Recapitalising to maximise value

Green Dragon Gas (GDG) has laid the foundations for what could be a world-class CBM development; however, the company’s ability to develop and monetise the resource before PSC expiry in 2035 is contingent on funding. 2P reserves (net 549bcf) continue to rise as GDG proves gas deliverability from incremental coal seams. As it stands, GDG is funding rather than resource constrained. In this note we look at three valuation scenarios; in our base case we assume that GDG uses RBL debt capacity (contingent on overall development plan approval) to drill additional LiFaBriC wells on the GSS block, driving a group core valuation of 227p/share – assuming well deliverability in line with company type curves. We see blue-sky potential for this to rise to a RENAV of 591p/share if GDG had no funding constraints and drilling activity on GSS/GCZ and GSN was stepped up materially, accessing 3P CBM reserves.