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G3 Exploration Limited - Operational update

Writen by Ed Stacey

G3 Exploration (LON:G3E), previously Green Dragon Gas, published an operational update for its Baotian-Qingshan (GGZ) Block, located in the Guizhou Province of Southern China.

G3 Exploration’s (LON:G3E) business focus has transitioned from exploration and production to a pure exploration and development business with the aim of developing its vast acreage. As or year-end 2017, the company has de-risked some 30BCF of 2P gas reserves after successful drilling of 45 CBM production wells. Of these wells 15 have been put on production and 7 are on long-term production tests after initial gas commercial rates were ascertained.
 
The company expects all 45 wells to be stimulated and put online during the course of H2 2018, whilst the Development Plan (ODP) for the Block is also expected to be compiled during that time after submission of the Reserves Report (CRR). This is in-line with the trading update and 2018 outlook published by the company earlier this year.
 
G3 Exploration (LON:G3E) quotes an NPV10 value of US$300M for the 30BCF of 2P gas reserves, equivalent to about 160p per share, based on an assessment by NSAI at year-end 2016. With the stock trading at 62p, such value is not being recognised by the market which we believe remains in a standby mode regarding the stock in anticipation of the next strategic move by the company.
 
Management has already indicated that such strategic move will be a deconsolidation of producing assets and listing of this portfolio on the Hong Kong Stock Exchange and could also include pursuing geographical expansion opportunities outside of China.
 
Whilst we believe such strategic moves could eventually bring more clarity of purpose as well as additional transparency and opportunities in the medium-term, the market is inclined to wait and see where and how the dust settles once this transformation has been completed.

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