Green Dragon Gas confident on growing output sixfold this year

LONDON, Jan 21 (Reuters) - Green Dragon Gas (LSE: GDG.L - news) , a China-based gas firm, forecast on Tuesday that production would grow sixfold by the end of this year and said it was confident of funding the drilling needed to reach its long-standing output target.

China-focused Green Dragon produces and sells gas it extracts from coal seams, a resource called coal-bed methane (CBM). Like shale gas, it comes under the unconventional gas umbrella and similar techniques are used in its extraction.

Green Dragon said on Tuesday its own operations were on track to produce 18 billion cubic feet (bcf) of gas by the end of 2014, a six-fold jump from the 2.9 bcf it produced last year.

Hitting the 18 bcf target will cost over $200 million and require drilling over 150 wells. Green Dragon says it is considering its options regarding funding.

The company has secured up to $100 million from a convertible bond from Singapore's sovereign wealth fund and is in talks about funds owed to it by third parties among other options.

"We note that CBM companies producing less gas and with lesser audited reserves in China have reserve-based loans in place, which could also be a viable option for us," Green (Irish: GN1.IR - news) Dragon's founder and chief executive Randeep Grewal, who owns 65 percent of the company, said in a statement.

Third parties owe funds to Green Dragon after companies including state-owned Chinese oil and gas companies PetroChina and CNOOC (HKSE: 0883.HK - news) drilled on its licences during a period of confusion over the ownership of those licences.

The Chinese government confirmed last July that the licences should be in Green Dragon's hands. Since then, the company was surprised to find that several Chinese gas companies had drilled around 1,500 wells.

Green Dragon is now set to benefit from what could have been an unwelcome invasion of its 6,620 square kilometre (2,556 square mile) licence areas. It is now in talks with the Chinese companies regarding the monies it is owed from past sales of gas from those licences.

Shares in Green Dragon, which have risen 46 percent over the last six months, had not yet traded at 0921 GMT. The company has a market capitalisation of around 360 million sterling.