(MENAFN- ProactiveInvestors)After a couple of difficult years 2014 was an important transition for Green Dragon Gas (LON:GDG). The London-listed group used the year to sort out problems and build key relationships. It was able to finalise the legal operational and financial foundations for its coal bed methane (CBM) business in China including partnerships with powerful state-owned partners. So 2015 is now all about building production and revenues and first half results released today show that the strategy is working. They reveal an 8% increase in revenue to US$16.8mln and a 121% rise in gross profit to US$11.9mln in the first six month of 2015. Green Dragon said the improvement was due to higher gas sales volumes and stable prices. Gas pricing remains unaffected by any Chinese market volatility or impact of Chinese yuan devaluation the company added. Higher sales volumes meant operating costs improved significantly too as most are fixed. Net losses reduced by 98% to US$1.4mln compared with US$69.3mln in the same period of 2014. "We are pleased to announce another set of strong financial results from Green Dragon Gas following the gradual ramp-up in our production and sales through the first six months of 2015' said chairman Randeep Grewal. 'In addition we have continued to benefit from a uniquely strong pricing position environment in the context of the on-going volatility in the sector due to our strategic position in the high demand Chinese gas market.' Using the company-owned proprietary LiFaBric technology a 30-plus well drilling programme is on track. Eighteen wells were drilled during the first half. A further 14 are expected to be drilled the second half. Gross production was 4.87bn cubic feet an 18% increase over the first half of 2014. Two of its four licences GSS and GCZ accounted for most of this. State owned CUCBM is the operator in the 60% owned GSS block and Petrochina is the operator at GCZ. The production level in the first half would suggest that Green Dragon is on track to exit 2015 with output of 10.15bcf. However the company has reiterated it should exit 2015 with production of 12bcf. This compares with 8.7bcf for 2014. Importantly Green Dragon has also been investing heavily in infrastructure. According to Emily Ashford the research analyst at broker Cantor Fitzgerald this is important. Although the company has the production capacity its inability to get the gas easily to markets has previously been a constraint on sales and revenues. But Green Dragon is now clearly ramping up output quite quickly. Critics have suggested that its debt burden means further funding will be needed as a lot more wells will be required on the flagship GSS block alone in order to exploit the 400bcf of booked reserves. Having raised US$138mln last year through two corporate bonds the company ended 2014 with U$80mln of cash. The company has US$49.4mln in the bank and Grewal has dismissed suggestions the balance sheet is hard pressed. He said: 'The lack of pressure on the balance sheet is allowing us to monetise our gas.' Ashford agrees with Grewal and she said: 'The investment case is about the future not the past. 'The company has sorted out its legal problems about title. It has formed strategic partners which are working for them. 'The drilling programme and the infrastructure programme are fully funded. I do not believe there is pressure on the balance sheet just now. 'I have been to the see the sites in China and believe that production can continue to grow rapidly.' She adds that by the end of 2016 the company expects to have capacity of more than 50bc/yr at GSS. There are also other catalysts. There could well be a farm-in. She went on: 'A number of the major companies have been sniffing around.' She added that with 60% of GSS the company has enough has enough of the equity to get a partner in. In terms of valuation she values GDG' core production (1P) and proven and probable reserves (2P less adjustments) at 478p a share with further appraisal and development contributing 354p a share. The Cantor analyst retains her buy recommendation and target price of 832p. The current price is 295p.
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