccessfullyachievedthroughacombinationofresolvingthetitleconcernsoversome

oftheCompany’sassetsandstreamliningthebusinesstowardsthatofafocusedexploration&production(“E&P”)company.

All concerns over title to the Company’s assets were resolved in July with the reissue of the related licences to the Company by the

CentralGovernmentandthesubsequentwithdrawalbyCUCBM/CNOOCoftheerroneousterminationnoticesthathadappeared

onitsownwebsiteinMarch2011.

ThesubsequentdiscoveryofsignificantoperationalactivitybyCNPC/PetroChinaandCUCBM/CNOOContheCompany’slicence

areas during the intervening period led to the signing of agreements that have secured substantial economic value for the

Company, both retrospectively and in the future, and secured strong partnerships with these companies and new management

teamsthatwillpavethewayforshareholderstofullybenefitfromtheinherentvalueoftheassets.

Randeep S. GrewalFounder & Chairman


Chairman’s statement

Also,duringtheperiod,theBoardandmanagementteamundertookastrategicreviewofthebusiness.ThiswasconcludedinQ1

2013andledtothestreamliningoftheCompanytobeamorefocusedpureplayE&P.Consequently,theCompany’snon-core

pipelinebusiness,BeijingHuayou,wassoldforUS$65m,creatingaprofitonthesaleofUS$33.4m,andGrekaEngineering&

TechnologyLtdwasdemerged,becominganindependentlylistedcompany.

TheCompanysawsignificantincreasesinproduction,gassalesandrevenuesduringtheyear.Withorganicactivitymaintained,

theseincreasesarelargelyareflectionofthebindingagreementsignedwithPetroChinainDecember.ThissecuredtheCompany’s

47%interestingasbeingproducedbyPetroChinafromtheCompany’sGCZblock.

OPERATIONSTheCompanyelectedtoslowinvestmentincapitalexpenditure,inaccordancewiththetermsofitsPSCs,whileuncertainties

remainedovertitletoitsassets.AlthoughresolvedinJuly2013,furtherclaritywasthenneededastothesubsequentdiscovery

ofextensiveactivitybythirdpartiesontheCompany’slicenceareasbeforeinvestmentcouldfullyrecommence.

Assuch,duringtheperiodunderreview,9additionalLiFaBriCwellsweredrilledbringthetotalnumberto71acrossallblocks.

OurbindingagreementswithCNOOC,CUCBM,CNPCandPetroChinasubstantiallyde-riskstheCompany’sassets,pavingthe

wayforustorapidlybuildonexistingproductionandsalesandtofullyrealizethemarketpotentialforGreenDragon’sgasin

China.Wenowhavewell-capitalized,cooperativeandsupportivepartnerswithmanagementteamscommittedtodevelopingour

vastacreageandproducingthesubstantialgasresourcewithusoverthenext20years.

TheCompanynowhasadirectequityinterestinover1,800drilledwells.Theequityinterestvariesbetween47%-70%andthe

total investedcapitalexceedsUS$1billionandanadditionalUS$250millionisbudgetedtobedeployedoninfrastructureto

marketthegasresourcedeveloped.Wehaveindeedmigratedfromanexplorationcompanytoaproductioncompanywitha

substantialprovenreserveandalargeacreagepositiontodevelopfurther.

SALESTotalsalesinclusiveofshareofcumulativegassoldfromGCZamountedto8.01Bcf,ofwhich6.48Bcfwasattributabletothe

GCZBlock(2.0Bcfin2013and4.48Bcffrom2010-2012)and1.53BcfwasattributabletotheGSSMainBlock.Thisrepresents

a424%increaseovertheprioryear.67.5%ofthegassoldbytheCompany’sdistributionarmcomesfromtheGSSblock,withthe

remaining32.5%beingacquiredfromexternalparties.Gasisacquiredfromthirdpartiesinordertomeettheincreasingdemand

andovertimewillbereplacedbygasproducedfromGreenDragon’sassets.

PipedNaturalGas(PNG)salesduring2013totaled7.2Bcf.PNGSalesarefromGCZandGSSanddelivergasthoughtheWest

EastPipeline infrastructure.GSSSalesaremadeunder the20 year agreemententered into in June2011withPetroChina.

AdditionalsalesfromCNOOCandCUCBMintothewesteastpipelinewilladdtothegrossgassalesin2014andbeyond.

TheCompanyalsosellsCompressedNaturalGas(CNG)forvehicleusethroughitsseriesofCompany-ownedCNGretailstations

locatedinandaroundits licenceareas.In2013,salesofCNGthroughtheseoutletsamountedto540MMcf,representinga

65%increaseon2012anda5%increaseoverthesameperiodlastyear.Thisincreaseinsalesisprimarilyduetothenumber

ofoperatingCNGstationsincreasingto6from5ayearagoandtheexpansionofourfleetofdistributiontrucks.TheCompany

hopestobeabletobringanadditionalthreestationsintooperationduringtheremainderofthisyear.

CHAIRMAN’S STATEMENT

06

dEmERGER OF GREkA ENGINEERING & TECHNOLOGy ANd SALE OF NON-CORE OPERATIONSWecompletedthedemergerofGrekaEngineering&TechnologyLtdfromGreenDragon.Itwasourseconddividendinspecie

sinceourlistingsixyearsagoandisareflectionoftheCompany’ssuccessfulstrategyofdemergingnon-corematurebusinesses

thathavesignificantpotentialasstandalonebusinesses.IthasresultedinGDGbecomingafarmorestreamlinedandefficient

business,focusedpurelyonitscoreupstreamE&Poperations.SimilartotheGrekaDrillingLimiteddividend,whichcreatedan

independentlysuccessfuloperatingenterprisewhilstalsoprovidingGreenDragonshareholdersanopportunitytomonetizetheir

returnsattheirdiscretion,weexpectGrekaEngineering&Technologywillmirrorthissuccess,bothoperationallyandincreating

shareholdervalue.EachofthesebusinesseswerecreatedfromatechnologyandaptitudenecessitybyGreenDragontodevelop

thevastandcomplexCBMresource, thesuccessful technology isnowcontractedbyGreenDragonas is typicalwithin the

industryratherthanservicecompanyownerships.

Duringtheperiodwesuccessfullysoldthenon-coremid-streamgaspipelineinterestsforUS$65m,atarespectable14%IRR

return,creatingaUS$33.5mprofit.ThesecomprisedtheCompany’s29%interestintheBeijingHuayouUnitedDevelopmentCo

andits100%interestinGiantPowerInternationalInvestmentLimited;whichincludedtheCompany’sinterestsinthewholesale

gasdistributionpipelinenetworkunrelatedtotheupstreamCBMassets.

FINANCIALSReportedrevenuefromcontinuingoperationsincreasedtoUS$62.2m(US$8.1m:2012).Theincreaseinrevenuewasprimarily

driven by the agreement with PetroChina signed in December, which allowed for the Company’s cumulative share of the sale of

gasbyPetroChinafromtheGCZblock,amountingtoUS$48.2m(US$15.8min2013andUS$32.4mfrom2010-2012)since

commencement,recognizedin2013.

E&PcapexwasUS$12.3m.ThislowerdiscretionaryspendreflectedtheprudentapproachtakenbytheCompanytolimiting

investmentwhilethefinalbindingagreementsweresigned.

Finally,duringtheperiod,wealsosignificantlystrengthenedourbalancesheet,raisingatotalofUS$135mfromthedisposal

ofnon-coreassetsandtheissuanceofUS$70mofbondsandwarrants.US$84.2mwassubsequentlyusedtorepayinfullthe

outstandingConvertibleBonds.At31December2013,theGrouphadcashofUS$34.6m.

TheCompanyisalsopleasedtoannouncethatithas,sincetheyearend,issuedanadditionalUS$50mofconvertiblebonds

toGICPrivateLimitedfollowingthefullconversionoftheentireUS$35mconvertiblebondissuedtoGICPrivateLimitedduring

2013.GreenDragonwarmlywelcomesitsfirstsovereignwealthfundtotheshareholderregisterasaresult.

ThearbitrationtribunalrelatingtofundspaidtotheCompanybyConocoPhillipsChinaInc(COPC)inrelationtoafarm-indeal

enteredintoin2009,awardedCOPCUS$42.6mpluscostsduringtheperiod.TheCompanysubsequentlyfiledanappealwhich

focusesonthebreachofnaturalinjusticeandlackofdueprocessbythetribunal.GreenDragonwillupdateitsshareholderson

thisprocessasappropriate.

Thenon-cashfairvalueadjustmentinrelationtotheUS$35mbondissuancewithwarrantsresultedinachargeofUS$13.3m

throughyearend.


Chairman’s statement

OuTLOOkOurresultsfor2013demonstratethesignificantvalueduetoGreenDragonasaresultoftheagreementreachedwithPetroChina

duringtheyear.Subsequenttotheyearend,agreementswerereachedwithCNOOCandCUCBMwhichwillresultinfurther

increases inproductionasaresultof theirworkperformedonourGSSandGSNblocks.Whencombinedwith increases in

productionexpectedduring2014fromtheCompany’sorganicdrillingprogramme,welookforwardtoanotheryearofsignificant

progress.

AspartofouragreementswithCNOOCandCUCBM,theyhaveplannedtospendafurtherUS$250moninfrastructureatGSS

onwhichwearebeingcarried.Asourexistingwellsareconnectedtothisnewinfrastructureitisexpectedthattheassociated

reserveswillberecognisedbyNSAIwiththeirauditedreservenumbersandvaluationsmigratingtothoseestimatedbyourin-

housereservoirengineersinOctober2013.

Oneveryvaluematrix,thisisanexcitingtimeforGreenDragonandthusitsshareholders.Duringtheexplorationperiod,GDG

successfullyprovidedtwodividends,hasover1800wellsdrilledwithUS$1billion incapitaldeployedontheassets,atrack

recordwearequiteproudof.Aswetransitionintoproduction,salesandcashflow,wearecommittedtomonetizeour17years

ofeffortsinthenearterm.

Finally,Iwouldliketotaketheopportunitytothankallourshareholdersandemployeeswhohavestronglysupportedourvision

andhavebeenakeyingredienttotherealizedsuccesses.

Randeep S. GrewalFounder & Chairman

BUSINESS REVIEW

08

PROduCTION SHARING CONTRACTS ANd LICENSESInJuly2013,afterlongnegotiation,theGroupwasprovidedreissuedfourExplorationLicensescoveringtheShizhuangNorth

(Shanxi),Qinyuan(Shanxi),Fengcheng(Jiangxi)andPanxie(Anhui)blocks.TheLicenseforthecommercialproductionblock

ShizhuangSouth(Shanxi)wasalsoreissuedconcurrently.Thesere-issuedlicensestoChinaUnitedCoalbedMethaneCorporation

(“CUCBM”)onceagainshowtheGroup’ssubsidiary,GrekaEnergy(International)BV,astheExplorationUnit.Thisactionby

theChineseCentralGovernmentconfirms the full forceandeffectof theProductionSharingContracts(“PSC”),and follows

thewithdrawalbyChinaUnitedCoalbedMethaneCorporationLimited,anaffiliateofChinaNationalOffshoreOilCorporation

(“CNOOC”),oftheerroneousterminationnoticesthatappearedonitswebsiterelatedtotheCompany’sexplorationblocks.

mEmORANdum OF uNdERSTANdING WITH PETROCHINAInDecember2013,theGroupenteredintoabindingMemorandumofUnderstanding(“MOU”)withPetroChinaCompanyLtd

(“PetroChina”),regardingconfirmingtheCompany’sparticipatinginterestsintheChengzhuangblock(“GCZ”),a67squarekm

blockwithintheShizhuangSouth(“GSS”)ProductionSharingContract.

UndertheMOU,PetroChinahaveprovidedallinformationnecessaryforthepartnerstocompleteanauditsoastoconcludeand

acceptthecapitalexpendituresincurredtodeveloptheblock,thegasproduction,gassalesandrelatedrevenues.Commercial

gas sales began inMarch 2010. The parties have agreed to conclude the audits and the related definitive agreements on

paymentsin2014.Furthermore,thepartiesagreedthatPetroChinawillcontinuetobetheoperatoroftheGCZblock,whilethe

CompanywillcontinuetooperatetheGSSblock.AsaresulttheGroup’scumulativeinterestinGCZat31December2013is

reflectedinitsaccounts.

AGREEmENT WITH CuCBmInMarch2014,theGroupenteredintoanotherbindingagreementwithCUCBM,asubsidiaryofChinaNationalOffshoreOil

Corporation(CNOOC),regardingfiveofitsProductionSharingContracts(PSCs)inChina.

Thisagreementsubstantiallyde-riskstheGroup’sassets,pavingthewayforustorapidlybuildonexistingproductionandsales

andtofullyrealisethemarketpotentialforourgasinChina.TheagreementalsoallowstheGrouptoopenacooperativeand

positivechapterinrelationswithCNOOCandCUCBM.TheGroupnowhaveawell-capitalised,supportivepartnercommittedto

developingourvastacreageandproducingthesubstantialmulti-TCFgasresourcewithusoverthenext20years.WhiletheGSS

blockisalreadyincommercialandprofitableproduction,itisexpectedGSNtofollowshortly.

TheGrouphasadirectequityinterestinover1,800drilledwells.Theequityinterestvariesbetween47%-70%andthetotal

investedcapitalexceedsUS$1billion.Wehaveindeedmigratedfromanexplorationcompanytoaproductioncompanywith

asubstantialprovenreserveandalargeacreagetodevelop.Weexpecttoparticipateincashflowsfrom2014onwardsfrom

existinglegacywellsandcontinuearobustdevelopmentplanwithourcooperativepartnerCNOOCandCUCBM.


Business Review

10

Business Review

Thedetailsoftheagreementaresummarisedasfollows:

Shizhuang South Block (GSS)• Undertheagreement,operatorshipoftheGSSblockwillcontinueundertheGroupexceptforthewellsdrilledbyCUCBM

in Coal Seam 3

• Thecirca1,300legacywellsdrilledbyCUCBMwillbeoperatedbythem,withtheremaindercontinuingtobeoperated

byGDG

• GDGequityparticipationintheentireblockincreasesfrom60%to70%followingthecostrecoverytoCUCBMofUS$13

million(asprovidedbythePSC)whichwillbepaidfromtheGDGoperatedwells

• GDGandCUCBMtoeachbeentitledtocostrecoveryatapreferentialratefromwellstheyoperate–percentageofgross

profittocostrecovery,willincreasefrom75%to90%

• OptionforGDGtodelivergasdirectlyintoCUCBMinfrastructure

• GDGtocontinueasOperator in theremainingblock including theentiresecondCoalSeam15which isprevalent in

theentireblockbelowCoalSeam3.CoalSeam15 liesapproximately150metersbelowCoalSeam3.Legacywells

(asreferredtoabove)havebeenconfinedtoCoalSeam3ashavetheagreementsrelatingtocarriedinterestandnon

operated interest

• TheGovernmenthasapprovedtwoODPswithintheGSSBlock

• CUCBMexpectedtoinvestanadditionalUS$250milliontocompleteofftakeinfrastructure,enablinggassales–bringing

thetotalestimatedinvestmenttoUS$700million(subjecttoaudit),inclusiveofthe1,300wellsdrilled

Shizhuang North Block (GSN)• CUCBMhascommitted to investanadditionalUS$100million towardsexplorationandproduction inexchange fora

further10%interestinGSN,resultingineachcompanyholdinga50%participatinginterest

• CUCBMhasalreadyinvestedanestimatedUS$100millioninGSNtodrill250wellsandPSCextendedbytwoyearswith

additionalperiodextensionssubjecttogovernmentapproval

Qinyuan Block (GQY)• Sub-divided into two equal sized blocks, A & B, under the original PSC framework, with each operator bearing all

exploration expenses in their respective areas

• BlockAtobeheld90%byCUCBMand10%byGDG,withCUCBMasoperator

• BlockBtobeheld40%byCUCBMand60%byGDGwithGDGasoperator

Fencheng (GFC) and Panxie East (GPX)• Statusquo

• GDGparticipatinginteresttoremainunchangedforbothPSCs

• GDGtocontinueasoperatorwithbothpartiesagreeingtoperformtheirrespectiveobligationsunderbothPSCs

TheGroupandCUCBMhaveconvenedJointManagementCommitteemeetings foreachof thefivePSCs.Eachpartyshall

furtherdisclosetoeachotheralltechnicalinformationandrelatedOverallDevelopmentPlansunderthePSCs,followedbyathird

partyauditwithrespecttocertaincostrecoveryaspectsoftheparties’respectiveinvestmentsineachofthePSCs.


Business Review

CBm RESERVE PROGRESSIONTheGroupupdateditsCoalBedMethane(“CBM”)resourceswithinitsupstreambusinessacrossitssixblocks.Totalgasin

placeof:

• TotalOriginalGasInPlaceof25.2Tcfonsixblocks

• Net1Preservesincrease113%to126Bcf(2012:59Bcf)–1PNPV10increasetoUS$898m(2012:US$324m)

• Net2Preservesincrease22%to382Bcf(2012:314Bcf)–2PNPV10increasetoUS$2.81bn(2012:US$1.82bn)

• Net3Preservesdecrease5%to2,382Bcf(2012:2,509Bcf)–3PNPV10increasetoUS$16.12bn(2012:US$12.68bn)

TheincreaseinauditedreservenumbersandresultingNPV,incorporatesthe1300wellsapproximatelydrilledbytheGroup’s

partners,CUCBMandPetroChina,acrosstheacreage.Drilledwellsnotincommercialgasproductionasof2013year-end,were

notincludedbyNSAIintheir1Pand2Pcategories.Asthewellsde-waterandcommencecommercialgasproduction,therelated

reserveswillmigrateintothe1Pand2Pcategoryrespectively.

TheGroupestimatesitstotalreserves(includingsuchwells)tobe300Bcfin1Pand600Bcfin2Pwhichitexpectstoberealised

astherequiredinfrastructureisbuiltoverthenextfifteenmonths.CUCBMexpectstospenduptoUS$250mincompletingthis

objective.

TheGrouphadtotalOriginalGasInPlaceof25.2Tcfonallblocks.Theestimatesandevaluationofthereservesandresources

containedinthisannouncementwerepreparedbyindependentreserveengineers,NSAI.

Reserves Report Summary 2012 (Net Bcf) 2013 (Net Bcf)PSC (Block) 1P 2P 3P 1P 2P 3P

ShizhuangS(GSS) 59 285 1,317 126 353 1,341

Fengcheng(GFC) – 29 248 – 29 247

ShizhuangN(GSN) – – 944 – – 794

Qinyuan(GQY) – – – – – –

PanxieEast(GPX) – – – – – –

Baotian-Qingshan(GGZ) – – – – – –

TOTAL 59 314 2,509 126 382 2,382

Summary of Reserves ValuationPSC (Block) 2012 (Net Present Value 10%) 2013 (Net Present Value 10%)US$m 1P 2P 3P 1P 2P 3P

ShizhuangS(GSS) 324 1,578 6,517 898 2,524 8,944

Fengcheng(GFC) – 240 1,788 – 282 2,152

ShizhuangN(GSN) – – 4,371 – – 5,028

Qinyuan(GQY) – – – – – –

PanxieEast(GPX) – – – – – –

Baotian-Qingshan(GGZ) – – – – – –

TOTAL 324 1,818 12,676 898 2,806 16,124

12

Business Review

TheresourceswereevaluatedbyindependentreserveengineersNetherlandSewell&Associates(“NSAI”)asof31December

2013.Theestimatesofreservesandresourcesinthisreportwerepreparedinaccordancewithdefinitionsandguidelinesset

forth inthe2007PetroleumResourcesManagementSystemapprovedbytheSocietyofPetroleumEngineers.All resources

estimatesshownabovearenet interest to theGroup. Inaccordancewith thestandards,nocashflowsare reported for the

ContingentandProspectivecategories.Thepresentvaluefiguresshownaboverepresentestimatedfuturenetrevenuesbased

onregion-specificgaspriceparametersspecifiedbytheGroupdiscountedat10%.

WELL dRILLING ANd CBm PROduCTIONIn2013,theGroupdrilled29additionalwells,bringingthetotalnumberofwellsdrilledto426bytheendof2013.Theadditional

wellsdrilledweremostlywithintheShizhuangSouth,QinyuanandGuizhouBlocks,withtheexplorationblocksmeetingtheir

minimumcapitalcommitments.

Atotalof139,101feetwasdrilledin2013(adecreaseof70%on2012)and35,146feetdrilledwithintheproductivecoalseams

decreasing63%on2012.TheLiFaBriCmethodologyhasenabledtheGrouptosubstantiallyincreasetheaccuracyofitsdrilling

program,allowingafargreaterpercentageofproductivemetresdrilledin-seamsuccessfully.Notonlydoesthistechnologymake

drillingfarmoreefficientbutalsosignificantlyincreasesthegasproductionofindividualwells.

Asattheendof2013,thetotalnumberofwellsdrilledconsistsof:

• 71LiFaBriCwellsacrossallblocks,a14.5%increaseover2012(62LiFaBriCwellsasof31Dec2012)

• 235totalwellsacrossallblocksinclusiveofwellsatGCZ(Chengzhuang,includedwithinShizhuangSouthPSC)thathave

been reviewed by the Company

• Approximate1300thirdpartydrilledwellspendingreview

OfthetotalnumberofstandaloneLiFaBriCwells,57areatGSS(ShizhuangSouth).15ofthesearecurrentlyinfullproduction

andconnectedtoinfrastructure,19areproducinggasbutnotconnectedtoofftakeinfrastructureandtheremainderareeither

withcasingpressureordewateringaheadofstartingproduction.

Totalreportedgasproductionis9.64Bcf,ofwhich4.78BcfisattributabletoGCZblockfortheperiodfrom2010to2012.2013

productionisof4.86Bcfwhichrepresents173%increaseover2012(1.78Bcffor2012).

Standalone(excludingthirdpartydrilledacreage)annualisedyearendproductionof2.9Bcfperyear(227,271cubicmetersper

day),representingan11%increaseover2012.

ReviewedproductionfromwellsdrilledbysomeofthethirdpartiesontheCompany’sPSCacreagetodateexceeds4.40Bcf

(124.98millioncubicmeters)for2013.TheCompanyexpectstoconcludetherelatedneteconomicbenefitsfromsuchreviewed

acreagewithin2014.


Business Review

14

Business Review

GAS dISTRIBuTIONReportedsalesis8.01Bcf,ofwhich4.48BCFisattributabletoGCZblockfortheperiodfrom2010to2012.

TheGroup’sshareofGCZPNGsalesis2.0Bcf.GSSPNGsalesis715MMcf.

CNGsalesfortheyeardirecttoindustrialcustomerswere282MMcf(7.99millioncubicmeters),a32.8%decreaseover2012

(419MMcf/11.89millioncubicmetersfor2012)over2012.ThiswasasaresultofdisruptiontoroadinfrastructureatGSS,which

impactedtheabilitytodistributegastoindustrialcustomers.ThegaswasdistributedthroughPNG.OftheCNGsolddirectto

industrialcustomers:

• 87%camefromGSSproductionblock(245MMcf/6.94millioncubicmeters);and

• 13%camefromexternalpartiespurchases(37MMcf/1.05millioncubicmeters).

GrekaCNGretail stationssales in2013of540MMcf (15.3millioncubicmeters),a65.2% increaseover2012 (2012:327

MMcf/9.26millioncubicmeters).Allgasstationsarelocatedwithina250kmradiusfromtheCompany’sproductionfacilityin

ShanxiprovinceorthemidstreamoperationinZhengzhou;thelocationswereselectedbasedonmarketdemand,population,

resourceavailabilityandfleettransportationhubs.Theareacoveredbythenewstationshasacombinedpopulationofmorethan

21.5millionpeople.OftheCNGsoldthoughCNGretailstations:

• 14.3%camefromGSSproductionblock(77MMcf/2.19millioncubicmeters);and

• 85.7%camefromexternalpartiespurchases(463MMcf/13.11millioncubicmeters).

67.5%ofthegassoldbytheGroup’sdistributionarmcomesfromtheGSSblock,withtheremaining32.5%beingacquiredfrom

externalparties.Gasisacquiredfromthirdpartiesinordertomeettheincreasingdemand.

OfthegasproducedbytheGroupexcludingGCZ,37.3%hasbeensoldandtheremainderiscurrentlyeitherbeingsoldtoGreka

Engineering&TechnologyLtd.togenerateelectricityorbeingtemporarilyflared(wherewellsarenottiedin).Thegasproduction

figuresprovidedaboverepresenttotalproductionfromallwellsdrilled, includingthosewellstiedinandcontributingtosales

volumesandthoseintheprocessofbeingtiedintodistributioninfrastructure.

dIVESTmENT OF WHOLESALE GAS dISTRIBuTION NETWORkTheCompanyiscommittedtobeafocusedupstream(E&P)businessthroughthecontinueddivestitureoftheancillarybusinesses

developedandacquiredbyGreenDragonoutofnecessitytoachievethegrowthasapioneerintheChineseCBMmarket.Atthe

conclusionofthisplan,theCompanywillbeahighgrowthE&Pbusinesswithintheexponentiallygrowingunconventionalgas

marketinChinawithreducedfixedcosts.

In line with the Company’s Strategic Review, in June 2013, the Company entered into a sale and purchase agreement with

Mandolin Capital for the sale of theCompany’s 29.11%effective interest inBeijingHuayou and its 100% interest inGiant

PowerInternationalInvestmentLimited(“GPI”)whichincludedtheCompany’sinterestsinthewholesalegasdistributionpipeline

networkintheBeijingDevelopmentAreaandthewholesalegasstationsinZhengzhouandWuhu,foracashconsiderationof

US$65million.


Business Review

Theorganicdevelopmentof thebusinesswascomplementedbytheacquisitionofan interest inBeijingHuayouUnitedGas

DevelopmentCo.,Ltd(“BHY”),awholesalegasdistributionbusinessinChina’slargestmarket–Beijing.Thisacquisitionwas

envisionedtoprovidearoutetomarkettheCompany’sproducedgas.Theintentionwastoswapthegasvolumessuppliedbythe

CompanytotheCNPCwest-eastinfrastructureinShanxiforvolumesintotheBeijingjoint-ventureandthusrealizeamarketrate

fortheproducedgaswithouttheneedtodevelopownendmarkets.EvolutionofCNPCoverthelastdecadehascreatedmany

independentcompanieswithfragmentedassetownershiperodinganypotentialforgasswaps.Whilstthewholesalebusiness

hasbeenasteadilygrowingbusiness,profitable,debtfreeanddividendpaying,itaddsnoaccretivevaluetotheupstreamcore

business.Thewholesalegasdistributionbusiness,likemanylistedcompanieswithinthismarket,willprovidealowtomid-teen

yield(comparedwithupstreamyieldswhicharemateriallyhigher)andcontinuetoexpanditsfootprintwithindifferentcities.

WhilstBHYandGPIhadbeensteadilygrowing,profitable,debtfreeanddividendpayingbusinesses,theyaddednoaccretive

valuetoGreenDragon’scoreupstreambusiness.Asaresult,theCompanyhaddecidedtodivestthewholesalegasbusinessto

focusonthehighermarginupstreambusiness.Completionofdivestmentplanwillresultinafocusedexplorationandproduction

companywithreducedfixedcostbasewhichisalreadyoperationallycashflowpositive.

GREkA ENGINEERING dIVIdENd IN SPECIEGrekaEngineering&TechnologyLtd(“GrekaEngineering”)wasdemergedfromtheGroupanddistributedtoGreenDragonGas

shareholdersaspartofadividendinspecie.

TheGrekaEngineeringGroup’sbusiness includes theprovisionofengineering,procurement,constructionandmanagement

servicesforinfrastructureprojectsintheunconventionalgassectorinChina.Projectscompletedincludethedesign,construction

andmanagementofgasgatheringsystems,aCNGcompressingintegratedproductionfacility,theinstallationandcommissioning

ofa10MWgas-firedpowerfacilityandthesuccessfulbuild,maintenanceandoperationofeightCNGretailstationsin2012.All

oftheseprojectswerecompletedforGreenDragon.GrekaEngineeringhasalsocompletedagaspipelineconnectingaGreen

DragongasproducingblockinShanxiProvincetotheChinaWest-Eastpipeline,theinstallationandmaintenanceofadditional

gasgatheringequipmentandapipelinewhichconnectsproducingwellstotheCompany’sintegratedproductionfacility.

The Group is also involved in the research, development and delivery of technologies specific to the unconventional gas

sectorandincorporatingsuchtechnologiesintoindustry-specifichardwaremanufacturedin-housesuchaswell-headandgas

gathering system compressors, CNG and LNG dispensers, Integrated Circuit Card Point of Sale gas station systems and a

SCADA(supervisorycontrolanddataacquisition)systemusedforremotesupervisionandmanagementofdrillingoperations,

gasgatheringsystems,powerfacilities,vehicles,andretailgasstations.

TheGrouphasapproximately125employeesincludingdesignengineers,pipelineengineers,electricalandmechanicalengineers,

projectmanagers,facilitymanagersandoperations/fieldsupportstaff.

TheBoardbelievesthatthedemergerofGrekaEngineeringfromtheGroupwillenhanceshareholdervalueinbothcompanies.

GrekaEngineeringGroupalreadyoperatesonastand-alonebasisandtradesonanarm’slengthbasiswithotherbusinesses

within theGroup.GrekaEngineering’smanagement teamwill focusona separate strategy andbusinessdevelopmentplan

fromGreenDragonwithenhancedgrowthprospectsasanindependentcompanyservicingbothGreenDragonandthirdparty

customers.InadditiontoGreenDragon,GrekaEngineeringGrouphasalreadyprovideditsservicestoanumberofdifferent

clientsincludingPetroChina,Sinopec,CNPCandtheirvarioussubsidiariesandaffiliates.

16

Business Review


Business Review

Followingthesuccessfulimplementationofthevariousproprietarytechnologicalsolutions,GrekaEngineering,likeGrekaDrilling,

wasdistributedtoshareholdersinafurtherinspeciedividendinSeptember2013.Onceagain,theGroupbenefitsfromusing

thesetechnologiesratherthanfromsuchownership.Asanindependentserviceprovider,GrekaEngineeringGroupwillbeable

toexpandwithintheboomingunconventionalgasmarketswithinChinaandAsiainthefuture.

ARBITRATION ANd APPEALThearbitrationtribunalontheConocoPhillipsChinaInc(“COPC”)matterhasawardedUS$42.6mplusfeesandinterestagainst

theCompany.ThisrulingrequiresthereturnofallthefundspaidbyCOPCtotheCompanyintheFarmoutAgreemententered

intoinAugust2009andterminatedinNovember2010.TheCompanyhasaccruedthefullliabilityamountinitsaccountsforthe

yearend31December2013relatingtothisarbitration.ThearbitrationwasanchoredaroundtheissueoftheCompany’sabilityto

enforcetitleinitsthreeShanxiproductionsharingcontracts.TheCompanyhasalwaysconsideredthatithasvalidtitleandthis

wasconfirmedbytheCentralGovernmentofChinainJuly2013.Thearbitraltribunalwasinformedofsuchanexpectedruling

buttheydecidedtoclosethearbitrationproceedings,andproceededtodelivertheirawardwithoutconsideringthissignificant

development.

TheCompanyhasfileditsappealforrecourseagainstthearbitralawardtosetasidethearbitralaward.Atapre-trialconference,

thecourtconfirmedthatthepreviouslyannouncedarbitralawardcannotbeenforcedbyCOPCuntilthehearingoftheActionhas

concluded.

TheArbitrationtribunalwas informedof the imminent,materialandsuccessfulconclusiontotheCompany’s titlematters.As

stated previously, theBoard feel strongly that the Tribunal erred in not awaiting for thismaterial information before passing

judgement.Followinganevaluationonthemeritsofrecourseagainstthearbitralaward,wearepleasedtoreportthattheAction

hasbeenfiledandCOPCisbarredfromenforcingthearbitralawarduntiltheActionisheard.

TheCompany’sapplicationtosetasidetheAward,previouslyannouncedonthe3September2013,washeardon28November

2013.However,asthehearingcouldnotbecompletedbytheendoftheday,theSingaporeHighCourtdirectedthatthehearing

beadjournedforafurtherdayofhearing,tobefixed.

FINANCIAL REVIEW

18

RESuLTS FOR THE yEARTheGroupreportedrevenuefromcontinuingoperationsofUS$62.2million(2012:US$8.1million)andalossattributableto

equityholdersoftheparentofUS$0.8million(2012:US$20.6million)fortheyearended31December2013,whichincluded:

aneffectiveinterestchargeofUS$12.5million(2012:US$8.1million)inrespectoftheconvertiblenotesandbonds;changein

fairvalueoffinancialderivativeofUS$13.3million(2012:Nil)onrespectofwarrants.Thegeneralandadministrativeexpenses

ofcontinuingoperationsamountedtoUS$29.5million(2012:US$13.0million),whichincludedtheprovisionforarbitralawardof

US$6.9million(2012:Nil).LosspersharefromcontinuingoperationswasUS$0.251(2012:US$0.131).

OutofthereportedrevenueUS$62.2million,US$32.4GCZisattributabletoGCZfortheperiodfrom2010to2012.

LIQuIdITy ANd CAPITAL RESOuRCESAsat31December2013,theGrouphastotalassetsofUS$983.0million(2012:US$942.6million)andcurrentliabilities,non-

currentliabilitiesandequityholders’equityofUS$126.0million,US$210.3millionandUS$646.8millionrespectively(2012:

US$107.8million,US$174.8millionandUS$660.1millionrespectively).

As at 31December 2013, theGroup’s cash and cash equivalentswasUS$34.6million (2012:US$40.0million) and total

borrowingsofUS$63.8million(2012:US$79.8million).

US$100 million Raised through Disposal of Investments and Issue of Bonds and WarrantsOn3June2013, theCompanyentered intoasaleandpurchaseagreement for thesaleof theCompany’s29.11%effective

interest in Beijing Huayou United Gas Development Co., Ltd (“BHY”) and its 100% interest in Giant Power International

InvestmentLimited(“GPI”)which includedtheCompany’s interests in thewholesalegasdistributionpipelinenetwork in the

BeijingDevelopmentAreaandthewholesalegasstationsinZhengzhouandWuhu,foracashconsiderationofUS$65million.

TheCompanyacquiredBHYin2007forUS$27.1millionandGPIin2008forUS$10.8million;theseinvestmentshadbook

valuesofUS$30.6millionandUS$8.9millionrespectivelyat31December2012.TheconsiderationforthesaleofBHYandGPI

representsa65%premiumtothecarryingvalueoftheinvestment.Intheyearended31December2012,BHYgeneratedprofit

beforetaxofUS$10.5milliononturnoverofUS$109.5millionandGPIgeneratedalossofUS$61,000onturnoverofUS$10.3

million.

Onthesameday,theCompanyraisedUS$35millionthroughtheissuanceofasecuredbond.TheBondcarriesa7%coupon,

payablesemi-annually,andhasafinalmaturitydateof3December2014.TheBond is secured,unsubordinatedandnon-

convertible.InconnectionwiththeBond,theCompanyhasalsoissued13,756,000warrantstosubscribefornewordinaryshares

intheCompany.TheWarrantsareexercisableatanexercisepriceof197.216penceperordinaryshareandareexercisableat

anytimeuptoandincludingthedateofmaturityoftheBond.


Financial Review

20

Financial Review


Financial Review

Repayment of Outstanding Convertible Notes of US$84.2 millionOn7June2013,theCompanyfullyrepaidtheoutstanding7%convertiblenotesissuedin2010.Theoutstandingamountrepaid

includesoutstandingprincipalamountofUS$84.2millionandaccruedinterestofUS$1.1million.

US$35 million Raised through Issuance of Convertible NotesInDecember2013,theCompanylaunchedaconvertiblebondfacilityofuptoUS$100million.ThefirsttrancheofUS$35million

wasfullysubscribedbyGICPrivateLimited.

TheBondisunsecured,hasa7%coupon,isdueinDecember2015,andisconvertibleintoordinarysharesataconversionprice

ofUS$6.06pershare,representinga33%premiumtotheclosingpriceatpricingon10December2013.

US$50 million Raised through Issuance of Convertible NotesOn5June2014,theCompanyissuedasecondtrancheoftheconvertiblebondfacilityfirstannouncedinDecember2013.The

secondtrancheofUS$50millionhasbeenfullysubscribedbyGICPrivateLimited(“GIC”),aGovernmentofSingaporesovereign

wealthfund.

Theconvertiblebondisunsecured,hasa7%coupon,a36monthmaturity,andisconvertibleintoordinarysharesataconversion

priceofUS$9.34pershare.TheCompanyhastherightonthesecondanniversaryoftheissuedateandonwardstocallthe

convertiblebondundercertainconditions.

BOARD OF DIRECTORS

22

EXECuTIVE dIRECTOR

Randeep S. Grewal – Chairman & CEO

RandeepGrewalhasbeenChairmanandChiefExecutiveOfficerofGrekasinceitsinceptionin1999andGreenDragonGas

sinceinceptionin2006.HeisalsoChairmanandChiefExecutiveOfficerofGrekaIntegratedInc.,aUS-basedheavyoiland

gas transportation, refining and real estatebusinesswith interests in oil and gasproperties and refining assets. FromApril

1997toSeptember1997,Mr.GrewalservedasChairmanandChiefExecutiveOfficerofHorizontalVentures,Inc.,anoiland

gashorizontaldrillingtechnologycompany.InAugust1997,HorizontalVenturesmergedwithPetroUnionInc.andMrGrewal

becameChairmanandChiefExecutiveOfficerofthereorganisedcompany.ThiscompanymergedinturnwithSabaPetroleum

CorporationinMarch1999toformGrekaEnergyCorporation.From1993to1996,Mr.GrewalwasCorporateVicePresident

fortheRadaElectronicIndustriesLtdwithprincipalresponsibilityforitsglobalexpansionandrelatedoperations.Hehasalso

beeninvolvedinvariousjointventures,acquisitions,mergersandreorganizationssince1986intheUnitedStates,Europeand

theFarEastwitharangeofbusinesses.Mr.GrewalhasaBachelorofScienceDegreeinMechanicalEngineeringfromNorthrop

University.

NON-EXECuTIVE dIRECTOR

David Turnbull

David Turnbull, is Executive Chairman of Pacific Basin Shipping Limited, a Hong Kong publicly listed company,

since 1st July 2008. He has been an independent non-executive director of the Company since May 2006.

Mr. Turnbull hasbeen appointed as an independent non-executivedirector of TheWharf (Holdings) Limited, aHongKong

publiclylistedcompany,inNovember2013.Mr.Turnbullisalsoanindependentnon-executivedirectorofSandsChinaLtd.,a

HongKongpubliclylistedcompany,sinceOctober2009.Mr.TurnbullisalsoanIndependentnon-executivedirectorofGreen

DragonGasLtd(sinceJul2006)andGrekaDrillingLtd(sinceFeb2011),bothcompanieslistedontheAlternativeInvestment

Market,asub-marketoftheLondonStockExchange.

Mr.TurnbullgraduatedfromCambridgeUniversityin1976withaBachelorofArts(subsequentlyMasterofArts)degreewithHons

inEconomics.HejoinedtheSwireGroupupongraduationandheldavarietyofseniormanagementpositionswithinternational

responsibilitiescoveringaviation,shippingandpropertyduringhis30yearswiththeSwireGroup.Hewasappointedadirectorof

CathayPacificin1994andtookupthepositionsofDeputyManagingDirectorin1994,ManagingDirectorin1996andDeputy

ChairmanandChiefExecutivein1998beforehisappointmenttoChairmaninJanuary2005.Heisalsotheformerchairmanof

SwirePacificLimitedfromJanuary2005toJanuary2006,andofHongKongAircraftEngineeringCompanyLimitedfromMarch

1995toAugust2006.


Board of Directors


Wayne Roberts

WayneRobertswasappointedasanon-executiveDirectorinOctober2012.Mr.RobertsisaCharteredChemicalEngineerwith

over25yearsexperienceintheoil&gasindustry.UntilApril2012,MrRobertsservedwithBGGroupasSeniorVicePresident

forAsia,Middle-EastandAfrica,withresponsibilityforgrowthassets,businessdevelopmentandcommercialactivitiesacross

theregions.Priortothat,hewasbasedinSingaporeasPresidentofBGSoutheastAsia&ChinaandChairman,BGAsiaPacific.

In these roles,hehad responsibility forBG’sE&P,powerandLNGbusinesses inThailand,Malaysia,Singapore,Chinaand

thePhilippines.Hisearliercareeralso involvedseveral internationalassignments inassetmanagement,M&A,andcorporate

financewithbothBGGroupandARCO.MrRobertsholdsanMBAfromINSEAD,France.Hebringsawealthofcommercialand

operationalgasindustryexperiencetotheGreenDragonGasBoard.


Stewart John OBE

StewartJohnhasover50yearsofexperienceintheaviationindustry,halfofwhichinHongKong.HeworkedforCathayPacific

andBritishAirwaysfor17and22yearsrespectively.Mr.JohnwasDeputyChairmanofHongKongAircraftEngineeringCompany

andhasservedasnon-executivedirectorofRolls-RoyceCommercialAeroEngines,BritishAerospaceAviationServices,Airlines

ofBritainHoldings,HKAeroEngineServicesLtd,AviationExposureManagementandNewallAerospace.He iscurrentlya

non-executivedirectorofTaikooAircraftEngineeringCo.,TechnicalDirectorofAviationExposureManagementandatrusteeof

BrooklandsMuseum.


Gong Da Bing

GongDaBing joinedGreka in 1999 andhas beenSeniorAdvisor since 2001. She has 27 years of international business

experience.From1992to1999shewasmanagingdirectoroftheChineseofficeofFrontanicCo.,aprivateinternationaltrading

organisation.From1989 to1992shewas thechief representative inChinaofKoorTradeLimited.From1978 to1989she

was themanager for joint ventureoperationsand importandexportBusiness forMachinery&Equipment Import&Export

Corporation.From1975to1978shewasabusinessnegotiatorfortheBeijingForeignTradeBureau,DepartmentofMachinery

Import&Export.MadamGongstudiedEnglishattheBeijingSecondForeignLanguageUniversityandhasaMasterDegreein

ComparativeLawfromtheUniversityofIllinois,USA.

DIRECTORS’ REPORT

24

TheDirectorsofGreenDragonGasLtd.havepleasureinsubmittingtheirReportwiththeauditedfinancialstatementsforthe

yearended31December2013.

PRINCIPAL ACTIVITIESGreen Dragon Gas Ltd. (the “Group”) is the ultimate holding company and the indirect parent company of Greka Energy

InternationalB.V,acompanyincorporatedintheNetherlandsandtheoperatingcompanythroughwhichtheGroupholdsitsCoal

BedMethane(“CBM”)propertiesinChina.TheprincipalactivitiesoftheGroupareexploration,developmentandproductionof

CBM,anddistributionandsalesofgasinChina.GreenDragonGasLtd.wasincorporatedintheCaymanIslandson28March

2006andwasregisteredasaPublicCompanyon17August2006.Itactsasaholdingcompanyandprovidesfinancingand

managementservicestoitssubsidiaries.ThecompanyisdomiciledintheCaymanIslands.

BuSINESS REVIEW & FuTuRE dEVELOPmENTSAsummaryoftheGroup’smainbusinessdevelopmentsfortheyearended31December2013andpotentialfuturedevelopments

iscontainedwithintheChairman’sStatement,BusinessReviewandFinancialReview.

ACCOuNTING POLICIESThefinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(asadoptedbythe

EU).

SHARE CAPITAL ANd RESERVESDetailsoftheGroup’sauthorisedandissuedsharecapitalandreservesasat31December2013arecontainedinNotes25and

26ofthefinancialstatementsrespectively.

RESuLTS ANd dIVIdENdSAnoverviewoftheGroup’sresults,coveringtheyearended31December2013,isprovidedintheFinancialReviewonpage18

andpage21.Detailedfinancialinformationisincludedfrompage32topage95ofthereport.TheDirectorsdonotproposethe

paymentofcashdividendsuntiltheGroupisinproductionandgeneratingrevenueandprofit.

EVENTS AFTER THE REPORTING dATEDetailsoftheGroup’seventsafterthereportingdatearecontainedinNote35ofthefinancialstatements.


Directors’ Report

26

Directors’ Report


Directors’ Report

dIRECTORS REmuNERATION Sharebased Other 2013 2012

Fees Salaries payments emoluments Total Total

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Executive directorRandeepGrewal – 618 – 906 1,524 1,425

Subtotal – 618 – 906 1,524 1,425

Non-Executive DirectorsDavidTurnbull 59 – – – 59 60

WayneRoberts 60 – – – 60 14

StewartJohn,OBE 63 – – – 63 65

GongDaBing 59 – – – 59 63

Subtotal 241 – – – 241 202

Total 241 618 – 906 1,765 1,627

dIRECTORS ANd THEIR INTERESTSThetablebelowsetsouttheinterestsoftheDirectorsinGreenDragonGasLtd.asat31December2013.

Number of ordinary % of issuedDirectors shares capital share capital

MrRandeepS.Grewal 88,311,961 64.68%

DavidTurnbull 8,000 0.01%

WayneRoberts – 0.00%

StewartJohn 3,000 0.00%

GongDaBing 900 0.00%

SHARE OPTIONSTheGroupoperatesashareoptionschemepursuanttowhichtheDirectorsmaybegrantedoptionstoacquireordinaryshares

intheCompanyatafixedoptionexerciseprice.

During the year ended 31 December 2013, no options were granted. In themean time, no current Director options were

exercisedduringtheyear.TheinterestsoftheDirectorstosubscribeforordinaryshareshavenotchangedsincetheyearend.

Furtherdetailsoftheaboveshareoptionschemecanbefoundinnote9.

28

Directors’ Report

dIRECTORS’ SHARE OPTIONSTheDirectorswhoheldofficeatthereportingdatehadthefollowinginterestintheshareoptionscheme:

Options held Options Options Options held Exercise at 1 January granted in exercised in at 31 December Price Exercisable Expiry 2013 the year the year 2013 US$ From Date

RandeepGrewal 1,009,375 – – 1,009,375 6.5 01/01/11 31/12/15

DavidTurnbull – – – – – – –

WayneRoberts – – – – – – –

StewartJohn – – – – – – –

GongDaBing – – – – – – –

Subtotal 1,009,375 – – 1,009,375

SuBSTANTIAL SHAREHOLdINGSTheGroup isawareof the followingbeneficialshareholdings, representing10percentormoreof the issuedordinaryshare

capitaloftheGroup,asat31December2013.

Number of ordinary % of issued share capital shares capital

GreenDragonGas(Holdings)Limited 87,401,694 64.01%

RichardChandlerCorporation 24,831,777 18.19%

THE BOARdTheBoardofDirectorsiscomposedoffourmembers,oneExecutiveDirector,whoisalsotheExecutiveChairmanandthree

Non-Executive Directors. The Board has established Audit and Remuneration Committees with formally delegated duties,

responsibilitiesandwrittentermsofreference.Fromtimetotime,separatecommitteesmaybesetupbytheBoardtoconsider

specificissuesasandwhentheneedarises.

AudIT COmmITTEETheAuditCommitteehelpstheBoarddischargeitsresponsibilitiesregardingfinancialreporting,externalandinternalauditsand

controlsaswellasreviewingtheGroup’sannualfinancialstatements.Italsoassistsbyreviewingandmonitoringtheextentofnon

auditworkundertakenbyexternalauditors,advisingontheappointmentofexternalauditorsandreviewingtheeffectivenessof

theGroup’sinternalauditactivities,internalcontrolsandriskmanagementsystems.Theultimateresponsibilityforreviewingand

approvingtheannualreportandfinancialstatementsandthehalf-yearlyreportsremainswiththeBoard.TheAuditCommittee

comprisesDavidTurnbull,StewartJohnandWayneRoberts.

REmuNERATION COmmITTEETheRemunerationCommitteeassiststheBoardindeterminingitsresponsibilitiesinrelationtoremuneration.Thisincludesmaking

recommendationstotheBoardontheGroup’spolicyonexecutiveremuneration,determiningtheindividualremunerationand

benefitspackageofeachoftheExecutiveDirectorsandrecommendingandmonitoringtheremunerationofseniormanagement

belowBoardlevel.TheRemunerationCommitteecomprisestheExecutiveDirectorandtwoNon-ExecutiveDirectors(Randeep

Grewal,StewartJohnandGongDaBing).


Directors’ Report

RELATIONS WITH SHAREHOLdERSTheDirectorsattachimportancetotheprovisionofclearandtimely informationtoshareholdersandthebroader investment

community. Informationabout thecompany isavailableon itswebsite (www.greendragongas.com).TheGroup’sannualand

interimreportswillalsobesenttoshareholdersandbemadeavailablethroughtheGroup’swebsite.

dIRECTORS ANd OFFICERS LIABILITy INSuRANCETheGrouphasinplaceaDirectorsandOfficersinsurancepolicytocoverrelevantindividualsagainstclaimsarisingfromtheir

workonbehalfofthecompany.ThecostofprovidingthiscoverisUS$25,000(2012:US$25,000).TheBoardintendstokeep

thelevelofcoverprovidedunderannualormorefrequentreview,asappropriate.

GOING CONCERNBasedon theGroup’sbudgetsandcashflowprojections for2014, theDirectorsare satisfied that theGrouphasadequate

resourcestocontinueitsoperationsandmeetitscommitmentsfortheforeseeablefuture.

ANNuAL GENERAL mEETINGThe2014AnnualGeneralMeetingwillbeheldat10:00amonWednesday,16July2014,attheofficeofSmith&Williamson

locatedat25Moorgate,LondonEC2R6AY.TheNoticeofMeeting,togetherwithanexplanationoftheitemsofspecialbusiness,

isprovidedseparatelytoshareholderswiththisreport.

AudITORSBDOLLPhasexpresseditswillingnesstocontinueinofficeasauditorsandaresolutionfortheirreappointmentwillbeproposed

attheAnnualGeneralMeeting.

OnbehalfoftheBoard

Randeep S. GrewalChairman and CEO

6 June 2014

30

STATEMENT OF DIRECTORS’ RESPONSIBILITIESTheDirectorsareresponsibleforpreparingtheDirectors’reportandthefinancialstatementsfortheGroupinaccordancewith

InternationalFinancialReportingStandards(“IFRSs”)asadoptedbytheEuropeanUnion.

TheDirectorshavepreparedthefinancialstatementsforeachfinancialyearwhichgiveatrueandfairviewofthestateofaffairs

oftheGroupandoftheprofitorlossoftheGroupforthatyear.

InternationalAccountingStandard1requiresthatfinancialstatementspresentfairlyforeachfinancialyearthecompany’sfinancial

position,financialperformanceandcashflows.This requires the faithful representationof theeffectsof transactions,other

eventsandconditionsinaccordancewiththedefinitionsandrecognitioncriteriaforassets,liabilities,incomeandexpensesset

outintheInternationalAccountingStandardsBoard’s‘Frameworkforthepreparationandpresentationoffinancialstatements’.In

virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting

Standards.AfairpresentationalsorequirestheDirectorsto:

• consistentlyselectandapplyappropriateaccountingpolicies;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and

understandableinformation;

• provideadditionaldisclosureswhencompliancewiththespecificrequirementsinIFRSsisinsufficienttoenableusers

tounderstandthe impactofparticular transactions,othereventsandconditionsontheentity’sfinancialpositionand

financialperformance;

• statethatthegrouphascompliedwithIFRSs,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancial

statements;and

• preparethefinancialstatementsonagoingconcernbasisunlessitisinappropriatetopresumethattheGroupcontinue

inbusiness.

TheDirectorsarealsorequiredtopreparefinancialstatementsinaccordancewiththerulesoftheLondonStockExchangefor

companiestradingsecuritiesontheAlternativeInvestmentMarket.

TheDirectorsareresponsibleforkeepingproperaccountingrecordswhichdisclosewithreasonableaccuracyatanytimethe

financialpositionoftheGroup,forsafeguardingtheassets,fortakingreasonablestepsforthepreventionanddetectionoffraud

andotherirregularitiesandforthepreparationoffinancialstatements.

TheDirectors are responsible for ensuring theannual report and thefinancial statementsaremadeavailable onawebsite.

Financial information ispublishedontheGroup’swebsite.Themaintenanceand integrityof thiswebsite is theresponsibility

of theDirectors.Theworkcarriedoutby theAuditorsdoesnot involveconsiderationof thesemattersand,accordingly, the

Auditorsacceptnoresponsibilityforanychangesthatmayoccurtothefinancialstatementsaftertheyareinitiallypresentedon

thewebsite.

LegislationintheCaymanIslandsgoverningthepreparationanddisseminationoffinancialstatementsmaydifferfromlegislation

inotherjurisdictions.

INDEPENDENT AUDITORS’ REPORT


INdEPENdENT AudITOR’S REPORT TO THE mEmBERS OF GREEN dRAGON GAS LTd.WehaveauditedthefinancialstatementsofGreenDragonGasLtd.fortheyearended31December2013whichcomprisethe

Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement

ofChangesinEquity,theConsolidatedStatementofCashFlowsandasummaryofsignificantaccountingpoliciesandother

explanatoryinformation.ThefinancialreportingframeworkthathasbeenappliedintheirpreparationisInternationalFinancial

ReportingStandards(“IFRS”)asadoptedbytheEuropeanUnion.

Thisreportismadesolelytothecompany’smembers,inaccordancewiththetermsofourengagementletter.Ourauditworkhas

beenundertakensothatwemightstatetothecompany’smembersthosematterswearerequiredtostatetotheminanauditor’s

reportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneother

thanthecompanyandthecompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.

RESPECTIVE RESPONSIBILITIES OF dIRECTORS ANd AudITORSAs explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the

financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial

statementsinaccordancewithapplicablelawandInternationalStandardsonAuditing(UK&Ireland).Thosestandardsrequire

ustocomplywiththeUKFinancialReportingCouncil’s(FRC’s)EthicalStandardsforAuditors.

SCOPE OF THE AudIT OF THE FINANCIAL STATEmENTSAnauditinvolvesobtainingevidenceabouttheamountsanddisclosuresinthefinancialstatementssufficienttogivereasonable

assurancethatthefinancialstatementsarefreefrommaterialmisstatement,whethercausedbyfraudorerror.Thisincludes

anassessmentof:whether theaccountingpoliciesareappropriate to thegroup’scircumstancesandhavebeenconsistently

appliedandadequatelydisclosed;thereasonablenessofsignificantaccountingestimatesmadebythedirectors;andtheoverall

presentationofthefinancialstatements.Inaddition,wereadallthefinancialandnon-financialinformationintheannualreportto

identifymaterialinconsistencieswiththeauditedfinancialstatementsandtoidentifyanyinformationthatisapparentlymaterially

incorrectbasedon,ormateriallyinconsistentwith,theknowledgeacquiredbyusinthecourseofperformingtheaudit.

OPINION ON FINANCIAL STATEmENTSInouropinion,thefinancialstatements:

• giveatrueandfairviewofthestateofthegroup’saffairsasat31December2013andofthegroup’slossfortheyear

thenended;and

• havebeenproperlypreparedinaccordancewithIFRSasadoptedbytheEuropeanUnion.

BDO LLPChartered AccountantsLondon

UnitedKingdom

6 June 2014

BDOLLPisalimitedliabilitypartnershipregisteredinEnglandandWales(withregisterednumberOC305127).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

32

Restated# Year ended Yearended 31 December 31 December Notes 2013 2012 US$’000 US$’000

Continuing operationsRevenue 4 62,181 8,125Cost of sales (40,322) (3,881)

Gross profit 21,859 4,244

Selling and distribution costs (1,616) (1,291)Administrative expenses (29,524) (13,030)

Loss from operations 5(a) (9,281) (10,077)

Otherincomeandfinanceincome 6 310 1,320Changeinfairvalueoffinancialderivative 23,32 (13,271) –Financecosts 7 (12,513) (8,086)

Loss before income tax (34,755) (16,843)

Income tax 11 507 219

Loss for the year from continuing operations (34,248) (16,624)

Discontinued operationsProfit/(loss)fortheyearfromdiscontinuedoperationsaftertax, includinggainondisposal 5(b) 33,425 (2,798)

Loss for the year (823) (19,422)Othercomprehensiveincome,netoftax:–Exchangedifferencesontranslatingforeignoperations 19,604 6,235

Total comprehensive income/(expense) for the year 18,781 (13,187)

Lossattributableto:–Ownersofthecompany (823) (20,649)–Non-controllinginterests – 1,227

(823) (19,422)

Totalcomprehensiveincome/(expense)attributableto:–Ownersofthecompany 18,781 (14,414)–Non-controllinginterests – 1,227

18,781 (13,187)

Basicearnings/(loss)pershare,arisingfrom:–Continuingoperations(US$) 12 (0.251) (0.131)–Discontinuedoperations(US$) 12 0.245 (0.020)

(0.006) (0.151)

Dilutedearnings/(loss)pershare,arisingfrom:–Continuingoperations(US$) 12 (0.251) (0.131)–Discontinuedoperations(US$) 12 0.240 (0.020)

(0.011) (0.151)

#Refertonote2fordetailsoftherestatement.


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Restated# Restated#

As at As at As at

31 December 31 December 1 January

Notes 2013 2012 2012

US$’000 US$’000 US’000

AssetsNon-current assetsProperty, plant and equipment 14 28,232 47,373 61,679

Gasexplorationandappraisalassets 15 902,537 813,262 738,349

Otherintangibleassets 16 3,821 14,343 16,757

Payments for leasehold land held

for own use under operating leases 217 719 559

Deferredtaxasset 17 1,954 1,999 1,949

936,761 877,696 819,293

Current assetsInventories 18 86 3,956 1,548

Tradeandotherreceivables 19 11,542 21,011 15,023

Otherfinancialassets – – 50,255

Cash and cash equivalents 20 34,642 39,971 86,334

46,270 64,938 153,160

Total assets 983,031 942,634 972,453

LiabilitiesCurrent liabilitiesConvertible notes 22 – 79,751 –

Derivativefinancialliability 23 20,410 – –

Bonds 23 30,390 – –

Tradeandotherpayables 21 25,623 27,712 25,136

Provisions 33 49,537 – –

Current tax liabilities 7 344 728

125,967 107,807 25,864

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

34

Restated# Restated#

As at As at As at

31 December 31 December 1 January

Notes 2013 2012 2012

US$’000 US$’000 US’000

Non-current liabilitiesConvertible notes 22 33,383 – 77,559

Otherfinancialliabilities 24 13,000 13,000 13,000

Deferredtaxliability 17 163,876 161,761 161,635

210,259 174,761 252,194

Total liabilities 336,226 282,568 278,058

Total net assets 646,805 660,066 694,395

Capital and reservesShare capital 25 14 14 14

Treasuryshares 26 – – (427)

Share premium 26 681,031 703,917 704,344

Convertible note equity reserve 22 1,746 9,198 9,198

Share based payment reserve 26 12,743 12,743 12,743

Capital and surplus reserve 26 – 1,325 1,169

Otherreserve 26 30 391 253

Foreign exchange reserve 26 65,575 45,971 39,745

Retaineddeficit 26 (114,334) (113,511) (92,577)

Total equity attributable to owners of the Parent 646,805 660,048 674,462

Non-controlling interests – 18 19,933

Total equity 646,805 660,066 694,395

ThefinancialstatementswereauthorisedandapprovedbytheBoardon6June2014andsignedontheirbehalfby

Randeep S GrewalDirector

#Refertonote2fordetailsoftherestatement.


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Share Capital Equity Convertible based and Foreign attributable Non- Share Treasury Share note equity payment surplus Other exchange Retained to owners of controlling capital shares premium reserve reserve reserve reserve reserve deficit the Parent interests Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

At 1 January 2012 (as previously reported) 14 (427) 704,344 9,198 12.743 1,169 253 9,170 (92,577) 643,887 19,933 663,820

Prioryearadjustment(note2) – – – – – – – 30,575 – 30,575 – 30,575

At 1 January 2012 (as restated)# 14 (427) 704,344 9,198 12,743 1,169 253 39,745 (92,577) 674,462 19,933 694,395

Lossfortheyear – – – – – 16 – – (20,665) (20,649) 1,227 (19,422)

Exchange differences on

translating foreign operations~ – – – – – (129) 138 6,226 – 6,235 – 6,235

Totalcomprehensive

lossfortheyear – – – – – (113) 138 6,226 (20,665) (14,414) 1,227 (13,187)

Elimination on disposal on

dilutionofstakeinjoint

venture(note34) – – – – – – – – – – (21,142) (21,142)

Transfertocapitalreserve – – – – – 269 – – (269) – – –

Cancellation of shares

boughtback – 427 (427) – – – – – – – – –

At 31 December 2012

(asrestated) 14 – 703,917 9,198 12,743 1,325 391 45,971 (113,511) 660,048 18 660,066

Lossfortheyear – – – – – – – – (823) (823) – (823)

Exchange differences on

translating foreign operations~ – – – – – – – 19,604 – 19,604 – 19,604

Totalcomprehensiveincome

fortheyear – – – – – – – 19,604 (823) 18,781 – 18,781

Issue of convertible notes

(note22) – – – 1,746 – – – – – 1,746 – 1,746

Transfertosharepremiumon

exerciseofconvertible – – 9,198 (9,198) – – – – – – – –

DemergerofGET(note5b) – – (32,084) – – – (23) – – (32,107) – (32,107)

Disposal of JCE and

subsidiaries(note5b) – – – – – (1,325) (338) – – (1,663) (18) (1,681)

At 31 December 2013 14 – 681,031 1,746 12,743 – 30 65,575 (114,334) 646,805 – 646,805

~ Exchangedifferencesontranslatingforeignoperationsmayberecycledthroughprofitinfutureperiodsifcertainconditionsorevents

arise.

# Refertonote2fordetailsoftherestatement.

CONSOLIDATED STATEMENT OF CASH FLOWS

36

Year ended Yearended

31 December 31 December

Notes 2013 2012

US$’000 US$’000

Operating activities

Lossaftertax (823) (19,422)

Adjustmentsfor:

Depreciation 14 12,194 3,508

Amortisation of leasehold land held for own use

under operating leases 117 76

Amortisation for intangible assets 16 1,474 2,408

Impairment of intangible assets 16 325 –

GainondisposalofJCE&subsidiaries 5(b) (33,544) –

Lossondisposalofproperty,plantandequipment 1,150 71

Otherincome 6 (25) (1,452)

Change in fair value of derivative 23, 32 13,271 –

Litigationinterestandpenalties 33 6,937 –

Taxationforcontinuedoperations (507) (219)

Taxationfordiscontinuedoperations 433 1,177

Financecosts 7 12,516 8,094

Cash generated from/(outflows) before changes in working capital 13,518 (5,759)

Movementininventory 267 (1,420)

Movementintradeandotherreceivables (9,078) 4,904

Movementintradeandotherpayables 18,412 (3,534)

Net cash used in operations 23,119 (5,809)

Income tax (597) (1,772)

Net cash generated from/(used in) operating activities 22,522 (7,581)

Investing activitiesPayments for purchase of property, plant and equipment 14 (12,325) (8,820)

Prepayments for purchase of property, plant and equipment – (7,740)

Paymentsforintangibleassets-gasstationlicense 16 (392) –

Payments for leasehold land held for own use under

operating leases (155) (387)

Proceedsuponmaturityofheld-to-maturityinvestment – 50,255

InterestinGCZ (25,504) –

Payments for exploration activities 15 (32,385) (70,011)

Disposalofasubsidiary,netofcashdisposed 5(b) 60,201 –

Cashdisposedduetodemergerofsubsidiaries 5(b) (3,576) –

Interest received 25 1,452

Net cash used in investing activities (14,111) (35,251)

Refertonote20forsignificantnon-cashitems.




Notes 2013 2012

US$’000 US$’000

Financing activitiesCash paid to redeem convertible notes 22 (84,200) –

Cash received from issuing convertible notes 22 35,000 –

Cash received from issuing bonds 23 35,000 –

GCZblockfinanceprovidedbyPetroChina 28 1,465 –

Otherinterestpaid (5,409) (5,902)

Net cash used in financing activities (18,144) (5,902)

Net decrease in cash and cash equivalents (9,733) (48,734)

Cash and cash equivalents at beginning of year 39,971 86,334

30,238 37,600

Effect of foreign exchange rate changes 4,404 2,371

Cash and cash equivalents at end of year 20 34,642 39,971

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

38

1 GENERALGreenDragonGasLtd.(“theCompany”)wasincorporatedintheCaymanIslandson28March2006asanexempted

companywithlimitedliabilityundertheCompaniesLaw(2004revision)Chapter22oftheCaymanIslands.Theregistered

officeandprincipalplaceofbusinessoftheCompanyarelocatedatP.O.Box309GT,UglandHouse,SouthChurch

Street, George Town, Grand Cayman, Cayman Islands and Suite 3308, Two Exchange Square, Central, Hong Kong

respectively.

TheCompanyanditssubsidiariesarehereinaftercollectivelyreferredtoasthe“Group”.TheCompanyisaninvestment

holding company while the principal activities of its subsidiaries are exploration, development and production of coal bed

methaneinthePeople’sRepublicofChina(“PRC”).ThecoalbedmethaneoperationsinthePRCareconductedthrough

productionsharingarrangementswithChinaUnitedCoalBedMethaneCorporationLtd. (“CUCBM”)andPetroChina

CompanyLimited(“PetroChina”or“CNPC”),companiesestablished in thePRCand indirectlycontrolledby thePRC

Government,wherebytheGroupisentitledtoafixedpercentageofproductionoutputinaccordancewiththerespective

coalbedmethaneproductionsharingcontractsenteredintowithCUCBMandCNPC.Furtherdetailsinrelationtothese

contractsaredisclosedinnote28tothefinancialstatements.

On3June2013,theCompanyenteredintoasaleandpurchaseagreementforthesaleoftheCompany’s29.11%effective

interestinBeijingHuayouUnitedGasDevelopmentCo.,Ltd(“BHY”)andits100%interestinGiantPowerInternational

InvestmentLimited(“GPI”)whichincludedtheCompany’sinterestsinthewholesalegasdistributionpipelinenetworkin

theBeijingDevelopmentAreaandthewholesalegasstationsinZhengzhouandWuhu,foracashconsiderationofUS$65

million.Thedetailsofthetransactionareincludedinthediscontinuedoperation,whichrepresentaseparatereportable

segment,areprovidedinnotes4and5tothefinancialstatements.

On27September2013,theshareholdersapprovedthedemergerofitsengineeringandtechnologyservicesbusiness

(“GETGroup”),whichrepresentsareportablesegment innote4to thefinancialstatements,bywayofadividendin

specieoftheentiresharesinGrekaEngineeringandTechnologyLimited(“GET”)totheshareholdersoftheCompany.

Detailsareprovidedinnote5.

Thefinancial statementsarepresented inUnitedStatesdollarswhich is the sameas the functional currencyof the

Company.ThefunctionalcurrencyoftheGroup’ssubsidiariesisprimarilyRenminbi(“RMB”).

2 PRINCIPAL ACCOuNTING POLICIESBasis of preparationThefinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandardsasadopted

bytheEuropeanUnion(“IFRSs”),thatareeffectiveforaccountingperiodsbeginningonorafter1January2013.The

principalaccountingpoliciesadoptedinthepreparationoftheconsolidatedfinancialstatementsaresetoutbelow.The

policieshavebeenconsistentlyappliedtoalltheyearspresented,unlessotherwisestated.

Thefinancialstatementshavebeenpreparedunderthehistoricalcostbasis.


2 PRINCIPAL ACCOuNTING POLICIES (continued)Basis of preparation (continued)ThepreparationoffinancialstatementsinconformitywithIFRSsrequirestheuseofcertaincriticalaccountingestimates.

Italsorequiresmanagementtoexerciseits judgment intheprocessofapplyingtheGroup’saccountingpolicies.The

areasinvolvingahigherdegreeofjudgmentorcomplexityorareaswhereassumptionsandestimatesaresignificantto

theconsolidatedfinancialstatementsaredisclosedinnote3tothefinancialstatements.Actualresultsmaydifferfrom

theseestimates.

Theestimatesandunderlyingassumptionsare reviewedonanongoingbasis.Revisions toaccountingestimatesare

recognised in the period in which the estimate is revised if the revision only affects that period or in the period of revision

andfutureperiodsiftherevisionaffectsbothcurrentandfutureperiods.

Transactions under common controlTheacquisitionofGrekaGasChinaLtdanditssubsidiaries intheperiodended31December2006wasoutsidethe

scopeofIFRS3becauseitwasnotconsideredtobeabusinesscombination(GreenDragonGasLimitedwasashell

companyatthetimeofthetransaction)andallpartieswereundercommoncontrolofMr.RandeepGrewalbeforeand

afterwards.

IAS8“Accountingpolicies,changesinaccountingestimatesanderrors”requiresmanagementtodeveloparelevantand

reliablepolicyintheabsenceoftransactionsbeinginthescopeofotherIFRSstandards.Managementthereforechoseto

applypurchaseaccountingrules.Asaresulttheconsiderationgivenandtheassetsandliabilitiesacquiredwererecorded

attheirfairvalue.Theexcessoffairvalueofthenetassetsacquiredoverthenominalvalueofthesharesissuedwas

recordedassharepremium.

New and amended standards adopted by the Group:TheGrouphasadoptedseveralnewstandardsandamendmentstostandardsthataremandatoryforthefirsttimefrom

1January2013.Exceptasnoted,theimplementationofthesestandardsdidnothaveamaterialeffectontheGroup’s

currentorprioryear’sfinancialstatements.

Standard Impact on initial application Effective date

IAS1(Amendment) Presentationofitemsofothercomprehensiveincome 1July2012

IFRS 13 Fair value measurement 1 January 2013

IAS19(Amendment2011) Employeebenefits 1January2013

IFRS7(Amendment2011) Disclosures-offsettingfinancialassetsandfinancialliabilities 1January2013

IFRIC20 StrippingCostsintheProductionPhaseofaSurfaceMine 1January2013

IAS12(Amendment) DeferredTax:RecoveryofUnderlyingAssets 1January2013

IFRS(Amendments) AnnualImprovementstoIFRSs(2009-2013Cycles) 1January2013


40

HIGHLIGHTS

2 PRINCIPAL ACCOuNTING POLICIES (continued)New and amended standards adopted by the Group: (continued)TheamendmentstoIAS1(Revised)requiretheGrouptoseparateitemspresentedinothercomprehensiveincomeinto

thosethatmaybereclassifiedtoprofitandlossinthefutureandthosethatmaynot.

TheGroup has adopted the amendments retrospectively for the financial year ended 31December 2013. Items of

othercomprehensiveincomethatmayandmaynotbereclassifiedtoprofitandlossinthefuturehavebeenpresented

separatelyintheconsolidatedstatementofcomprehensiveincome.Thecomparativeinformationhasbeenrestatedto

complywiththeamendments.Astheamendmentsaffectpresentationonly,therearenoeffectsontheGroup’sfinancial

positionorperformance.

Prior year adjustmentTheGrouphasrestateditsresultstocorrectforforeignexchangetranslationmovementsarisingonGasExplorationand

Appraisalassets.Thecorrectionreflectstheimpactofretranslatingthefairvalueupliftoninitialacquisitionwhichwas

attributabletocompanieswithafunctionalcurrencyofRMBintoUSdollars,beingthepresentationalcurrencyofthe

Group,asrequiredbyIFRS.Noretranslationofthebalancehadtakenplacepreviously.Theretranslationofitemsfrom

functional to presentational currency are recorded within the foreign exchange reserve within equity and therefore the

restatementhadnoimpactontheGroup’sprofitor loss.Athirdconsolidatedstatementoffinancialposition,dated1

January2012,hasbeenpreparedinaccordancewithIFRS.Theimpactoftherestatementissummarisedbelow:

31 December 2012 1 January 2012

GasExplorationandAppraisalassets(aspreviouslystated) 767,641 697,582

Prioryearadjustment-exchangeretranslation 45,621 40,767

GasExplorationandEvaluationassets(asrestated) 813,262 738,349

Deferredtax(aspreviouslystated) 150,356 151,443


Deferredtax(asrestated) 161,761 161,635

Foreignexchangereserve(aspreviouslystated) 11,755 9,170


Foreignexchangereserve(asrestated) 45,971 39,745

Change in total assets 45,621 40,767

Change in total liabilities 11,405 10,192

Change in equity and impact on other comprehensive income 34,216 30,575


2 PRINCIPAL ACCOuNTING POLICIES (continued)Prior year adjustment (continued)Standards, amendments and interpretations, which are effective for reporting periods beginning after the current reporting

periodwhichhavenotbeenadoptedearly:

Standard Description Effective date

AmendmentstoIAS32 OffsettingFinancialAssetsandFinancialLiabilities 1January2014

IFRS 10 Consolidated Financial Statements 1 January 2014

IFRS 11 Joint Arrangements 1 January 2014

IFRS12 DisclosureofInterestsinOtherEntities 1January2014

IAS27(2011) SeparateFinancialStatements 1January2014

IAS28(2011) InvestmentsinAssociatesandJointVentures 1January2014

Amendments to IFRS 9, Hedge Accounting 1 January 2014

IFRS7andIAS39

Amendments to IFRS 10, Investment entities 1 January 2014

IFRS12andIAS27(2011)

Amendments to IAS 39 Novation of Derivatives and Continuation of 1 January 2014

Hedge Accounting

I(IFRIC)21 Levies 1January2014

Amendmentsto DefinedBenefitPlans:EmployeeContributions 1July2014

IAS19(2011)*

IFRSs(Amendments) AnnualImprovements2010-2012Cycle 1July2014

IFRSs(Amendments) AnnualImprovements2011-2013Cycle 1July2014

IFRS9* FinancialInstruments Noeffectivedate

*NotyetendorsedbytheEuropeanUnion

TheGrouphasnotyetassessedtheimpactofIFRS9.ExceptforthisandIFRS11,theabovenewstandards,amendments

andinterpretationsarenotexpectedtomateriallyaffecttheGroup’sreportingorreportedresults.

JointarrangementsunderIFRS11havethesamebasiccharacteristicsasjointventuresunderIAS31.Jointarrangements

areclassifiedaseitherjointoperationsor jointventures.WheretheGrouphasrightstotheassetsandobligationsfor

the liabilitiesof the jointarrangement, it is regardedasa jointoperatorandwill recognise its interests in theassets,

liabilities,incomeandexpensesarisingfromthejointarrangement.WheretheGrouphasrightstothenetassetsofthe

jointarrangementasawhole, it is regardedashavingan interest ina jointventureandwillapply theequitymethod

ofaccounting. IFRS11doesnotallowproportionateconsolidation. Inanarrangementstructured throughaseparate

vehicle, all relevant facts and circumstances will be considered to determine whether the parties to the arrangement

haverightstothenetassetsofthearrangement.Previously,theexistenceofaseparatelegalentitywasthekeyfactorin

determiningtheexistenceofajointlycontrolledentityunderIAS31.IFRS11willbeappliedretrospectivelywithspecific

restatementrequirementsforajointventurewhichchangesfromproportionateconsolidationtotheequitymethod.Asat

31December2013,theGrouphasnojointarrangementsstructuredthroughseparatelegalentitiesbutiscontinuingto

assesstheimpactofIFRS11forapplicationfrom1January2014.


42

HIGHLIGHTS

2 PRINCIPAL ACCOuNTING POLICIES (continued)Basis of consolidationWheretheCompanyhasthepower,eitherdirectlyorindirectly,togovernthefinancialandoperatingpoliciesofanother

entityorbusinesssoastoobtainbenefitsfromitsactivities,it isclassifiedasasubsidiary.Theconsolidatedfinancial

statements present the results of theCompany and its subsidiaries as if they formed a single entity. Inter-company

transactions and balances between group companies are therefore eliminated in full. The financial statements of

subsidiariesareincludedintheGroup’sfinancialstatementsfromthedatethatcontrolcommencesuntilthedatethat

controlceases.

From1January2010,thetotalcomprehensiveincomeofnon-whollyownedsubsidiariesisattributedtoownersofthe

parentandtothenon-controllinginterestsinproportiontotheirrelativeownershipinterests.Beforethisdate,unfunded

losses in suchsubsidiarieswereattributed to theGroup. Inaccordancewith the transitional requirementsof IAS27

(2008),thecarryingvalueofnon-controllinginterestsattheeffectivedateoftheamendmentwasnotrestated.

SubsidiariesAsubsidiaryisanentityoverwhichtheCompanyisabletoexercisecontrol.ControlisachievedwheretheCompanyhas

thepower,directlyorindirectly,togovernthefinancialandoperatingpoliciesofanentitysoastoobtainbenefitsfromits

activities.Inassessingcontrol,potentialvotingrightsthatpresentlyareexercisablearetakenintoaccount.

TheCompany’sinterestintheGCZblockoperatedbyPetroChinaisgovernedbyaproductionsharingcontract(“PSC”).

Asdetailedinnote3,theGroupholdsa47.5%interestunderthePSCandrecordsitsshareofrevenues,operatingcosts

andrelevanttaxesinaccordancewiththePSC.TheGrouprecordsitscontributionstothecapitalexpenditureincurred

byPetroChinaindevelopingthoseassetsasproperty,plantandequipment(gasdevelopmentandproductionassets).

Jointly controlled assetsJointlycontrolledassetsarearrangementsinwhichtheGroupholdsaninterestonalongtermbasiswhicharejointly

controlledbytheGroupandoneormoreventurersunderacontractualarrangement.TheGroup’sexploration,development

andproductionactivitiesaregenerallyconductedjointlywithothercompaniesinthisway.Whenthesearrangementsdo

notconstituteentitiesintheirownright,theconsolidatedfinancialstatementsreflecttherelevantproportionofcosts,

revenues,assetsandliabilitiesapplicabletotheGroup’sinterestsinaccordancewithIAS31.

Jointly controlled entitiesA jointlycontrolledentity isacontractualarrangementwhereby theGroupandotherpartiesundertakeaneconomic

activitywhichissubjectto jointcontrolandnoneoftheparticipatingpartieshasunilateralcontrolovertheeconomic

activity.

Interests in jointly controlled entities are included in the financial statements using proportionate consolidation. The

Groups’shareofeachofthejointlycontrolledentity’sassets,liabilities,incomeandexpensesincludingtheportionof

theirsubsidiariesattributabletointereststhatarenotownedbythejointlycontrolledentitiesarecombinedline-by-line

withsimilaritemsoftheGroup.

ProfitsandlossesarisingontransactionsbetweentheGroupandjointlycontrolledentitiesarerecognisedonlytothe

extentofunrelatedinvestors’interestsintherelevantentity.Theinvestor’sshareinthejointlycontrolledentity’sprofits

andlossesresultingfromthesetransactionsiseliminatedagainsttheassetorliabilityofthejointventurearisingonthe

transaction.


2 PRINCIPAL ACCOuNTING POLICIES (continued)Foreign currency translationTransactionsenteredintobyanyofthegroupentities inacurrencyotherthanthecurrencyoftheprimaryeconomic

environment in which it operates (the “functional currency”) are recorded at the exchange rates ruling when the

transactionsoccur.Foreigncurrencymonetaryassetsandliabilitiesaretranslatedattheratesrulingatthereportingdate.

Non-monetaryitemscarriedatfairvaluethataredenominatedinforeigncurrenciesareretranslatedattheratesprevailing

onthedatewhenthefairvaluewasdetermined.Non-monetaryitemsthataremeasuredintermsofhistoricalcostina

foreigncurrencyarenotretranslated.Exchangedifferencesarisingontheretranslationofunsettledmonetaryassetsand

liabilitiesarerecognisedimmediatelyinthestatementofcomprehensiveincome.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are

recognisedinprofitorlossintheperiodinwhichtheyarisewiththeexceptionoftheretranslationexchangedifferences

oninter-companyloansconsideredtobeaspermanentasequity,definedasloanswhicharenotexpectedtobesettled

intheforeseeablefuture.Exchangedifferencesarisingontheretranslationofnon-monetaryitemscarriedatfairvalueare

includedinprofitorlossfortheperiodexceptfordifferencesarisingontheretranslationofnon-monetaryitemsinrespect

of which gains and losses are recognised in other comprehensive income, in which cases, the exchange differences are

alsorecognisedinothercomprehensiveincome.

Onconsolidation,theresultsofforeignoperationsaretranslatedintothepresentationcurrencyoftheGroup(i.e.United

Statesdollars)attheaverageexchangeratesfortheyear/period,unlessexchangeratesfluctuatesignificantlyduringthe

period/year,inwhichcase,therateapproximatingtothoserulingwhenthetransactionstookplaceisused.Allassets

andliabilitiesofforeignoperationsaretranslatedattheraterulingatthereportingdate.Exchangedifferencesarising

on translating the opening net assets at opening rate and the results of foreign operations at actual rate are recognised

in other comprehensive income (the “foreign exchange reserve”). Fair value adjustments arising on acquisition are

initially recorded in the functional currency of the companies to which they relate and retranslated at the rates ruling at

eachreportingdatewithexchangeratemovementsrecognisedinothercomprehensiveincome(the“foreignexchange

reserve”).

Property, plant and equipmentProperty, plant and equipment other than construction in progress are stated at cost less accumulated depreciation and

anyaccumulatedimpairmentlosses.

Gas assets (development and production)

Gasassets,which include thoseassets forwhich technical feasibilityandcommercial viabilityofextractingcoalbed

methane gas are demonstrable as detailed in gas exploration and appraisal assets below, comprise the cost of developing

such assets, together with the exploration and appraisal assets transferred from intangible exploration and appraisal

assets.

Thenet book value of suchassets are accumulated onablockbyblockbasis anddepreciatedbasedonaunit of

productionmethod, inwhich thenumerator is theproductionassociatedwith theblock towhich theyrelateand the

denominatorisreservesassessedasrelatingtothatblock.Reservesarethosewhichareconsideredtobetechnically

feasibleandcommerciallyviableforextractionandareconsideredtoincludeproved(1P)andprobable(2P)reserves.

Futurecapitalexpenditurerequiredtoextractsuchreservesisincludedinthecalculationwhenapplicable.


44

HIGHLIGHTS

2 PRINCIPAL ACCOuNTING POLICIES (continued)Property, plant and equipment (continued)Other property, plant and equipment

Property, plant and equipment are depreciated so as to write off their costs net of expected residual value over their

estimatedusefullivesonastraight-linebasis.Theusefullivesandresidualvaluearereviewed,andadjustedifappropriate,

ateachreportingdate.Theusefullivesofproperty,plantandequipmentareasfollows:

Buildingsandstructures 20-30years

Gaspipelines 20years

Motorvehicles 5years

Fixtures,fittingsandequipment 3to10years

Construction in progress represents pipelines, buildings, structures and other plant and equipment in the course

of construction forproductionor foruseby theGrouponcompletion, and is statedat cost less impairment losses.

Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when

the asset is substantially ready for its intended use, notwithstanding any delay in the issue for the relevant commissioning

certificatesbytherelevantPRCauthorities,ifapplicable.

Nodepreciationisprovidedinrespectofconstructioninprogress.

The carrying amount of property, plant and equipment is compared to the recoverable amountwhenever events or

changesincircumstancesindicatethatthenetbookvaluemaynotberecoverableduringthedevelopmentorproduction

phase.Theaggregatecarryingvalueofthecashgeneratingunit(assessedonablock-by-blockbasis)iscomparedagainst

theexpectedrecoverableamountofthecashgeneratingunit.Expectedrecoverableamountisthehigheroffairvalueless

costtosellandvalueinuse.Valueinuseisassessedbyreferencetothepresentvalueoffuturecashflowsexpectedto

be derived from production of reserves that are considered technically feasible and commercially viable for extraction,

being1Pand2Preserves.Animpairmentisrecognizedimmediatelyinthestatementofcomprehensiveincometothe

extent that thecarryingamount ishigher than theasset’sestimated recoverableamount.Wherean impairment loss

subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount,

but so that the increased carrying amount does not exceed the carrying amount that would have been determined had

noimpairmentlossbeenrecognisedfortheassetinprioryears.Areversalofanimpairmentlossisrecognisedasincome

immediately.

Thegainorlossondisposalofproperty,plantandequipmentisthedifferencebetweenthenetsaleproceedsandits

carryingamount,andisrecognisedinprofitorlossondisposal.

Gas exploration and appraisal assetsTheGroupappliestherequirementsofIFRS6“ExplorationforandEvaluationofMineralResources”inrespectof its

explorationandappraisalexpenditure.TherequirementsofIFRS6arenotappliedtoexpenditureincurredbytheGroup

beforelegaltitletoexploreforandevaluatecoalbedmethanegasresourcesinaspecificarea,generallyreferredtoas

pre-licenceexpenditure.LikewisetheGroupdonotapplytherequirementsofIFRS6afterthepointatwhichthetechnical

feasibilityandcommercialviabilityofextractingcoalbedmethanegasaredemonstrable.


2 PRINCIPAL ACCOuNTING POLICIES (continued)Gas exploration and appraisal assets (continued)Thecostsofexploringforandevaluatinghydrocarbonresourcesareaccumulatedandcapitalisedasintangibleassets

byreferencetoappropriatecashgeneratingunits(“CGU”)otherwiseknownintheindustryaspools,generallyreferred

toasfullcostaccounting.Suchcostpoolsarebasedongeographicareasandarenotlargerthanasegment.TheGroup

currentlyhasonecostpoolbeingthePRC.

Capitalised exploration and appraisal expenditure may include, amongst other costs, costs of licence acquisition, third

party technical services and studies, seismic acquisition, exploration drilling and testing but do not include general

overheads and do not include costs incurred prior to having obtained the legal rights to explore an area, which are

expenseddirectlytothestatementofcomprehensiveincomeastheyareincurred.

Property,plantandequipmentacquiredforuseinexplorationandappraisalactivitiesareclassifiedasproperty,plantand

equipment.However,totheextentthatsuchaproperty,plantandequipmentisconsumedindevelopinganintangible

exploration and appraisal asset, the amount reflecting that consumption is recorded as part of the cost of the intangible

asset.

Intangible exploration andappraisal assets arenot depreciated andare carried forward, subject to theprovisions of

theGroup’s impairment of exploration and appraisal policy, until the technical feasibility and commercial viability of

extractingcoalbedmethanegasaredemonstrable.TheGroup’sdefinitionoftechnicallyfeasibleandcommerciallyviable

reserves(‘commercialreserves’)forsuchpurposearethosewhichareclassifiedasprovenandprobablereservesonan

entitlementbasisforwhichapprovalhasbeenobtainedfromthePRCGovernmentinrespectofthe“overalldevelopment

program”relatedtotherelevantlicense/prospect.

If commercial reserves have been discovered, the related exploration and appraisal assets are assessed for impairment

onasinglecostpoolbasisassetoutbelowandanyimpairmentlossisrecognisedinprofitorloss.Thecarryingvalue,

after any impairment loss, of the relevant exploration and appraisal assets is then reclassified as development and

productionassetswithinplantandequipment.Thecostsreclassifiedincludedirectlyattributablecoststotherelevant

commercialreservesinthespecificblockbeingtransferred,togetherwithaproportionofnon-directlyattributablecosts

including a portion of the original fair value uplift on acquisition of the licences, calculated with reference to the relative

acreageofthelicenceareaandthetotallicenceareasacquiredatacquisition.

Incircumstanceswherethirdpartiesundertakeexploration,evaluation,developmentorproductionontheGroup’slicence

areas,theGrouprecordsitsattributableshareofresultsandassetsassociatedwithsuchactivitieswhenthepartieshave

reachedanagreementregardingtheentitlementsoftheGrouptosuchproduction,resultsandassetsandtheGroup’s

attributablesharecanbereliablymeasuredandmeetsIFRSrevenuerecognitionandassetrecognitioncriteria.

Intangible exploration and appraisal assets that relate to exploration and evaluation activities that have not yet resulted

in the discovery of commercial reserves remain capitalised as intangible exploration and appraisal assets at cost less

accumulatedamortisation,subjecttomeetingapool-wideimpairmenttest.


46

HIGHLIGHTS

2 PRINCIPAL ACCOuNTING POLICIES (continued)Gas exploration and appraisal assets (continued)TheGroup’sexplorationandevaluationassetsareassessedforimpairmentwhenfactsandcircumstancessuggestthat

thecarryingamountoftheexplorationandappraisalassetsmayexceedtheassetsrecoverableamount.Inaccordance

withIFRS6theGroupfirstlyconsidersthefollowingfactsandcircumstancesintheirassessmentofwhethertheGroup’s

explorationandappraisalassetsmaybeimpaired:

• WhethertheperiodforwhichtheGrouphastherighttoexploreinaspecificareahasexpiredduringtheperiod

or will expire in the near future, and is not expected to be renewed

• Whethersubstantiveexpenditureonfurtherexplorationforandappraisalofmineralresourcesinaspecificarea

is neither budgeted nor planned

• Whetherexplorationforandevaluationofcoalbedmethanegasinaspecificareahavenotledtothediscoveryof

commerciallyviablequantitiesofcoalbedmethaneandtheGrouphasdecidedtodiscontinuesuchactivitiesin

thespecificarea

• Whether sufficientdataexists to indicate that althoughadevelopment ina specificarea is likely toproceed,

thecarryingamountoftheexplorationandevaluationassetsisunlikelytoberecoveredinfullfromsuccessful

developmentorbysale.

IfanysuchfactsorcircumstancesarenotedtheGroup,asanextstep,performsanimpairmenttestinaccordancewith

theprovisionsofIAS36.Insuchcircumstancestheaggregatecarryingvalueoftheexplorationandappraisalassetsis

comparedagainsttheexpectedrecoverableamountofthesinglecostpoolCGU.Therecoverableamountisthehigherof

valueinuseandthefairvaluelesscoststosell.

Any impairment loss is recognised in the statement of comprehensive income as additional depreciation and separately

disclosed.

DecommissioningWhereamaterial liability for the removalofproduction facilitiesandsite restorationat theendof theproductive life

exists,aprovisionismadefordecommissioningattheoutset.Theamountrecordedisthepresentvalueofestimated

futureexpenditurebasedon local legislative requirements. Included in the relevant asset is anamount equal to the

provisionwhichisdepreciatedonaunitsofproductionbasis.Changesinestimatesarerecordedprospectivelythrough

theprovisionandassetcarryingvalue.Unwindingof theeffectofdiscountingontheprovisionisrecordedinfinance

costs.UndertheGroup’sPSC’s,decommissioningcostsarebornebytheoperator.DecommissioninginrespectofPSCs

forwhichtheGroupistheoperatorfallontheotherpartytothePSCifproductionceasesaftertheendoftheGroup’s20

yearPSCproductionperiod.Atpresent,decommissioningobligationsareassessedasimmaterial.

Other intangible assets acquired in a business combinationOtherintangibleassetsacquiredinabusinesscombinationareidentifiedandrecognisedseparatelywheretheysatisfy

thedefinitionofanintangibleasset.Thecostofsuchintangibleassetsistheirfairvalueattheacquisitiondate.

Subsequenttoinitialrecognition,intangibleassetswithfiniteusefullivesarecarriedatcostslessaccumulatedamortisation

andanyaccumulatedimpairmentlosses.Amortisationiscalculatedtowriteofftheintangibleassetovertheusefullife,

whichisestimatedtobe5-10yearsforpatents,licencesandcontractualrights.


2 PRINCIPAL ACCOuNTING POLICIES (continued)Payments for leasehold land held for own use under operating leasesPaymentsforleaseholdlandheldforownuseunderoperatingleasesrepresentup-frontpaymentstoacquirelong-term

interests in lessee-occupied properties. These payments are stated at cost less any accumulated amortisation and

impairmentloss.Theyareamortisedovertheperiodoftheleaseonastraight-linebasistoprofitorloss.

InventoriesInventoriesare initially recognisedatcost,andsubsequentlymeasuredat the lowerofcostandnet realisablevalue.

Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their

presentlocationandcondition.Costiscalculatedusingtheweightedaveragemethod.Netrealisablevaluerepresentsthe

estimatedsellingpriceintheordinarycourseofbusinesslesstheestimatedcostsnecessarytomakethesale.

Segment reportingSegments are reported in amanner consistent with the internal reporting provided to the chief operating decision-

maker.ThechiefoperatingdecisionmakerhasbeenidentifiedastheManagingDirector,FinanceManagerandtheother

executiveandnon-executiveBoardMembers.

TaxationTaxontheprofitor lossfortheyearcomprisescurrentanddeferredtax.Taxisrecognisedinprofitor lossexceptto

the extent that it relates to items recognised in other comprehensive income, in which case it is recognised in other

comprehensiveincome.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively

enactedatthereportingdate,andanyadjustmenttotaxpayableinrespectofpreviousyears.

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of

financialpositiondifferstoitstaxbase,exceptfordifferencesarisingontheinitialrecognitionofanassetorliabilityina

transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable

profit;andinvestmentsinsubsidiariesandjointlycontrolledentitieswherethegroupisabletocontrolthetimingofthe

reversalofthedifferenceanditisprobablethatthedifferencewillnotreverseintheforeseeablefuture.

Recognitionofdeferredtaxassetsisrestrictedtothoseinstanceswhereitisprobablethattaxableprofitwillbeavailable

againstwhichthedifferencecanbeutilised.

Theamountoftheassetorliabilityisdeterminedusingtaxratesthathavebeenenactedorsubstantivelyenactedbythe

reportingdateandareexpectedtoapplywhenthedeferredtaxliabilities/(assets)aresettled/(recovered).Deferredtax

balancesarenotdiscounted.


48

HIGHLIGHTS

2 PRINCIPAL ACCOuNTING POLICIES (continued)Taxation (continued)Deferred tax assets and liabilities are offset when the group has a legally enforceable right to offset current tax assets and

liabilitiesandthedeferredtaxassetsandliabilitiesrelatetotaxesleviedbythesametaxauthorityoneither:

• thesametaxablegroupcompany;or

• differentgroupentitieswhichintendeithertosettlecurrenttaxassetsandliabilitiesonanetbasis,or

• torealisetheassetsandsettletheliabilitiessimultaneously,ineachfutureperiodinwhichsignificantamountsof

deferredtaxassetsorliabilitiesareexpectedtobesettledorrecovered.

Revenue recognitionRevenuefromthesaleofgasisrecognisedwhentherisksandrewardsofownershiptogetherwitheffectivecontrolare

transferred to the customer and the amount of the revenue and associated costs incurred in respect of the relevant

transaction can be reliably measured. Revenue is not recognised unless it is probable that the economic benefits

associatedwith the sales transactionwill flow to theGroup.Revenuearisingduringpilot or test production, prior to

commercialproductionbeingestablished,isrecordedgrossandacorrespondingadjustmentismadetocostofsalesand

theexplorationandappraisalasset.

Revenuefromsalesofequipmentisrecognisedontransferofrisksandrewardsofownership,whichisatthetimeof

deliveryandthetitleispassedtocustomer.

Construction contract revenue from gas connection contracts is recognised when the outcome of the contract can be

estimated reliablyand thestageofcompletionat the reportingdatecanbemeasured reliably.Constructioncontract

revenue from gas connection contracts is recognised on the percentage of completion method, measured by reference to

thevalueofworkcarriedoutduringtheyear.Whentheoutcomeofaconstructioncontractforgasconnectioncontracts

cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable to be

recoverable.

Financial instruments(I) Financial assets

Loans and receivables

TheGroup’sloansandreceivablescomprisetradeandotherreceivables.

Theseassetsarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinan

activemarket.Theyariseprincipallythroughthesaleofgastocustomers(tradereceivables),andalsoincorporate

other types of contractual monetary asset. Loans and receivables are recognised initially at fair value and

subsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod,lessprovisionforimpairment.


2 PRINCIPAL ACCOuNTING POLICIES (continued)Financial instruments (continued)(I) Financial assets (continued)

Loans and receivables (continued)Aprovisionforimpairmentisestablishedwhenthereisobjectiveevidencethattheassetwillnotbecollectiblein

fullaccordingtotheoriginaltermsoftheinstruments.Significantfinancialdifficultiesofthecustomers,probability

thatthecustomerswillenterbankruptcyorfinancialreorganisation,anddefaultordelinquencyinpaymentsare

consideredindicatorsthattheloansandreceivablesareimpaired.Theamountoftheprovisionisthedifference

between the asset’s carrying amount and the present value of the estimated future cash flows discounted at

theoriginaleffectiveinterestrate.Thecarryingamountoftheassetisreducedthroughtheuseofanallowance

account,andtheamountofthelossisrecognisedinprofitorloss.Whenloansandreceivablesareuncollectible,

theyarewrittenoffagainsttheallowanceaccountforloansandreceivables.Subsequentrecoveriesofamounts

previouslywrittenoffarecreditedtoprofitorloss,subjecttoarestrictionthatthecarryingamountoftheasset

at the date the impairment is reversed does not exceed what the amortised cost would have been had the

impairmentnotbeenrecognised.

Otherreceivablesincludeitemssuchasrefundabledepositspaidtoacquirepropertyplantandequipment.

Held-to-maturity investments

Non-derivativefinancialassetswithfixedordeterminablematuritiesareheld-to-maturitywhentheGrouphasthe

positiveintentionandabilitytoholdthemtomaturity.Afterinitialmeasurement,held-to-maturityinvestmentsare

measuredatamortisedcostusingtheeffectiveinterestmethod,lessimpairment.Amortisedcostiscalculated

by taking into account any discount on premium and fees or costs that are an integral part of the effective

interestmethod.Theeffective interestmethodamortisation is included infinance income in thestatementof

comprehensiveincome.Thelossesarisingfromimpairmentarerecognisedinthestatementofcomprehensive

incomeinfinancecosts.

Cash and cash equivalents

Cashincludescashonhandanddemanddepositswithanybankorotherfinancialinstitutions.Cashequivalents

areshort-term,highlyliquidinvestmentsthatarereadilyconvertibletoknownamountsofcashwhicharesubject

toaninsignificantriskofchangesinvalue.

Fair value through profit or loss

ThiscategorycomprisesofwarrantsandembeddedderivativesassociatedwiththeGroup’swarrantagreements.

Theyarecarriedintheconsolidatedstatementoffinancialpositionatfairvaluewithchangesinfairvaluerecognised

intheconsolidatedstatementofcomprehensiveincome.TheGroupdoesnotholdorissuederivativeinstruments

forspeculativepurposes.Otherthanthesederivativefinancialinstruments,theGroupdoesnothaveanyliabilities

heldfortradingnorhasitdesignatedanyfinancialliabilitiesasbeingatfairvaluethroughprofitorloss.


50

HIGHLIGHTS

2 PRINCIPAL ACCOuNTING POLICIES (continued)Financial instruments (continued)(ii) Financial liabilities

Financial liabilities held at amortised cost

• Trade payables and other short-term monetary liabilities are recognised initially at fair value and

subsequentlycarriedatamortisedcostusingtheeffectiveinterestratemethod.

• OtherfinancialliabilitiesincludeamountspayabletoCUCBMandCNPC,whichisapartytotheproduction

sharing contracts on the activities of exploration, development and production of coal bed methane, in

respectofexplorationcostsincurred.Thisamountistobesettledbyfuturerevenueonproductionfrom

theShizhuangSouthBlock in thePRC.Thisamount is recognised initiallyat fair valueandcarriedat

amortisedcostusingtheeffectiveinterestratemethod.

(iii) Convertible debts and bonds

ConvertiblenotesissuedbytheGroupthatcontainliabilityandconversionoptioncomponentsandembedded

earlyredemptionoptionsthatarenotcloselyrelatedtothehostcontractareclassifiedseparatelyintorespective

itemsoninitialrecognition.Aconversionoptionthatwillbesettledbytheexchangeofafixedamountofcash

oranotherfinancialassetforafixednumberoftheCompany’sownequityinstrumentsisclassifiedasanequity

component.

Oninitialrecognition,thefairvalueoftheliabilitycomponentisdeterminedusingtheprevailingmarketinterest

rateofsimilardebtswithoutconversionoptionandearlyredemptionoptions.Thefairvalueofembeddedearly

redemptionoptionsaredeterminedbyappropriateoptionpricingmodels.Thedifferencebetweentheproceeds

of the issue of the convertible notes, and the fair value assigned to the liability component and the fair value of the

embedded early redemption options, representing the conversion option for the holder to convert the loan notes

intoequity,isincludedinequity(convertiblenoteequityreserve).

In subsequent periods, the liability component of the convertible note is carried at amortised cost using the

effectiveinterestmethod.Theearlyredemptionoptionscomponentsaremeasuredatfairvaluewithchangesin

fairvaluerecognisedinprofitor loss.Theequitycomponent,representedbytheoptiontoconverttheliability

component into ordinary shares of the Company, will remain in convertible note equity reserve until the conversion

option isexercised (inwhichcase thebalancestated inconvertiblenoteequity reservewillbe transferred to

sharecapitalandsharepremium).Wheretheoptionremainsunexercisedattheexpirydate,thebalancestated

inconvertiblenoteequityreservewillbereleasedtotheretainedearnings.Nogainorlossisrecognisedinprofit

orlossuponconversionorexpirationoftheconversionoption.

Transaction costs that relate to the issue of the convertible note containing liability and equity components

plus embedded early redemption options are allocated to the liability and equity components and embedded

earlyredemptionoptionsinproportiontotheallocationoftheproceeds.Transactioncostsrelatingtotheequity

component are charged directly to convertible note equity reserve. Transaction costs relating to the liability

component are included in the carrying amount of the liability portion and amortised over the period of the

convertiblenoteusingtheeffectiveinterestmethod.


2 PRINCIPAL ACCOuNTING POLICIES (continued)Financial instruments (continued)(iii) Convertible debts and bonds (continued)

BondsissuedbytheGroupareinitiallyrecordedatfairvalueandsubsequentlymeasuredatamortisedcost.In

instanceswhere theGroup issueswarrantswith thesamecounterpartyat thesamedate, thosewarrantsare

consideredtorepresentatransactioncostofthebondinstrument;thewarrantisinitiallyrecordedatfairvalue,

derivedusingvaluationtechniques,recordedasaderivativefinancialliabilityandareductioninthecarryingvalue

ofthebond.Subsequently,thereducedcarryingvalueofthebondsisamortisedusingtheeffectiveinterestrate

andrecordedinfinancecosts.

Employee benefits(i) Defined contribution pension plan

Contributionstodefinedcontributionpensionplanarerecognisedasanexpenseinprofitorlossastheservices

givingrisetothecompany’sobligationsarerenderedbytheemployees.

TheemployeesoftheoperationsinthePRCarerequiredtoparticipateinacentralpensionschemeoperatedby

thelocalmunicipalgovernment.TheGroupisrequiredtocontributeacertainpercentageofitspayrollcoststo

thecentralpensionscheme.Thecontributionspayablearechargedtoprofitorlosswhentheybecomepayable

in accordance with the rules of the central pension scheme and are disclosed under Employer’s national social

securitycontributionsinnote8.

(ii) Other benefits

Otherbenefits,beingbenefitsinkind,arechargedtoprofitorlossintheperiodtowhichtheyrelate.

Share based paymentsWhereshareoptionsareawardedtoemployees,thefairvalueoftheoptionsatthedateofgrantischargedtoprofitor

lossoverthevestingperiodwithacorresponding increase inthe“sharebasedpaymentreserve”withinequity.Non-

marketvestingconditionsaretakenintoaccountbyadjustingthenumberofequityinstrumentsexpectedtovestateach

reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of

optionsthateventuallyvest.Marketvestingconditionsarefactoredintothefairvalueoftheoptionsgranted.Aslongasall

othervestingconditionsaresatisfied,achargeismadeirrespectiveofwhetherthemarketvestingconditionsaresatisfied.

Thecumulativeexpenseisnotadjustedforfailuretoachieveamarketvestingcondition.

Wherethetermsandconditionsofoptionsaremodifiedbeforetheyvest,theincreaseinthefairvalueoftheoptions,

measured immediatelybeforeandafter themodification, is alsocharged toprofitor lossover the remaining vesting

period.

Whereequityinstrumentsaregrantedtopersonsotherthanemployees,profitorlossischargedwiththefairvalueof

goodsorservicesreceivedunlessthegoodsorservicesqualifyforrecognitionasassets.Acorrespondingincreasein

equityisrecognised.Forcash-settledsharebasedpayments,aliabilityisrecognisedatthefairvalueofthegoodsor

services received.Ateach reportingdate, the liability is re-measuredat its fairvalueuntil the liability issettled,with

changeinfairvaluerecognisedinincomestatement.


52

HIGHLIGHTS

2 PRINCIPAL ACCOuNTING POLICIES (continued)LeasesWheresubstantiallyalloftherisksandrewardsincidentaltoownershipareretainedbythelessor(an“operatinglease”),

thetotalrentalspayableundertheleasearechargedtoprofitorlossonastraight-linebasisovertheleaseterm.

Thelandandbuildingselementsofpropertyleasesareconsideredseparatelyforthepurposeofleaseclassification.

Borrowing costsBorrowing costs comprise interest payable and transaction costs on the issue of bank borrowings, loan notes and

convertiblenotesandother liabilities that areof thenatureofborrowing.Borrowingcostsattributabledirectly to the

acquisition, construction or production of qualifying assets which require a substantial period of time to be ready for

theirintendeduseorsale,arecapitalisedaspartofthecostofthoseassets.Incomeearnedontemporaryinvestments

ofspecificborrowingspendingtheirexpenditureonthoseassetsisdeductedfromborrowingcostscapitalised.Allother

borrowingcostsarerecognisedinprofitorlossintheperiodinwhichtheyareincurred.

Discontinued operationsAdiscontinuedoperationisacomponentoftheGroup’sbusinessthatrepresentsaseparatemajorlineofbusinessor

geographical area of operations, which has been disposed of or is held for sale, or is a subsidiary acquired exclusively with

aviewtoresale.Classificationasadiscontinuedoperationoccursupondisposalorwhentheoperationmeetsthecriteria

tobeclassifiedasheldforsale,ifearlier.Whenanoperationisclassifiedasadiscontinuedoperation,thecomparative

statementofcomprehensive income is re-presentedas if theoperationhadbeendiscontinued from thestart of the

comparativeperiod.

Treasury sharesConsiderationpaid/receivedforthepurchase/saleoftreasurysharesisrecogniseddirectlyinequity.Thecostoftreasury

sharesheldispresentedasaseparatereserve(the“Treasuryshares”reserve).Anyexcessoftheconsiderationreceived

onthesaleoftreasurysharesovertheweightedaveragecostofthesharesiscreditedtoretainedearnings.

Demerger under common controlTheGroup’scontrollinginterestinGrekaEngineeringandTechnologyLimited(“GET”)wasdemergedviaadividendin

specieandisatransactionundercommoncontrolasdefinedinIFRS3BusinessCombinations.TheDirectorsnotethat

transactions under common control are outside the scope of IFRIC 19 and that there is no guidance elsewhere in IFRS

coveringsuchtransactions.HavingconsideredtherequirementsofIAS8thetransactionbywhichtheGroupdemerged

itscontrolling interest inGEThasbeenaccounted forbydemerging theGETgroupatbookvalues,witha reduction

recordedagainstsharepremium.Nofairvalueadjustmentshavebeenmade.


3 CRITICAL ACCOuNTING ESTImATES ANd JudGEmENTSTheGroupmakesestimatesandassumptionsregardingthefuture.Estimatesandjudgementsarecontinuallyevaluated

based on historical experiences and other factors, including expectations of future events that are believed to be

reasonableunderthecircumstances.Inthefuture,actualexperiencemaydeviatefromtheseestimatesandassumptions.

Theestimatesandassumptionsthathaveasignificantriskorcauseamaterialadjustmenttothecarryingamountsof

assetsandliabilitieswithintheperiodaftertheyear/periodareasfollows.

PetroChina GCZ block interestJudgementhasbeenrequiredintherecognitionoftheGroup’sattributableshareoftheresultsandassetsoftheGCZblock

asatyearend.FurthertotheidentificationofdrillingactivitiesbythirdpartiesontheGroup’sblocks,theGroupentered

intoabindingMemorandumofUnderstanding(MOU)withPetroChinaCompanyLtd(“PetroChina”)duringDecember

2013,confirmingtheCompany’srightsovertheChengzhuangblock(“GCZ”)underthepre-existingPSC.UndertheMOU

PetroChinacontinuestobeoperatoroftheblockandthepartiesagreedtoathirdpartyauditprocesstoverifythecapital

expenditureincurredtodeveloptheblock,thegasproduction,gassalesandrelatedrevenuesandcosts.Thisaudited

information is thenusedby theparties toestablish theGroup’sattributableshareof suchproduction, revenuesand

expenditures.Subsequenttotheaudit,whichhasnowbeencompleted,theGroupwillenterfinalagreementsdefiningthe

paymentsandfuturecooperation.TheGroupconsidersthat,followingtheMOU,theGroup’sentitlementwasestablished

under the existing PSCs and the attributable share of revenues and expenditures can be reliably measured based on

information obtained through the audit. Accordingly, the Group has recognised its attributable share of cumulative

revenues,capitalexpenditureandoperatingcostsintheyear.

LitigationTheGrouphasrecordedaprovisionofUS$49.5millioninrespectoflitigationwithConocoPhillipsChinaInc(“COPC”)

arisingfromadisputeinrespectofthefarm-outagreement,andthefindingsofthearbitrationtribunal,asdetailedin

note33.WhilsttheDirectors’remainconfidentofasuccessfulappeal,aprovisionhasbeenconservativelymadeinthe

financialstatements.TheoriginalUS$42.6millionreceivedwassetagainst theexplorationassetsand,consequently,

thishasbeenreversed.FullinterestandpenaltieshavebeenprovidedforandareshownintheConsolidatedStatement

ofComprehensiveIncome.TheappealistobeheardintheSingaporeHighCourtinthecomingmonthsandshouldthe

appealsetasidetheruling,nopaymentwouldbemadeinrespectoftheprovision.

Transfer of exploration and appraisal assets and depreciation of the gas production assetsThe Group has exercised judgement in determining the relevant assets transferred from exploration and evaluation

intangibleassetstoproperty,plantandequipmentinrespectoftheproducingGCZblock.Thecoststransferredincluded

aportionofthefairvalueupliftonacquisitionoftheGroup’slicenceinterestsasawholeconsideredattributabletothe

GCZblock,basedontherelativeacreageoftheGCZblockandthetotallicenceareas.Theproperty,plantandequipment

associatedwithGCZhasbeendepreciatedonaunitsofproductionbasis.Judgementwasrequiredindeterminingthe

reservesusedinthiscalculationandtheGroupconsiders2Preservestobecapableofextractionusingtheassetsand

thereforeanappropriateestimateoftheasset’slife.Itisnotedthatsignificant3Preserveshavebeenestimatedtoexist

andsuchreserveswouldsignificantlyextendtheestimateusefullife.However,3Preservesarenotincludeduntilsuch

timeastheyaretransferredto2PreservesaspartoftheGroup’sindependentreservesaudit.


54

HIGHLIGHTS

3 CRITICAL ACCOuNTING ESTImATES ANd JudGEmENTS (continued)Impairment reviewsExploration and appraisal costs are assessed for indicators of impairment using the criteria detailed in note 2. The

assessmentbytheBoardrequiresjudgementandisdependentuponanassessmentoftherightstotheGroup’sassets

and renewal of such rights, expected levels of expenditure, interpretation of exploration and appraisal activity in the year

andfutureintentions.Noimpairmentindicatorswerenoted.Theseassessmentsareinherentlyjudgementalandrequire

estimationandthereforemaychangeovertimeresultinginsignificantchargestoprofitorloss.

TheGrouptestsitsproperty,plantandequipmentassets,whichincludeoilandgasdevelopmentandproductionassets

for impairment when circumstances suggest that the carrying amount may exceed its recoverable value and in accordance

withthepolicydetailedinnote2.Thisassessmentinvolvesjudgementastothelevelofreservesthatarecapableofbeing

extractedcommerciallyandwhicharetechnicallyviablewithreferencetotheGroup’sindependentcompetentperson’s

report, estimates of future gas prices, operating costs, capital expenditure necessary to extract those reserves and the

discountratetobeappliedtosuchrevenuesandcostsforthepurposeofderivingarecoverablevalue.TheGroupuses

proven(1P)andprobable(2P)reservesinsuchimpairmenttests.TheimpairmenttestsontheGroup’sproducinggas

developmentandproductionassetswereperformedbasedontheGCZblocktowhichtheyrelated.

Fair values of convertible notesThe fair valueof the liabilitycomponenton initial recognition is thepresentvalueof thestreamof futurecashflows

(includingbothcouponpaymentsandredemption)discountedatthemarketrateofinterestthatwouldhavebeenapplied

to an instrument of comparable credit rating with substantially the same cash flows, on the same terms, but without the

conversionoption.Theapplicableratesofinterest,whichareamatterofjudgement,aredisclosedinnote22.

Valuation of derivatives and warrantsTheGroupdeterminedthevalueofderivativesandwarrants(atinceptionandatyearend)usingvaluationtechniques.

Thosetechniquesaresignificantlyaffectedbytheassumptionsused, includingsharepricevolatilities,discountrates,

probabilitiesofwarrantexerciseorredemption,andassumptionsregardingthebehaviourofpartiessubjecttocontractual

arrangements.Inthatregard,fairvaluesbasedonestimatescannotalwaysbesubstantiatedbycomparisontoindependent

markets.Detailsofthesignificantestimatesandassumptionsaredisclosedinnote23andnote32.

Demerger of Greka Engineering and Technology LimitedAsdetailedinnote2,judgmenthasbeenappliedindeterminingtheGroup’saccountingpolicyforthedemergerofGET

andissubsidiariesinatransactionundercommoncontrol.IFRSdoesnotcontainspecificguidanceontheaccounting

forcommoncontroltransactions.HavingconsideredtherequirementsofIAS8andtherelatedUKandUSguidancethe

transactionbywhichtheGroupdemergeditscontrollinginterestinGEThasbeenaccountedforbydemergingtheGET

groupatbookvalue,withareductionrecordedagainstsharepremium.Nofairvalueadjustmentshavebeenmade.This

isamaterialaccountingpolicyselection.


4 REVENuE ANd SEGmENT INFORmATIONTheGroup’sreportablesegmentsassetoutbelow.Theoperatingresultsofeachofthesesegmentsareregularlyreviewed

bytheGroup’schiefoperatingdecisionmakersinordertomakedecisionsabouttheallocationofresourcesandassess

theirperformance.

DuringtheyearrevenueofUS$48,179,000(2012:Nil)wasrecognisedbytheSaleofCBMgassegmentinrespectof1

(2012:Nil)customersrepresenting10%ormoreoftheGroup’stotalrevenuefortheyear.

Theaccountingpoliciesofthesesegmentsareinlinewiththosedescribedinnote2.

Refertonote5fordiscontinuedoperations.

For the year ended 31 December 2013

Sale of Retailing gas CBM gas station sales Corporate Sub-total Eliminations Consolidated US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Segmentrevenue:Sales to external customers 48,179 14,002 – 62,181 – 62,181Inter-segmentsales 7,664 – – 7,664 (7,664) –

55,843 14,002 – 69,845 (7,664) 62,181

Depreciation 10,093 571 63 10,727 – 10,727Amortisation – 830 – 830 – 830

(Loss)/profitfrom operations 12,193 (3,074) (11,463) (2,344) – (2,344)

Otherincome 2 283 25 310 – 310

Litigationinterest and penalties – – (6,937) (6,937) – (6,937)

Change in fair value derivative – – (13,271) (13,271) – (13,271)

Finance costs – – (12,513) (12,513) – (12,513)

Income tax credit 332 175 – 507 – 507

Profit/(loss)fortheyear 12,527 (2,616) (44,159) (34,248) – (34,248)

Assets 928,308 16,890 697,388 1,642,586 (659,555) 983,031

Liabilities 191,496 5,535 311,849 508,880 (172,654) 336,226


56

HIGHLIGHTS

4 REVENuE ANd SEGmENT INFORmATION (continued)For the year ended 31 December 2012

Sale of Retailing gas

CBMgas stationsales Corporate Sub-total Eliminations Consolidated

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Segmentrevenue:

Sales to external

customers – 8,125 – 8,125 – 8,125

Inter-segmentsales 4,721 1,020 – 5,741 (5,741) –

4,721 9,145 – 13,866 (5,741) 8,125

Depreciation 15 70 78 163 – 163

Amortisation – 826 – 826 – 826

(Loss)/profitfrom

operations (1,436) (3,414) (5,227) (10,077) – (10,077)

Otherincome 4 9 1,307 1,320 – 1,320

Change in fair value

derivative – – – – – –

Financecosts – – (8,086) (8,086) – (8,086)

Gainondisposal – – – – – –

Incometaxcredit 55 164 – 219 – 219

Lossfortheyear (1,377) (3,241) (12,006) (16,624) – (16,624)

Assets 929,227 19,588 572,853 1,521,668 (579,034) 942,634

Liabilities 213,470 2,712 221,499 437,681 (155,113) 282,568


5 LOSS FROm OPERATIONS(a) Loss from operations from continuing operations is stated after charging/

(crediting):



2013 2012

US$’000 US$’000

Auditors’remuneration:

Fees payable to the Company’s auditors for the audit

oftheannualfinancialstatements 200 200

Fees payable to the Company’s auditors for the review

of the interim results 20 10

Staffcosts(note8) 4,798 6,593

Depreciation of property, plant and equipment 12,194 3,508

Operatingleaseexpense(property) 1,171 1,387

Amortisation of leasehold land held for own use

under operating leases 117 76

Amortisation of intangible assets 713 750

Impairment of intangible assets 325 –

Foreignexchange(gain)/loss,net (285) 959

Othercosts 6,937 3,369

During the year theGroup incurred other costs ofUS$6,937,000 in respect of interest and costs related to

the litigationdetailed innote3.Theamountsshownin2012relatetoprofessional fees incurred inrespectof

fundraisingandrefinancingadvice.


58

HIGHLIGHTS

5 LOSS FROm OPERATIONS (continued)(b) Discontinued operations

Summary

On30September2013,theshareholdersapprovedthedemergeroftheGroup’sengineeringbusinessbymeans

ofadividendinspecieofsharesinGrekaEngineering&TechnologyLtd(“GrekaEngineering”or“GET”))toGreen

DragonGasshareholders.

AsummaryoftheassetsandliabilitiesofGETdistributedbytheCompanyasaresultofthedemergerisasfollows:

US$’000

Netassetsdistributed:

Property,plantandequipment 27,173

Otherintangibleassets 2,519

Inventories 2,140

Tradeandotherreceivables 7,155

Cashandcashequivalents 3,576

Tradeandotherpayables (9,813)

Currenttaxliabilities (13)

Deferredtaxliability (630)

32,107

On 3 June 2013, the Company entered into a sale and purchase agreement for the sale of the Company’s

29.11%effectiveinterestinBeijingHuayouUnitedGasDevelopmentCo.,Ltd(“BHY”)andits100%interestin

GiantPowerInternationalInvestmentLimited(“GPI”)whichincludedtheCompany’sinterestsinthewholesale

gasdistributionpipelinenetworkintheBeijingDevelopmentAreaandthewholesalegasstationsinZhengzhou

andWuhu,foracashconsiderationofUS$65million,togetherwithsettlementofinter-companyliabilitiesand

contingentconsideration.TheCompanyacquiredBHYin2007forUS$27.1millionandGPIin2008forUS$10.8

million.


5 LOSS FROm OPERATIONS (continued)(b) Discontinued operations (continued)

Summary (continued)Detailsofthecarryingamountofidentifiableassetsandliabilitiesdisposedofandsalesconsiderationis,asfollows:

US$’000

Property, plant and equipment 30,103

Otherintangibleassets 6,596

Payment for leasehold land held for own use

under operating leases 546

Inventories 1,463

Cash and cash equivalents 5,633

Tradeandotherreceivables 8,178

Tradeandotherpayables (8,437)

Currenttaxliabilities (163)

Deferredtaxliability (1,706)

Capitalandsurplusreserve (1,325)

OtherReserve (338)

Non-controllinginterest (18)

40,532

Consideration,satisfiedbycash 65,834

Consideration,settledbyotherpayables 3,716

Contingent consideration 4,526

Netassetsdisposedof (40,532)

Gainondisposal 33,544

Cashflowsinrelationtothedisposal:

–Considerationreceived 65,834

–Cashdisposedof (5,633)

Net cash inflow 60,201

Underthetermsoftheagreement,contingentconsiderationexistedastheGroupisentitledtotheshareofpre-

disposaldatedividendsthataredeclaredsubsequenttothedisposalbytheacquirer.Thecontingentconsideration

hasbeendeterminedbasedonestimatedfuturereceipts.


60

HIGHLIGHTS


Summary (continued)Therevenue,resultsandcashflowsofthediscontinuedoperationsaredisclosedasfollows:

Disposal of Demerger of BHY/GPI GET From From 1 January to 1 January to 30 September 3 June 2013 2013 Total US$’000 US$’000 US$’000

Revenue 20,017 2,958 22,975Expenses (18,376) (4,285) (22,661)

Profit/(loss)beforeincometax 1,641 (1,327) 314Taxation (488) 55 (433)

Profit/(loss)fortheyearfrom

discontinued operations 1,153 (1,272) (119)

Gainondisposal 33,544 – 33,544

Total 34,697 (1,272) 33,425

Operatingcashflows (3,462) 4,656 1,194Investing cash flows (1,092) (1,287) (2,379)Financing cash flows (3) (3,946) (3,949)

Net cash flows (4,557) (577) (5,134)



Summary (continued) Disposal of Demerger of

BHY/GPI GET

2012 2012 Total

US$’000 US$’000 US$’000

Revenue 64,613 1,331 65,944

Expenses (60,229) (7,336) (67,565)

Lossbeforeincometax 4,384 (6,005) (1,621)

Taxation (1,195) 18 (1,177)

Profitfortheyearfromdiscontinued

operations 3,189 (5,987) (2,798)

Operatingcashflows 6,161 11,973 18,134

Investingcashflows (1,411) (18,341) (19,752)

Financingcashflows (7) 3,945 3,938

Netcashflows 4,743 (2,423) 2,320

6 OTHER INCOmE ANd FINANCE INCOmE Year ended Yearended


2013 2012

US$’000 US$’000

Continuing operationsBankinterest 25 1,320

Exchange gain 285 –

310 1,320


62

HIGHLIGHTS

7 FINANCE COSTS Year ended Yearended


2013 2012

US$’000 US$’000

Continuing operationsAcceleratedfinancecharge 4,449 –

Convertiblenotes(couponat7%pluseffectiveinterestadjustments) 4,174 8,086

Bonds(couponat7%pluseffectiveinterestadjustments) 3,890 –

12,513 8,086

8 STAFF COSTS Year ended Yearended


2013 2012

US$’000 US$’000

Continuing operationsStaffcosts(includingdirectors’emoluments)comprise:

Wagesandsalaries 4,300 6,243

Employer’s national social security contributions 435 1,193

Otherbenefits 1,209 1,303

5,944 8,739

Less:expensescapitalisedasgasexplorationandappraisalassets (1,146) (2,146)

Totalstaffcostschargedtoprofitorloss(note5(a)) 4,798 6,593


9 SHARE BASEd PAymENTS – PRIOR yEARSInDecember2007,theRemunerationCommitteeproposedandtheBoardoftheCompanyapprovedandadoptedashare

optionscheme(the“ShareOptionScheme”) for theCompany’sdirectors,managementandemployees.Theoptions

becameexercisableoverafive-yearperiodfromthedatethattheyvested.Thoseawardedin2008areoutstandingshares

oftheCompanywithafixedpriceofUS$6.5pershare.10%oftheallocatedOptionsweregrantedon28February2008

and1October2008,andvestedon31December2008,tokeyemployees,management,officersanddirectorspursuant

totheShareOptionSchemeapprovedbytheBoardinDecember2007.Afurther15%oftheallocatedOptionswere

grantedandvestedon31December2009.Another20%oftheallocatedoptionsweregrantedandvestedon25January

2011.Noawardshavebeengrantedorvestedsince.Detailsoftheshareoptionsgrantedhistoricallyareasfollows:

No. of Exercise price share optionsDate of grant Exercise period per share granted

28February2008 1January2009–31December2013 US$6.50 731,000

1October2008 1January2009–31December2013 US$6.50 45,000

31December2009 1January2010–31December2014 US$6.50 1,134,500

25January2011 1January2011–31December2015 US$6.50 1,498,250

3,408,750

Numberofshareoptionsgrantedhistorically 3,408,750

Numberofshareoptionsexercisedhistorically (2,029,375)

Number of share options outstanding at 1 January 2012,

31December2012and31December2013 1,379,375

The share options granted under the Share Option Scheme are equity-settled share based remuneration schemes

operatedbytheGroup.

Theshareoptionsdonotconferanyrightsontheholderstodividendsortovoteatshareholders’meetings.Thefairvalue

oftheshareoptionsgrantedwascalculatedusingtheBlack-Scholespricingmodel.Theinputsintothemodelwereas

follows:

25 January 31 December 28 February 1 OctoberShare options granted on 2011 2009 2008 2008

Weightedaverageshareprice US$11.13 US$6.67 US$6.04 US$8.25

Weightedaverageexerciseprice US$6.50 US$6.50 US$6.50 US$6.50

Expectedvolatility 35% 25% 39% 44%

Riskfreerate 0.27% 2.76% 3.08% 4.06%

Expecteddividendyield N/A N/A N/A N/A

Thevolatilityassumption,measuredatthestandarddeviationofexpectedsharepricereturns,wasbasedonastatistical

analysisofdailysharepricesovertheyearpriortogrant.

Therehavebeennomovementsinthe1,379,375outstandingshareoptionssince1January2012,whichhadaweighted

averageexercisepriceofUS$6.5.


64

HIGHLIGHTS

9 SHARE BASEd PAymENTS – PRIOR yEARS (continued)Theweightedaverage remainingcontractual lifeof theoptionsoutstandingat theendof theyearwas1.9years (31

December2012:2.9years).

Ofthetotalnumberofoptionsoutstandingat31December20131,379,375(31December2012:1,379,375)hadvested

andwereexercisableattheendoftheyear.

10 dIRECTORS’ ANd OTHER kEy mANAGEmENT REmuNERATIONTheremunerationofdirectorsfortheyearended31December2013issetasfollowed:

Share

based Other

Fees Salaries payments emoluments 2013 2012

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Executive directorsRandeepGrewal – 618 – 906 1,524 1,425

Sub-total – 618 – 906 1,524 1,425

Non executive directorsDavidTurnbull 59 – – – 59 60

WayneRoberts 60 – – – 60 14

StewardJohn,OBE 63 – – – 63 65

GongDaBing 59 – – – 59 63

Sub-total 241 – – – 241 202

Total 241 618 – 906 1,765 1,627

Keymanagementareconsideredtobethedirectors.

11 TAXATION Year ended Yearended


2013 2012

US$’000 US$’000

Continuing operationsCurrent tax - PRC Enterprise TaxCharges for current year – 479

Deferred taxTemporarytimingdifferences(note17(b)) (617) (637)

Previously unrecognised deferred tax assets assessed

asrecoverableattheendoftheyear(note17(a)) 110 (61)

Totaltaxcharge (507) (219)

OthercomprehensiveincomeincludesUS$4,702,281(2012:US$1,213,379(restated))ofdeferredtaxmovementsin

respectofexchangegainsonretranslationofforeignsubsidiaries.


11 TAXATION (continued)Thereasonsforthedifferencebetweentheactualtaxchargefortheyearandthestandardrateofcorporationtaxinthe

CaymanIslandsappliedtotheprofit/(loss)fortheperiodareasfollows:



2013 2012

US$’000 US$’000

Lossbeforetaxfromcontinuingoperations (34,755) (16,843)

Profit/(loss)beforetaxfromdiscontinuedoperations 33,858 (1,621)

Accounting loss before tax (897) (18,464)

Expected tax charge based on the standard rate

ofcorporationtaxintheCaymanIslandsof0%(2012:0%) – –

Effectof:

Differenttaxratesappliedinoverseasjurisdictions 1,239 1,656

Temporarydifferencesappliedinoverseasjurisdictions

at different tax rates (1,165) (698)

Income tax 74 958

Income tax credit related to continuing operations 507 219

Income tax charge related to discontinued operations (433) (1,177)

TaxationfortheGroup’soperationsinthePRCisprovidedattheapplicablecurrenttaxrateof25%(2012:25%)onthe

estimatedassessableprofitsfortheyear.

12 EARNINGS ANd LOSS PER SHAREThecalculationofthebasicanddilutedlosspershareattributabletoownersoftheCompanyisbasedonthefollowing

data:



2013 2012

US$’000 US$’000

Profit/(loss)fortheyearattributabletoownersoftheCompany

usedinbasicanddilutedearnings/(loss)pershare:

–Continuingoperations (34,248) (16,624)

–Discontinuedoperations 33,425 (2,798)


66

HIGHLIGHTS

12 EARNINGS ANd LOSS PER SHARE (continued) Year ended Yearended


2013 2012

Number Number

Weightedaveragenumberofordinarysharesfor

basic earnings per share 136,540,711 136,540,711

Effects of dilution 2,733,161 –

Weightedaveragenumberofordinarysharesfor

diluted earnings per share 139,273,872 136,540,711

Thedilutionapplicabletodiscontinuedearningspersharerelatestotheeffectofthedilutiveelementofthewarrants

Potentialordinarysharesof8,052,037arisingfromoutstandingshareoptionsandconvertiblebondshavebeenexcluded

fromthecalculationaboveastheyareconsideredtobeanti-dilutive.Nodilutionappliestothebasiclosspershareor

2012discontinuedlosspershareastheeffectisantidilutive.



2013 2012

Basicearnings/(loss)pershare(UScents)

–Continuingoperations (0.251) (0.131)

–Discontinuedoperations 0.245 (0.020)

Dilutedearnings/(loss)pershare(UScents)

–Continuingoperations (0.251) (0.131)

–Discontinuedoperations 0.240 (0.020)

Therehavebeennoothertransactionsinvolvingordinarysharesorpotentialordinarysharesbetweenthereportingdate

andthedateofapprovalofthesefinancialstatements.

13 dIVIdENdS ANd dIVIdENdS IN SPECIEOn30September2013, theCompanycompleted theproposeddemergerof itsengineeringbusinessbymeansofa

dividendinspecieofsharesinGrekaEngineering&TechnologyLtd(“GrekaEngineering”or“GET”))toGreenDragon

Gasshareholders.Thetransaction,detailedinnote5(b)resultedinareductioninsharepremiumandotherreservesas

detailedintheConsolidatedStatementofChangesinEquityandderecognitionoftheassetsandliabilitiesofGET.


NOTES FORMING PART OF THE FINANCIAL STATEMENTS14 PROPERTy, PLANT ANd EQuIPmENT

Fixtures, Buildings and Motor fittings and Construction Gas assets structures Pipelines vehicles equipment in progress Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Cost

At1January2012 – 7,545 50,576 3,301 10,779 2,855 75,056

Additions – 371 – – 721 7,728 8,820Reclassification – – 1,556 99 326 (1,981) –Disposalsondilutionofstake injointventure – (1,837) (21,245) (185) (518) (759) (24,544)Disposals – (86) – – (8) – (94)Exchangedifferences – (1) (1) (1) (1) 2 (2)

At31December2012 – 5,992 30,886 3,214 11,299 7,845 59,236

Additions – 54 – 497 343 19,171 20,065InterestinGCZblockassets (note3) 25,504 – – – – – 25,504Transferfromexploration& appraisalassets 5,506 – – – – – 5,506Derecognised upon demergerofGET(note5) – (1,636) – (2,547) (5,496) (19,995) (29,674)Reclassification – – – – 1,719 (1,719) –DisposalsonBHY&GPI groups(note5) – (3,420) (30,886) (315) (2,083) (2,789) (39,493)Disposals – – – – (371) (872) (1,243)Exchangedifferences – 55 – 52 235 135 477

At31December2013 31,010 1,045 – 901 5,646 1,776 40,378

Depreciation

At1January2012 – 845 10,303 863 1,366 – 13,377

Providedfortheyear – 318 1,595 438 1,157 – 3,508Disposalsondilutionofstake injointventure – (196) (4,662) (80) (60) – (4,998)Eliminatedondisposals – (17) – – (6) – (23)Exchangedifferences – (1) – – – – (1)

At31December2012 – 949 7,236 1,221 2,457 – 11,863

Providedfortheyear 9,949 246 664 294 1,041 – 12,194Derecognised upon demergerofGET(note5) – (288) – (747) (1,466) – (2,501)DisposalsonBHY&GPI groups(note5) – (549) (7,900) (183) (758) – (9,390)Eliminatedondisposals – – – – (93) – (93)Exchange differences – 6 – 21 46 – 73

At31December2013 9,949 364 – 606 1,227 – 12,146

Net book value

At31December2013 21,061 681 – 295 4,419 1,776 28,232

At31December2012 – 5,043 23,650 1,993 8,842 7,845 47,373

Construction in progress refers to gas stations under development which were derecognised as part of the demerger of

theGETbusiness.


68

15 GAS EXPLORATION ANd APPRAISAL ASSETS Restated US$’000

Cost

At1January2012 738,349

Additions 74,732

Revenueadjustment (4,721)

Exchange differences 4,902

At 31 December 2012 813,262

Additions 40,049

Revenueadjustment (7,664)

Reversal of PSC partner contributions 42,600

Transfertoproperty,plantandequipment (5,506)

Exchangedifferences 19,796

At31December2013 902,537

Net book value


At 31 December 2012 813,262

At1January2012 738,349

Revenues of US$7.7m (2012: US$4.7m) arising on blocks included in exploration and appraisal assets represents

pre-commercialproductionpilotgasproductionandisconsideredtoformpartofcontinuedevaluationoftheGroup’s

assets.Assuch,anamountequaltothemarginonsuchrevenuesisdeductedfromtheexplorationandevaluationasset

expenditureintheyear.

TheUS$42.6mreversalisduetothelitigationwithConocoPhillipsdetailedinnote3.TheGrouppreviouslyrecorded

contributionsbyConocoPhillipsunderthetermsoftheapplicablePSCswithinexplorationandevaluationassets.Further

to the Court Ruling and decision to conservatively provide for repayment of those amounts to Conoco Phillips, the

repaymentisconsideredtorepresentareversalofthepreviouslyrecordedasset.

Amounts transferred to property, plant and equipment refer to the relevant share of exploration and appraisal costs related

totheGCZblock.Refertonote3fordetailsofthesignificantjudgementsmadeinthisregard.


16 OTHER INTANGIBLE ASSETS Gas station operation Gas supply License Patents license contract right Total US$’000 US$’000 US$’000 US$’000 US$’000

Cost

At1January2012 4,946 7,125 12,017 538 24,626

Exchangedifferences – – – (9) (9)

At31December2012 4,946 7,125 12,017 529 24,617

Additions – 392 – – 392

Impairment – – – (529) (529)

EliminatedupondemergerofGET

(note5) (4,946) – – – (4,946)

DisposalofBHY&GPI(note5) – – (12,017) – (12,017)

At31December2013 – 7,517 – – 7,517

Accumulated amortisation

At1January2012 1,560 2,271 3,831 207 7,869

Chargefortheyear 494 712 1,202 – 2,408

Exchangedifferences – – – (3) (3)

At31December2012 2,054 2,983 5,033 204 10,274

Chargefortheyear 373 713 388 – 1,474

Impairment – – – (204) (204)

EliminatedupondemergerofGET

(note5) (2,427) – – – (2,427)

DisposalofBHY&GPI(note5) – – (5,421) – (5,421)

At31December2013 – 3,696 – – 3,696

Net book value

At31December2013 – 3,821 – – 3,821

At 31 December 2012 2,892 4,142 6,984 325 14,343

ImpairmentchargesrefertolicenceswhicharenotconsideredtohavecontinuingvaluetotheGroup.


70

17 dEFERREd TAXATION(a) Deferred tax assets

US$’000

At 1 January 2012 1,949

Exchangedifferences (11)

Originationoftemporarydifferenceinrespectofoverseastaxlosses(note11) 61

At 31 December 2012 1,999

Exchange differences 65

Originationoftemporarydifferenceinrespectofoverseastaxlosses(note11) (110)

At 31 December 2013 1,954

(b) Deferred tax liabilities Restated US$’000

At 1 January 2012 161,635

Reversaloftemporarydifference (637)

Exchangedifferences 763


Reversaloftemporarydifference (617)

Exchange difference 5,068

Reversaloftemporarydifferenceinrespectofdisposalsanddemerger (2,336)



17 dEFERREd TAXATION (continued) Restated

As at As at


2013 2012

US$’000 US$’000

Recognised deferred tax (liabilities) and assets at PRC rate of 25%

Deferredtaxassetsandliabilitiesareattributabletothefollowing:

Fairvalueadjustmentsonexplorationandevaluationassets (163,249) (160,510)

Accrued income – (624)

Undistributedprofits (627) (627)

(163,876) (161,761)

Taxlosses–overseas 1,954 1,999

Unrecognised deferred tax assetsDeferred tax assets have not been recognised in respect

ofthefollowing:

Taxlosses–overseas 17,153 11,321

PotentialunrecognisedtaxbenefitatPRCrateof25% 4,288 2,830

ThedeductibletemporarydifferencesandCaymantaxlossesdonotexpireundercurrenttaxlegislation.PRCtaxlosses

expireafter5years.Deferredtaxassetshavenotbeenrecognisedinrespectofthefullvaluetheseitemsbecauseatthis

pointintheGroup’sdevelopmentitisnotvirtuallycertainthatfuturetaxableprofitswillbeavailableagainstwhichthe

Groupcompaniescanutilisethebenefitsofthesetaxlossesinthenearfuture.TheGrouphasnotoffsetdeferredtax

assetsandliabilitiesacrossdifferentjurisdictions.

PRCtaxlossesinrelationtotheoverseassubsidiariesexpireasfollows:

Financial Year Expire (year) $’000

2010 2015 1,050

2011 2016 1,415

2012 2017 4,241

2013 2018 5,241

UnderPRCEnterpriseIncomeTax(“EIT”)Law,withholdingtaxisimposedondividendsdeclaredinrespectofprofits

earnedbythePRCsubsidiariesfrom1January2008onwards.Deferredtaxhasnotbeenprovidedforintheconsolidated

statementofcomprehensiveincomeinrespectoftemporarydifferencesattributabletoaccumulatedprofitsofthePRC

subsidiariesasat31December2013amounting toUS$17,153,000 (2012:US$11,321,000)as theGroup isable to

control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not

reverseintheforeseeablefuture.


72

18 INVENTORIES As at As at


2013 2012

US$’000 US$’000

Raw materials and consumables 31 3,057

Work-in-progress – 399

Finished goods 55 500

86 3,956

19 TRAdE ANd OTHER RECEIVABLES As at As at


2013 2012

US$’000 US$’000

Tradereceivables 1,401 5,647

Prepayments 3,808 11,832

Otherreceivables 4,526 3,504

Amountduefromrelatedcompany(note29) 1,807 28

11,542 21,011

TheGroup’smaximumexposuretocreditriskisasdisclosedinnote32(d).Thefairvaluesoftradereceivablesandother

financialassetsapproximatetheirrespectivecarryingamountsatthereportingdatesduetotheirshortmaturities.No

impairmentprovisionsareheldagainstthereceivablesascreditqualityisconsideredtobehigh.

20 CASH ANd CASH EQuIVALENTSAnanalysisofthebalancesofcashandcashequivalentsisasfollows:

As at As at


2013 2012

US$’000 US$’000

Short-termbankdeposits – 717

Cashandbankbalances 34,642 39,254

34,642 39,971

Shorttermbankdepositsat31December2012ofUS$717,000wererestrictedbyLettersofCreditwhichwereissuedby

certainbankstothisvalueonbehalfoftheGroup.


20 CASH ANd CASH EQuIVALENTS (continued)Theeffectiveinterestrateonshort-termbankdepositsasat31December2013is3.5%(2012:3.5%)perannum.These

depositshaveanaveragematurityofapproximatelythreemonths.Thesedepositsareredeemableatanytime.

Significantnon-cashtransactionsareasfollows:



2013 2012

US$’000 US$’000

Operatingactivities

NetincomefromGCZBlock* 24,401 –

Investing activities

ReversalofCOPCcontributionsonexplorationactivities (42,600) –

CapitalinvestmentonGCZblock* 25,509 –

* RefertoNote28fordetails

21 TRAdE ANd OTHER PAyABLES As at As at


2013 2012

US$’000 US$’000

Tradepayables 8,906 12,285

Othercurrentliabilities 7,306 12,178

Amountsduetorelatedparties(note29) 9,411 3,249

25,623 27,712

Trade and other payables are expected to be settledwithin one year. Their fair values approximate their respective

carryingamountsattheendofeachreportingperiodduetotheirshortmaturities.Theamountsduetotherelatedparties

areunsecured,interest-freeandrepayableondemand.


74

22 CONVERTIBLE NOTES As at As at


2013 2012

US$’000 US$’000

Brought forward from prior year 79,751 77,559

Additionalfinancechargeonearlyredemptionofconvertiblenotes 4,449 –

Issue of convertible notes 33,119 –

Accrued interest 264 8,086

Repayments of convertible notes and interest (84,200) (5,894)

33,383 79,751

As at As at


2013 2012

US$’000 US$’000

Repayable within 1 year – 79,751

Repayable over 1 year 33,383 –

33,383 79,751

Asat31December2013,theCompanyhadone(2012:two)convertiblenotesinissue.

Convertible loan note issued 2013(a) US$35 million 7% coupon convertible note due 2015

On11December2013(“IssueDate”),theCompanyissuedatwoyearconvertiblenotehavingafacevalueof

US$35,000,000withamaturitydateof16December2015(“MaturityDate”).Thenotebearsinterestat7%per

annum,payableonasemi-annualbasis.AttheMaturityDate,thetotalsumof100%oftheoutstandingprincipal

amount of the convertible note and the accrued interest shall become payable, unless previously converted or

redeemed.

TheconvertiblenotecanbeconvertedintoordinarysharesoftheCompanyatthenoteholder’soptionatanytime

from11December2013tothe14dayspriortotheMaturityDateatUS$6.06pershare.


22 CONVERTIBLE NOTES (continued)Convertible loan note issued 2013 (continued)(b) Accounting for convertible notes

Oninitialrecognition,thefairvalueoftheliabilitycomponentofeachoftheconvertibleloannoteswasdetermined

usingtheprevailingmarketinterestrateofsimilardebtswithoutconversionoptionandearlyredemptionoptions.

Fornotesissuedduring2013,therateconsideredtobecomparablewas10%.Theloansaresubsequentlycarried

atamortisedcost.

Theequityelementarisingfromtheconversionoptionsoftheirtwoconvertiblenotes,beingtheresidualvalueat

initialrecognition,ispresentedintheequityheading“convertiblenoteequityreserve”,asdisclosedinnote26to

thefinancialstatements.

TransactioncostsamountingtoapproximatelyUS$142,000wereincurredinrelationtotheissueoftheconvertible

note.Theywereallocatedtotheliabilitycomponentandequityelementinproportiontotheallocationofproceeds.

The amount attributable to the liability component, approximatelyUS$135,000, is amortised to profit or loss

overthelifeoftheconvertiblenotesandiscarriedintheconsolidatedstatementoffinancialpositionnetofthe

balanceofconvertiblenoteundernon-currentliabilities.Theamortisationisincludedinfinancecostsinnote7as

accretionexpensecalculatedusingtheeffectiveinterestmethod.ApproximatelyUS$7,000isattributabletothe

equityelementandhasbeenchargedtoequitydirectly.

Convertible loan note in issue 2012 and repaid in 2013Asat31December2012,theCompanyhadtwoconvertiblenotesinissue:

(a) US$50 million 7% coupon convertible note due 2015

On 7 June 2010 (“Issue Date”), the Company issued a five year convertible note having a face value of

US$50,000,000withamaturitydateof7June2015(“MaturityDate”).Thenoteboreinterestat7%perannum,

payableonasemi-annualinarrearsbasison31Marchand30September.AttheMaturityDate,thetotalsum

of100%oftheoutstandingprincipalamountof theconvertiblenoteandtheaccruedinterestwastobecome

payable,unlesspreviouslyconvertedorredeemedinaccordancewiththefollowingconditions.Theconvertible

note could be converted into ordinary shares of the Company at the note holder’s option at any time from 19 July

2010tothesevendayspriortotheMaturityDateatUS$9.10pershare.

At any time on or after third anniversary of the Issue Date, the Company had the right at its option, to repurchase

allbutnotsomeoftheconvertiblenoteat100%ofitsprincipalamount,togetherwithaccruedbutunpaidinterest.

OnthethirdanniversaryoftheIssueDate,thenoteholderhadtherightatitsoption,torequiretheCompanyto

redeemallorsomeoftheconvertiblenoteat100%ofitsprincipalamount,togetherwithaccruedbutunpaid

interest.

On17Mayand21June2011,convertiblenoteamountingtoUS$11,300,000andUS$4,500,000wasconverted

into1,412,500and562,500respectivelyordinarysharesoftheCompanyatUS$8.00pershare.

On7June2013,theremaining loannoteandaccruedinterestwasrepaidandextinguishedatnilgainor loss

accordingly.


76

22 CONVERTIBLE NOTES (continued)Convertible loan note in issue 2012 and repaid in 2013 (continued)(b) US$50 million 7% coupon convertible note due 2015

On 17 September 2010 (“Issue Date”), the Company issued a convertible note having a face value of

US$50,000,000withamaturitydateof7June2015(“MaturityDate”).Thenoteboreinterestat7%perannum,

payableonasemi-annualinarrearsbasison31Marchand30September.AttheMaturityDate,thetotalsumof

100%oftheoutstandingprincipalamountoftheconvertiblenoteandtheaccruedinterestwaspayable,unless

previouslyconvertedorredeemedinaccordancewiththefollowingconditions.

TheconvertiblenotecouldbeconvertedintoordinarysharesoftheCompanyatthenoteholder’soptionatany

timefrom17September2010tothesevendayspriortotheMaturityDateatUS$9.10pershare.Atanytimeon

or after third anniversary of the Issue Date, the Company had the right at its option, to repurchase all but not some

oftheconvertiblenoteat100%ofitsprincipalamount,togetherwithaccruedbutunpaidinterest.

On7June2013,theloannoteandaccruedinterestwasrepaidandextinguishedatnilgainorlossaccordingly.

23 BONdS ANd dERIVATIVE FINANCIAL INSTRumENTOn3June2013,theCompanyissuedan18monthbondofUS$35,000,000withamaturitydateof3December2014

(“MaturityDate”).ThebondholdermaynotifytheCompanytoextendtheoriginalmaturitydatetoadatefallingnotlater

thantwelvemonthsaftertheoriginalmaturitydate.Thebondbearsinterestat7%perannum,payablesemi-annually.At

theMaturityDate,thebondswillberedeemedattheirprincipalamount,unlesspurchasedandcancelledorredeemed.

TheCompanyissued13,756,000warrantsatthesamedatetothebondholderunderaseparatewarrantagreementwith

anexercisepricefixedatGBP1.97216,whichcanbeexercisedintheexerciseperiodupto3December2014.Theholder

isentitledtorequirerepurchaseofthewarrantsatanytimeduringthe30-dayperiodprecedingtheexercisedateof3

December2014ataUSDollaramountequaltotheaggregateinterestpayableonthePrincipalamount,equivalenttoUS$

2.54perwarrant,atanannualisedinterestrateof15%fromthedateofissue,representingaputoption.

Thebondwasinitiallyrecordedatfairvalueandissubsequentlycarriedatamortisedcost.

Thefairvalueofthewarrantsandtheputoptionhavebeencalculatedasatthedateofinceptionusingvaluationmodels.

Thefairvalueoftheinstrumentswasconsideredtorepresentatransactioncostofthebondandtheinceptionvalueof

US$7,142,000hasbeensetoffagainsttheprincipalamountofthebondofUS$35mandisthereafteramortisedaspart

oftheeffectiveinterestratechargetothematuritydate.Thewarrantsandputoptionhavebeenclassifiedasderivative

financialliabilitiesandwerefairvaluedat31December2013withchangesinthefairvaluerecordedinprofitandloss.

Refertonote32.


24 OTHER FINANCIAL LIABILITIESOtherfinancial liabilitiesofUS$13,000,000(2012:US$13,000,000)representamountspayabletoCUCBM,whichis

a party to the production sharing contracts on the activities of exploration, development and production of coal bed

methaneasdisclosedinnote28,inrespectofexplorationcostsincurred.Thisamountistobesettledbyfuturerevenue

onproductionfromtheShizhuangSouthBlockinthePRC.Thebalanceisunsecured,interest-freeandisnotexpected

toberepayablewithinthenexttwelvemonths.

25 SHARE CAPITAL Authorised Issued and fully paid Number of Number of shares US$ shares US$

At 31 December 2012 and 31 December 2013,

ordinarysharesofUS$0.0001each 500,000,000 50,000 136,540,711 13,654

26 RESERVES(a) Nature and purposes of reserves

(i) Treasury Shares

Where any group company purchases the Company’s equity share capital (treasury shares), the

considerationpaid,includinganydirectlyattributableincrementalcosts(netofincometaxes)isdeducted

fromequityattributabletothecompany’sequityholdersuntilthesharesarecancelledorreissued.Where

such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable

incremental transaction costs and the related income tax effects, is included in equity attributable to the

Company’sequityholders.

(ii) Share premium

Theamountrelatestosubscriptionfororissueofsharesinexcessofnominalvalue.Theapplicationofthe

sharepremiumaccountisgovernedbytheCompaniesLawoftheCaymanIslands.

(iii) Convertible note equity reserve

Theamount represents thevalueof theunexercisedequitycomponentof theconvertiblenote issued

bytheCompanyrecognisedinaccordancewiththeaccountingpolicyadoptedinnote2tothefinancial

statements.

(iv) Share based payment reserve

Theamountrelatestothefairvalueoftheshareoptionsthathavebeenexpensedthroughtheincome

statementlessamounts,ifany,thathavebeentransferredtotheretainedearnings/deficituponexercise.


78

26 RESERVES (continued)(a) Nature and purposes of reserves (continued)

(v) Capital and surplus reserve

TheamountrepresentstheGroup’sshareofsubsidiariesandJCEsstatutorycapitalandsurplusreserve.

PRCrulesandregulationsrequirethat10percentofprofitsineachperiodbereservedforfuturecapital

expenditure.Theamountisnon-distributable.

(vi) Other reserve

In accordance with the regulations of the State Administration of Work Safety, the Group’s share of

subsidiaries and JCEs has a commitment to provide reserve for enhancement of safety production

environmentandimprovementoffacilities(“WorkSafetyCost”).Inprioryears,theworksafetyexpenditures

arerecognizedonlywhenacquiringthefixedassetsorincurringotherworksafetyexpenditures.

(vii) Foreign exchange reserve

The amount represents gains/losses arising from the translation of the financial statements of foreign

operationthefunctionalcurrencyofwhichisdifferentfromthepresentationcurrencyoftheGroup.The

reserveisdealtwithinaccordancewiththeaccountingpolicysetoutinnote2tothesefinancialstatements.

(viii) Retained deficit

Theamountrepresentscumulativenetgainsandlossesrecognisedinconsolidatedprofitorlosslessany

amountsreflecteddirectlyinotherreserves.

(b) Distributable reservesAccording to theCompanies Law of theCayman Islands and theCompany’sArticles, they allowpayment of

dividends,ordistributionfromthesharepremiumaccountarepermitted.


27 SuBSIdIARIESTheprincipalsubsidiariesoftheCompany,allofwhichhavebeenincludedintheseconsolidatedfinancialstatements,

areasfollows:

As at 31 December As at 31 December 2013 2012 Percentage of Percentage of ownership ownership Place of interest held interest heldName incorporation Principal activities directly indirectly directly indirectly

GrekaGasChinaLimited CaymanIslands Investmentholding 100% – 100% –

GrekaEnergy(International)B.V. Amsterdam, Exploration,development – 100% – 100% Netherlands and production of coal bed methane

GrekaTransportLimited BritishVirginIslands Investmentholding – 100% – 100% (formerlyknownas “GrekaLanhaiLtd”)

GrekaTransportand BritishVirginIslands Investmentholding – Note 1 – 100% InfrastructureLtd.

GrekaGasDistributionJVLtd BritishVirginIslands Investmentholding – Note 2 – 100%

GreatBuyInvestmentsLtd. BritishVirginIslands Investmentholding – 100% – 100%

GrekaGasDistributionLtd. BritishVirginIslands Investmentholding – 100% – 100%

GrekaShanxiLtd BritishVirginIslands Investmentholding – 100% – 100% (formerlyknownas “GrekaLandLtd.”)

GrekaJXULtd. BritishVirginIslands Notyetcommencebusiness – Note 1 – 100%

GrekaExplorationand CaymanIslands Investmentholding – 100% – 100% ProductionLtd.

GrekaLNGLtd BritishVirginIslands Notyetcommencebusiness – 100% – 100%

GrekaTechnologyand BritishVirginIslands Investmentholding – Note 1 – 100% ManufacturingLtd.

ZhengzhouGrekaGasCo.,Ltd. ThePRC Supplyanddistributionof – 100% – 100% natural gas

ZhengzhouGrekaPetro ThePRC Supplyanddistributionof – Note 1 – 100% EquipmentLtd. gas equipment

ZhengzhouGrekaScience ThePRC Supplyanddistributionof – Note 1 – 100% andTechnologyLtd. gas control system

GiantPowerInternational HongKong Investmentholding – Note 2 – 100% InvestmentLtd.


80

27 SuBSIdIARIES (continued) As at 31 December As at 31 December

2013 2012

Percentage of Percentage of

ownership ownership

Place of interest held interest held

Name incorporation Principal activities directly indirectly directly indirectly

PingDingShanGrekaGas ThePRC Supplyanddistribution – 100% – 100%

Co.,Ltd. of natural gas

GongyiGrekaTransportation ThePRC Investmentholding – Note 1 – 100%

Co.,Ltd.

GrekaGuizhouE&PLtd BritishVirginIslands Exploration,development – 100% – 100%

(formerlyknownas and production of

“AsiaCanadaEnergyInc.”) coal bed methane

BeijingBaiheZhuangyuan ThePRC Investmentholding – Note 2 – 100%

TechnologyConsultancy

Co.,Ltd.

YanjinChangdaGasStation ThePRC Supplyanddistribution – 100% – 100%

of natural gas

Note:

(1) ThecompaniesweredemergedfromtheGroupbymeansofadividend inspecie to theGroup’sshareholders to formthe

engineeringandtechnologybusinessunderGrekaEngineeringandTechnologyLimited(‘GET’)whichwaslistedonAIMofthe

LondonStockExchangeduringtheyearended31December2013.Refertonote5.

(2) Thecompaniesweredisposedofduringtheyearended31December2013.Refertonote5.

(3) Thefollowingsubsidiaries’shareshavebeenpledgedtothebondholder(note23):

• aCaymanIslandslawgovernedfirstrankingequitablesharemortgageoversharesinGrekaGasChinaLtd

• aCaymanIslandslawgovernedfirstrankingequitablesharemortgageoversharesinGrekaExplorationandProduction

Ltd;and

• aBritishVirginIslandslawgovernedfirstrankingequitablesharemortgageoversharesinGrekaGasDistributionLtd


28 PROduCTION SHARING CONTRACTSTheGroupcurrentlyhassix(2012:six)productionsharingcontracts(“PSCs”)inthePRC.

On8January2003,theGroupenteredintofourPSCswithCUCBMtoexplore,developandproducecoalbedmethane

infiveblocksinthelocationsofShizhuangSouth,Chengzhuang,ShizhuangNorth,QinyuanandPanxieEast.Shizhuang

South,Chengzhuang,ShizhuangNorthandQinyuanarelocatedinShanxiProvince,thePRC,whilePanxieEastislocated

inAnhuiProvince,thePRC.

Alsoduring2003,therightsasaforeigncontractortoanotherPSC,whichwasoriginallyenteredintobetweenCUCBM

andSabaPetroleumInc.,arelatedcompanywithcommoncontrollingshareholder,Mr.RandeepGrewal,totheGroup,

on13August1999,toexplore,developandproducecoalbedmethaneinablockinFengcheng,JiangxiProvince,the

PRC,wasassignedtotheGroup.

PursuanttothesefivePSCs,theGroup,astheoperator,agreedtoprovidefundsandapplyitstechnologyandmanagerial

experiencetoco-operatewithCUCBM,whichiseligibletoapplyforexclusiverighttoexploitationofcoalbedmethanein

theareasasdefinedinthecontracts,toexplore,developandproducecoalbedmethane.

Inaddition,pursuanttothesefivePSCs,allthecostsincurredintheexplorationstageshallbebornebytheGroup.Upon

submission of the overall development programme and approval by the relevant Chinese authorities, the operation shall

enter the stage of development and since then, all the development and operating costs shall be borne in the proportion

of60%bytheGroupand40%byCUCBM,exceptfortheFengchengBlockintheproportionof49%bytheGroupand

51%byCUCBM.Shareintheproductionoutputshallbeallocated(afterdeductionofvalue-addedtaxandroyaltypayable

to theChinese taxauthority)firstly towardsoperatingcosts recovery in theproportionabovementioned(the“Sharing

Proportion”),secondlytowardsexplorationcostsrecoverysolelybytheGroupandthereafterintheSharingProportion

towardsdevelopmentcostsrecoveryandprofit.TheGroupisobligedtopayenterpriseincometaxinthePRConitsshare

ofproductionoutput.

These five PSCs each have a term of thirty years, with production period notmore than twenty consecutive years

commencingonadatedeterminedbytheJointManagementCommitteewhichwassetupbytheGroupandCUCBM,

pursuanttothePSCs,tooverseetheoperationsinthecontractedarea.Currentlyallthesixblockscoveredbythesefive

productionsharingcontractsareintheexplorationstage.

Chengzhuang block (“GCZ”)Duringtheyear,theGroupenteredintoabindingMemorandumofUnderstanding(“MOU”)withPetroChinaCompany

Ltd(“PetroChina”),confirminga47%participatinginterestbyGDGintheChengzhuangblock(“GCZ”),ablockincluded

withintheShizhuangSouthPSC.UnderthetermsoftheMOU,theGroupformallyacknowledgedPetroChinaasoperators

oftheGCZblock,areentitledtotheirshareofhistoricandfuturerevenuesarisingfromthesaleofgasandagreedto

contributetowardstheassociatedcapitalandoperationalcostsrelatingtotheGCZblock.


82

28 PROduCTION SHARING CONTRACTS (continued)Chengzhuang block (“GCZ”) (continued)ThefollowingtablesummarisestheGroup’scumulativeshareofthecapitalexpenditureandnetrevenuesarisingfrom

theGCZblocksinceinception.

Total US$’000

Capital expenditure 25,504

Revenue 48,179

Totaloperationalcostsandexpenses (24,140)

NetProfit 24,039

Net payable 1,465

Thecapitalexpenditure,revenueandcostsrepresentcumulativeamountsfrom2009to2013.Giventheaffirmationof

thestatusoftheGroup’sPSCsinJuly2013,allamountsrelatingtotheGCZblockhavebeenrecognisedinthe2013

financialstatementsandnoprioryearadjustmentshavebeenmade.

Total revenue and operational costs from theGCZblock for the year ended 2013 amounted to $15.8m and $7.4m

respectively.

Subsequenttotheyearend,theGroupsignedanotheragreementwithCUCBMtovarythetermsofcertainofitsfivePSCs

withCUCBM.Refertonote35.

Inaddition,GrekaGuizhouE&PLtd,asubsidiaryoftheCompany,hasaPSCwithPetroChinaCBMtoexploreforand

developcoalbedmethaneresourcesintheprovinceofGuizhou,thePRC.Itcanearna60%interestinthepropertyby

fundinguptoUS$8,000,000foranexplorationpilotprogramme.


29 RELATEd PARTy TRANSACTIONS(a) Amounts due from/(to) related parties and corresponding transactions

Amountsduefrom/(to)relatedpartiescomprise:

As at As at


2013 2012

US$’000 US$’000

Amountsduefromrelatedcompany,(includedinnote19)

Greka(Zhengzhou)TechnicalServicesCoLtd(“GTS”)(ii) – 28

ZhengzhouGrekaPetro-EquipmentLtd.(“GMC”) 54 –

GrekaIntergatedProductsLtd(“GIP”)(ii) 1,753 –

1,807 28

Amountsduetorelatedcompany,(includedinnote21)

PetroChina(i) – (118)

GTS(ii) (5,517) (3,131)

GrekaMitchellDrillingCompany(“GMD”)(ii) (773) –

GrekaTechnologyandManufacturingLtd(“GTM”)(ii) (46) –

GongyiGrekaTransportationCo.Ltd.(“GTI”)(ii) (1,610) –

CNPC(iii) (1,465) –

(9,411) (3,249)

Notes:

(i) The prior year balance represented prepayments/payables to gas purchased from PetroChina, which was a joint

venturepartnerofBHY,ajointlycontrolledentityoftheGroup.

(ii) The balance represents amounts due from/(to) companies that are subsidiaries of Greka Drilling Ltd. and Greka

Engineering&TechnologyLtd.whicharecompaniesundercommonmanagementandcontrol.

(iii) ThebalancerepresentsamountspayabletoCNPC,whichisapartytotheproductionsharingcontractsontheactivities

of exploration, development and production of coal bed methane as disclosed in note 28, in respect of exploration

costsincurred.ThisamountistobesettledbyfuturerevenueonproductionfromtheChengzhungBlockinthePRC.

Thebalanceisunsecuredandinterest-free.

TheGrouphasamastercontractwithGrekaDrillingLtd.,which isundercommonmanagementandcontrol,

regardingdrillingservices.Thereisnominimumexpenditurecommittedinthecontractwithinthenexttwelve

months.

ThedemergerofGETrepresentsarelatedpartybyvirtueofcommonmanagementandcontrol,anddetailsare

providedinnote5.

TheholderoftheGroup’sbondsandwarrantsdetailedinnote23,ChandlerGroup,isconsideredtorepresenta

relatedpartybyvirtueofits18%shareholdingandwarrantswhichconferpotentialrightsto10%oftheGroup’s

sharecapital.ChandlerGroupwasthepurchaserofBHYandGPIdetailedinnote5.


84

29 RELATEd PARTy TRANSACTIONS (continued)(b) Subsidiary companies

TransactionsbetweentheCompanyanditssubsidiaries,whicharerelatedpartiesoftheCompany,havebeen

eliminatedonconsolidationandarenotdisclosedinthisnote.DetailsoftransactionsbetweentheGroupandother

relatedpartiesaredescribedabove.

(c) Key management personnelKeymanagementpersonneloftheGrouparethedirectors.Directors’remunerationisdisclosedinnote10tothe

financialstatements.

30 OPERATING LEASE COmmITmENTSAtthereportingdates,theGrouphadcommitments,aslessee,forfutureminimumleasepaymentsundernon-cancellable

operatingleaseinrespectoflandandbuildingswhichfalldueasfollows:

As at As at


2013 2012

US$’000 US$’000

No later than 1 year 1,326 1,231

Laterthan1yearandnolaterthan5years 1,258 1,090

Morethanfiveyears 287 354

2,871 2,675

31 CAPITAL COmmITmENTS As at As at


2013 2012

US$’000 US$’000

Capital expenditure contracted

but not provided for in respect of

–additionstoexplorationcostsandappraisalassets 2,731 1,483

–acquisitionofproperty,plantandequipment 1,753 3,016

4,484 4,499

TheaboveamountincludedtheGroup’sproportionateshareofthecapitalcommitmentsofitsjointlycontrolledentities

asfollows:

As at As at


2013 2012

US$’000 US$’000

Capital expenditure contracted

but not provided for in respect of

–acquisitionofproperty,plantandequipment – 17


32 FINANCIAL INSTRumENTS As at As at


2013 2012

US$’000 US$’000

Financial AssetsLoansandreceivables:

Tradeandotherreceivables 7,734 9,179

Cash and cash equivalents 34,642 39,971

Totalfinancialassets 42,376 49,150

Financial LiabilitiesAtamortisedcost:

Tradeandotherpayables 25,623 27,712

Bonds 30,390 –

Convertible notes 33,383 79,751

Otherfinancialliabilities 13,000 13,000

Atfairvalue:

Derivativefinancialliability 20,410 –

Totalfinancialliabilities 122,806 120,463

Level 3 fair value measurementsThe derivative financial instruments detailed in note 23 are recurring valuations until maturity of the contract. The

valuationisbasedonlevel3valuationasitusesnon-observableinputs.Notransfersbetweenlevelshaveoccurred.The

instruments include

• 13,756,000warrantsissuedtothebondholderdetailedinNote23underaseparatewarrantagreementwithan

exercisepricefixedatGBP1.97216,whichcanbeexercisedintheexerciseperiodupto3December2014.The

fairvalueofthewarrantshasbeendeterminedusingaBlackSholespricingmodel.Thekeyinputsusedare

At inception Year end

Share price US$2.85 US$4.55

Exercise price US$3.02 US$3.25

Expected volatility 36% 36%

Riskfreerate 2.60% 2.60%

Expected dividend yield N/A N/A

ExercisepricemovementisduetothefluctuationintheGBP/USDexchangerate.A10%changeintheGBP/USD

exchangeratewouldresultinachangeofUS$1.0minthefairvalue.A10%changeinthevolatilitywouldresult

inaUS$424,000changeinfairvalue.A10%changeintheriskfreeratewouldresultinaUS$80,000change

in fair value


86

32 FINANCIAL INSTRumENTS (continued)Level 3 fair value measurements (continued)• Aputoptionastheholderisentitledtorequirerepurchaseofthewarrantsdetailedaboveatanytimeduringthe

30-dayperiodprecedingtheexercisedateof3December2014ataUSDollaramountequaltotheaggregate

interestpayableontheprincipalamount,equivalenttoUS$2.54perwarrant,atanannualisedinterestrateof

15%fromthedateof issue,representingaputoption.Themaximumfairvalueof the instrument is therefore

US$7,339,000 and theminimum is nil. The fair value has been determined through an assessment of the

probabilityofredemptionbeingrequiredbytheholder,consideringfactorssuchastheGroup’ssharepriceversus

theexerciseprice.TheGroupassessedtheprobabilityofredemptiontobe10%atinceptionand5%atyearend.

A10%changeintheredemptionprobabilitywouldresultinaUS$734,000changeinthefairvalue.

ThelossonthederivativeinstrumentsbetweeninceptionandyearendisUS$13.3m.

(a) Interest rate riskTheGroup’sincomeandoperatingcashflowsaresubstantiallyindependentofchangesinmarketinterestrates.

TheGroup’sbondsandconvertibleloannotesbearsfixedinterest.TheGrouphasnotenteredintoanycashflow

interestratehedgingcontractsoranyotherderivativefinancialinstrumentsforhedgingpurposes.However,the

managementcloselymonitorsitsexposuretofuturecashflowasaresultofchangesinmarketinterestrates,and

willconsiderhedgingsuchchangesshouldtheneedarise.

TheinterestrateprofileoftheGroup’sfinancialassetsateachyearendwasasfollows:

As at As at


2013 2012

US$’000 US$’000

Cash

USdollars Non-interestbearing – 2

USdollars Floatingrate 32,546 26,825

RMB Non-interestbearing 23 18

RMB Floatingrate 1,421 11,532

HKD Non-interestbearing 3 773

HKD Floatingrate 649 821

Other financial assets

USdollars Non-interestbearing – –

USdollars Fixedrate – –

RMB Non-interestbearing 7,732 7,587

RMB Fixedrate – 462


CAD Non-interestbearing – 102

SGD Non-interestbearing – 745

42,376 49,150

Theweightedaverageinterestrateearnedduringtheyearwas0.21%(2011:0.21%)onfloatingrateUSdollar

cashbalances,and0.5%(2011:0.5%)onfloatingrateRMBbalances.Attheyearend,theGrouphadcashon

short-termdepositforperiodsofbetweenover-nightandoneweek.


32 FINANCIAL INSTRumENTS (continued)(a) Interest rate risk (continued)

TheinterestrateprofileoftheGroup’sfinancialliabilitiesateachyearendwasasfollows:

As at As at


2013 2012

US$’000 US$’000

Loans and borrowings, convertible notes and bonds and derivative financial liability

USdollars Fixedrate 63,773 79,751

Other financial liabilities

USdollars Non-interestbearing 35,028 14,429

RMB Non-interestbearing 23,569 25,848

GBP Non-interestbearing 134 60


SGD Non-interestbearing 294 277

122,806 120,463

Theweightedaverageinterestratespayableduringtheyearwas7%(2012:10.00%)onUSdollarsconvertible

notes.Ifallinterestrateshadbeen50basispointshigher/lower,withallothervariablesheldconstant,post-tax

profitwouldhavebeenUS$320,000higher/lowerandtherewillbenoimpactonothercomponentsofequity.


88

32 FINANCIAL INSTRumENTS (continued)(b) Foreign currency risk

While theGroupcontinuallymonitors itsexposure tomovements incurrencyrates, itdoesnotutilisehedging

instrumentstoprotectagainstcurrencyrisks.ThemaincurrencyexposurerisktotheGrouphasbeeninrelationto

thetradepayableandotherpayablesdenominatedinRMB.Thedirectorsconsidertheforeigncurrencyexposure

tobelimited.ReceivablesaregeneratedinRMB,operationalcashbalancesareheldinRMB,revenuesandfuture

revenuesfromcertainsubsidiaryoperationswillbegeneratedinRMB.

In SGD In CAD In USD In RMB In GBP In HKD Total in USDAs at 31 December 2013 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Financial AssetsTradeandotherreceivables – – – 7,732 – 2 7,734Cash and cash equivalents – – 32,546 1,444 – 652 34,642

– – 32,546 9,176 – 654 42,376

Financial LiabilitiesTradeandotherpayables 294 – 1,618 23,569 134 8 25,623Otherfinancialliabilities – – 13,000 – – – 13,000Convertible notes and bonds – – 63,773 – – – 63,773Derivativefinancialliability – – 20,410 – – – 20,410

294 – 98,801 23,569 134 8 122,806

InSGD InCAD InUSD InRMB InGBP InHKD TotalinUSD

Asat31December2012 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Financial AssetsTradeandotherreceivables 745 102 – 8,049 – 283 9,179

Cashandcashequivalents – – 26,827 11,550 – 1,594 39,971

745 102 26,827 19,599 – 1,877 49,150

Financial LiabilitiesTradeandotherpayables 277 – 1,429 25,848 60 98 27,712

Otherfinancialliabilities – – 13,000 – – – 13,000

Convertiblenotes – – 79,751 – – – 79,751

277 – 94,180 25,848 60 98 120,463

TheaboveRMBcash,tradeandotherreceivables,tradeandotherpayablesandotherfinancialliabilitiesbalances

aredenominatedinacurrencyotherthanUSdollars.A4%increaseordecreaseintheUSdollar/RMBexchange

ratewouldresultinreportedprofitsfortheyearended31December2013beingUS$575,000higherorlower

respectively(2012:US$250,000).


32 FINANCIAL INSTRumENTS (continued)(c) Liquidity risk

Theliquidityriskofeachgroupentityismanagedcentrallybythegrouptreasuryfunction.Theinvestmentbudgets

andworkplansaresetbytheoperatingteamsinthePRCandagreedbytheboardannuallyinadvance,enabling

theGroup’scashrequirementstobeanticipated.Wherefacilitiesofgroupentitiesneedtobeincreased,approval

mustbesoughtfromtheboard.

All surplus cash is held centrally to maximise the returns on deposits through economies of scale while required

cashwillberemittedtothePRCbasedonmonthlycash-callbasis.

ThematurityprofileoftheGroup’sfinancialliabilitiesatthereportingdatesbasedoncontractualundiscounted

paymentsaresummarisedbelow:

Six months Six months Within one Over Undiscounted Carrying or less to one year to five years five years payments Adjustments balance US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

(notei) (noteii) (noteiii)

At 31 December 2013

Tradeandotherpayables 25,623 – – – 25,623 – 25,623Otherfinancialliabilities – – – 13,000 13,000 – 13,000Convertible notes

and bonds – 39,900 37,450 – 77,350 (13,577) 63,773Derivativefinancialliability – 24,422 – – 24,422 – 24,422

25,623 64,322 37,450 13,000 140,395 (13,577) 126,818

At 31 December 2012

Tradeandotherpayables 20,170 2,301 5,241 – 27,712 – 27,712

Otherfinancialliabilities – – – 13,000 13,000 – 13,000

Convertiblenotes 37,150 52,950 8,850 – 98,950 (19,199) 79,751

57,320 55,251 14,091 13,000 139,662 (19,199) 120,463


90

32 FINANCIAL INSTRumENTS (continued)(c) Liquidity risk (continued)

Notes:

(i) UndiscountedpaymentsaredrawnupbasedontheearliestdateonwhichtheGroupcanberequiredtopay.They

includebothprincipalandinterestcashoutflows.

(ii) In the year ended 31 December 2012, adjustments in relation to the loan notes payable represent the possible

futureinterestpaymentbasedontheeffectiveinterestrateprevailingatthereportingdates.Adjustmentinrelation

totheconvertiblenoterepresentsthereversalofthepossiblefuturepaymentoftheGroupupontheexerciseofthe

noteholder’s or issuer’s early redemption option in accordancewith the terms and conditions of the note. In the

year ended31December2013, theadjustment to theconvertiblenotes andbonds represents the impact of the

unamortisedtransactioncosts.

(iii) Carryingbalancerepresentsthebalanceperconsolidatedstatementoffinancialpositionattheendofeachreporting

period.

(d) Credit riskTheGroup’smaximumexposuretocreditriskbyclassofindividualfinancialinstrumentisshownbelow:

31 December 2013 31 December 2012

Carrying Maximum Carrying Maximum

value exposure value exposure

$’000 $’000 $’000 $’000

Current assetsCash and cash equivalents 34,642 34,642 39,971 39,971

Tradeandotherreceivables 7,734 7,734 9,179 9,179

42,376 42,376 49,150 49,150

Inrelationtoitscashandcashequivalents,theGrouphastomanageitscurrencyexposuresandthecreditrisk

associatedwiththecreditqualityofthefinancialinstitutionsinwhichtheGroupmaintainsitscashresources.As

at31December2013theGroupholdsapproximately98%(2012:90%)ofitscashinUSdollarswithBaa2(2012:

Baa2)orhigher(Moody’s)ratedinstitutions.TheGroupcontinuestomonitoritstreasurymanagementtoensure

anappropriatebalanceofthesafetyoffundsandmaximisationofyield.

Noneoftheothertradeandotherreceivableshadbeenimpaired.Tradeandotherreceivablesarepredominantly

non-interest bearing. The Group does not hold any collateral as security and the Group does not hold any

significantprovisionintheimpairmentaccountfortradeandotherreceivablesastheymainlyrelatetocustomers

withnodefaulthistory.


32 FINANCIAL INSTRumENTS (continued)(e) Capital risk management

TheGroup’sobjectiveswhenmanagingcapitalaretoensuretheabilityoftheentitiesintheGrouptocontinue

as a going concern in order to provide returns for equity holders andbenefits for other stakeholders and to

maintainanoptimalcapitalstructuretoreducethecostofcapital.Inordertomaintainthecapitalstructure,the

Groupconsidersthemacroeconomicconditions,prevailingborrowingratesinthemarketandadequacyofcash

flowsgeneratedfromoperationsandmayadjusttheamountofdividendspaidorpayabletoequityholders,raise

fundingthroughcapitalmarket,adjusttheamountofotherborrowingsasnecessary.Nochangesweremadeto

theobjectivesorpoliciesduringtheyear/period.

TheGroupmonitorscapitalonthebasisofthedebt-to-equityratio.Thisratioiscalculatedasnetdebtsdivided

byequityattributabletotheCompany’sequityholders.Netdebtsincludescurrentandnon-currentliabilitiesless

cashandcashequivalents,asshownintheconsolidatedstatementsoffinancialposition.Equityincludesequity

attributabletoequityholdersoftheCompany.Debt-to-equityratiosasat31December2013and2012areas

follows:

As at As at


2013 2012

US$’000 US$’000

Current liabilities 125,967 107,807

Non-currentliabilities 210,259 174,761

Cash and cash equivalents (34,642) (39,971)

Net debt 301,584 242,597

Equity 646,805 660,066

Debt-to-equityratio 0.47 0.37

(f) Fair valueThecarryingamountsofsignificantfinancialassetsandliabilitiesapproximatetheirrespectivefairvaluesasat31

December2013and2012.

The carrying values of cash and bank balances, trade and other receivables, and trade and other payables

approximate their respective fair values because of their shortmaturities. The carrying amount of the other

liabilitiesapproximatetheirfairvalueastheeffectofdiscountingisimmaterial.Thecarryingamountsofloanand

borrowings and convertible notes approximate their fair values because the effective interest rates of the debts

areapproximatetotheprevailingmarketinterestratesatthereportingdatesforsimilarborrowingsavailableto

theGroup.


92

33 PROVISIONSTheGrouphaslitigationwithConocoPhillipsChinaInc(“COPC”)arisingfromafarm-outagreement.COPCpaidUS$42.6

milliontotheGroupunderthefarm-outagreement.

On8November2010,theGroupterminatedthefarm-outagreementasCOPChadnotmadetherequiredpayments

underthefundingarrangements.COPChavedemandedfullrepaymentoftheUS$42.6million

ThedisputewassubjecttoarbitrationinSingaporeand,on10July2013,thearbitrationtribunalruledinCOPC’sfavour.

The arbitration tribunal has awardedUS$42.6m plus fees and interest of approximatelyUS$6.9million against the

Group.ThearbitrationwasanchoredaroundtheissueoftheGroup’sabilitytoenforcetitleinitsthreeShanxiproduction

sharingcontracts(“PSCs”).TheGrouphasalwaysconsideredthatithasvalidtitleandthiswasconfirmedbytheCentral

GovernmentofChina.Thearbitrationtribunalwasinformedofsuchanexpectedrulingbuttheydecidedtoclosethe

arbitration proceedings, and proceeded to deliver their award without considering this significant development. The

tribunalpanelwasinformedofamaterialconclusionastotitlewhichappearsnottohavebeentakenintoconsideration.

TheDirectorsconsiderthis,amongothermatters,asagroundforachallengeagainsttheawardandtotakeallnecessary

stepsforapotentialfilingtosetasidetheaward.

On3September2013,theGroupsuccessfullylodgedanappealagainstthetribunalrulingincludingapreventionorder

againstCOPCfromenforcingsettlement.Thetribunalisduetobeheardinthecomingmonths.

Whilst theDirectors’ remain confident of a successful appeal, a provisionhasbeenprudentlymade in the financial

statements.TheoriginalUS$42.6millionreceivedwassetagainsttheexplorationassetsand,consequently,thishas

been reversed. Full interest and penalties have been provided for and are shown in the Consolidated Statement of

ComprehensiveIncome.

34 INTEREST IN JOINTLy CONTROLLEd ENTITIESInterests in jointlycontrolledentitiesareaccountedforbyproportionateconsolidation.Thefollowingamountsrelating

tothesejointlycontrolledentitieshavebeenrecognisedintheGroup’sconsolidatedstatementoffinancialpositionand

consolidatedstatementofcomprehensiveincome.Asdetailedinnote5,theentitywasdisposedofduringtheyear.

As at As at


2013 2012

US$’000 US$’000

Non-currentassets – 43,907

Current assets – 21,657

Current liabilities – (14,631)

Non-currentliabilities – (2,860)

Net assets – 48,073

Income 20,017 64,613

Expenses (18,864) (61,424)

Profitfortheyear 1,153 3,189


34 INTEREST IN JOINTLy CONTROLLEd ENTITIES (continued)TheGrouphadinterestsinthefollowingsignificantjointlycontrolledentitiesuntildisposal:

Proportion of nominal value Form of of registered Business Place of capital heldName Structure registration by the Group Principal activity

KesiHengran(Beijing) Sino-foreignequity People’sRepublic 49.0% Investmentholdings

TechnologyCo.,Ltd. jointventure ofChina

ZhengzhouPetro-China Sino-foreignequity People’sRepublic 35.0% WholesaleofCNG

HengranPetro-Gas jointventure ofChina

CompanyLimited

AnhuiPetro-China Sino-foreignequity People’sRepublic 50.6% WholesaleofCNG

HengranPetro-Gas jointventure ofChina

CompanyLimited

TheGroup’sinterestsintheKesiHengran(Beijing)TechnologyCo.,Ltdgroup(“KHBT”)wererestructuredduringthe

yearended31December2012.

Beforetherestructuring,theinterestinKHBTwasrecognisedasaninterestinajointlycontrolledentity.KHBTisaholding

company,withitsonlysignificantassetbeinga59%equityinterestinBeijingHuayouUnitedGasDevelopmentCo.,Ltd

(“BHY”),whichwasengagedinthesupplyofdownstreamgasdistributioninBeijing,thePRC.Thenetassetsandresult

ofoperationswereaccountedforintheseconsolidatedfinancialstatementsusingproportionateconsolidation.KHBTwas

abletocontrolBHYand,therefore,KHBTconsolidatedBHYandrecognisedanon-controllinginterestfortheproportion

ofBHY’snetassetsthatKHBTcouldnotcontrol.

Aspartoftherestructuring,KHBTsurrendereda10%equityinterestinBHYtotheother41%shareholderofBHY.In

ordertocompensatetheGroupforthedilutionof its interest inBHY,theGroupreceiveda100%equity interest ina

subsidiary,BeijingBaiheZhuangyuanTechnologyConsultancyCo.,Ltd.(“BAIHE”),fromKHBT.BAIHEinturndirectly

holdsa10%interestinBHY.

On28November2012,therestructuringformallycompleted.Afterthecompletionoftherestructuring,theGroupretained

its49%interestinKHBT,whichinturnholds39%inBHY,andtheGroupheld100%inBAIHE,whichinturnholdsa

10%ofinterestinBHY.TheGroupthereforehelda29.11%effectiveinterestinBHY,withKHBTnolongerabletocontrol

BHY,andtheGroupstartedtoaccountforthenetassetsandresultsofoperationsofBHYintheseconsolidatedfinancial

statementsusingproportionateconsolidationmethodeffectivefromthecompletiondate.TheGroup’sinterestwassold

inthecurrentyear.


94

35 SuBSEQuENT EVENTS(a) Agreement signed with CUCBM

InMarch2014,theGroupenteredintoabindingagreementwithCUCBM,asubsidiaryofChinaNationalOffshore

OilCorporation(CNOOC),regardingfiveofitsProductionSharingContracts(PSCs)inChina.

TheGrouphasadirectequityinterestinover1,800drilledwells.Theequityinterestvariesbetween47%-70%

andthetotalinvestedcapitalexceedsUS$1billion.

Thedetailsoftheagreementaresummarisedasfollows:

Shizhuang South Block (GSS)

• Undertheagreement,operatorshipoftheGSSblockwillcontinueundertheCompanyexceptforthewells

drilledbyCUCBMinCoalSeam3

• Thecirca1,300legacywellsdrilledbyCUCBMwillbeoperatedbythem,withtheremaindercontinuing

tobeoperatedbyGDG

• GDGequityparticipationintheentireblockincreasesfrom60%to70%followingthecostrecoveryto

CUCBMofUS$13million(asprovidedbythePSC)whichwillbepaidfromtheGDGoperatedwells

• GDGandCUCBM toeachbeentitled tocost recoveryatapreferential rate fromwells theyoperate -

percentageofgrossprofittocostrecovery,willincreasefrom75%to90%

• OptionforGDGtodelivergasdirectlyintoCUCBMinfrastructure

• GDGtocontinueasOperatorintheremainingblockincludingtheentiresecondCoalSeam15whichis

prevalentintheentireblockbelowCoalSeam3.CoalSeam15liesapproximately150metersbelowCoal

Seam3.Legacywells(asreferredtoabove)havebeenconfinedtoCoalSeam3ashavetheagreements

relating to carried interest and non operated interest

• TheGovernmenthasapprovedtwoODPswithintheGSSBlock

• CUCBMexpectedtoinvestanadditionalUS$250milliontocompleteofftakeinfrastructure,enablinggas

sales-bringingthetotalestimatedinvestmenttoUS$700million(subjecttoaudit),inclusiveofthe1,300

wells drilled

Shizhuang North Block (GSN)

• CUCBMhas committed to invest an additionalUS$100million towards exploration andproduction in

exchange for a further 10% interest in GSN, resulting in each company holding a 50%participating

interest

• CUCBMhasalreadyinvestedanestimatedUS$100millioninGSNtodrill250wellsandPSCextendedby

twoyearswithadditionalperiodextensionssubjecttogovernmentapproval

Qinyuan Block (GQY)

• Sub-dividedintotwoequalsizedblocks,A&B,undertheoriginalPSCframework,witheachoperator

bearing all exploration expenses in their respective areas

• BlockAtobeheld90%byCUCBMand10%byGDG,withCUCBMasoperator

• BlockBtobeheld40%byCUCBMand60%byGDGwithGDGasoperator


35 SuBSEQuENT EVENTS (continued)(a) Agreement signed with CUCBM (continued)

Fencheng (GFC) and Panxie East (GPX)

• Statusquo

• GDGparticipatinginteresttoremainunchangedforbothPSCs

• GDGtocontinueasoperatorwithbothpartiesagreeingtoperformtheirrespectiveobligationsunderboth

PSCs

TheGroupandCUCBMhaveconvenedJointManagementCommitteemeetingsforeachofthefivePSCs.Each

partyshallfurtherdisclosetoeachotheralltechnicalinformationandrelatedOverallDevelopmentPlansunder

the PSCs, followed by a third party audit with respect to certain cost recovery aspects of the parties’ respective

investmentsineachofthePSCs.

(b) Full conversion of US$35 million convertible notesOn3June2014,theCompanyreceivednoticefromGICPrivateLimited,asovereignwealthfundestablishedby

theGovernmentofSingapore,oftheconversionintoordinarysharesoftheentireUS$35millionconvertiblebond

issuedbytheCompanyinDecember2013.Thebondscarrieda7%interestrateandweredueinDecember

2015,thisisanearlyconversion.

TheCompanyissued5,775,578newordinarysharestoGICPrivateLimitedasaresultofthisconversion.

FollowingtheadmissiontotradingonAIMofthenewordinaryshareson6June2014,theCompany’sissuedshare

capitalwillconsistof142,316,289ordinaryshares.

(c) US$50 million raised through issuance of convertible notesOn 5 June 2014, the Company issued a second tranche of the convertible bond facility first announced in

December2013.ThesecondtrancheofUS$50millionhasbeenfullysubscribedbyGICPrivateLimited(“GIC”),

aGovernmentofSingaporesovereignwealthfund.

Theconvertiblebond isunsecured,hasa7%coupon,a36monthmaturity,and isconvertible intoordinary

sharesataconversionpriceofUS$9.34pershare.TheCompanyhastherightonthesecondanniversaryofthe

issuedateandonwardstocalltheconvertiblebondundercertainconditions.

96

DIRECTORS, COMPANY SECRETARY AND ADVISORSdIRECTORSExecutive Director, Chairman and CEORandeepS.Grewal

Non-Executive DirectorDavidTurnbull

Non-Executive DirectorWayneRoberts

Non-Executive DirectorStewartJohn,OBE

Non-Executive DirectorGongDaBing

LEGAL AdVISORSAs to Chinese LawGuantaoLawFirm

17/F,Tower2,

YingtaiCenter,NO.28,

FinanceStreet,XichengDistrict,

Beijing100140,PRChina

As to Cayman Islands & BVI LawTraversThorpAlberga

1205ATheCentrium

60WyndhamStreet

CentralHongKong

As to English LawFreshfieldsBruckhausDeringerLLP

65FleetStreet,LondonEC4Y1HS

UnitedKingdom

REGISTEREd OFFICEInternationalCorporationServicesLtd.

POBox472

Harbour Place 2nd Floor

103 South Church Street

GeorgeTown

GrandCaymanKY1-1106

Cayman Islands

COmPANy SECRETARyInternationalCorporationServicesLtd.

NOmINATEd AdVISOR ANd CO-BROkERSmith&WilliamsonCorporateFinanceLimited

25Moorgate

LondonEC2R6AY

CO-BROkERSMacquarieCapital(Europe)Limited

RopemakerPlace

28RopemakerStreet

LondonEC2Y9HD

Peel Hunt

MoorHouse

120LondonWall

LondonEC2Y5ET

AudITORSBDOLLP

55BakerStreet

LondonW1U7EU

www.greendragongas.com

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