GDG, one of the largest independent companies involved in the production and sale of CSG in China, has 427 billion cubic feet of 2P reserves, and importantly 2.29Tcf of 3P reserves.
Edison says this gives GDG a “massive potential” to drive production from current estimates of 12Bcf a year to firstly about 40Bcf pa from current 2P reserves and on to 200Bcf pa (with 3P upside).
“Against a robust macro backdrop largely insulated from oil market volatility, we expect GDG to move profits into the black in 2016 as production increases beyond the 12Bcf pa 2015 exit rate,” Edison said in a research note on Wednesday.
“Ongoing buildout of 53Bcf pa of gas processing capacity at [production block GSS in Shanxi] should remove any capacity constraints in 2016/17.”
The coming months will also be crucial for London-listed GDG’s extensive 3P reserve base, Edison said.
If the completion of the ongoing evaluation of coal seam 15 proves successful, this could start to move 3P reserves into 1P/2P and lead to a development decision that would transform Edison’s risked exploration net asset value (RENAV) from the current 679p/share.
However, Edison warned that GDG will need another $US100 million this year – a figure which will grow to $300-450 million over 2017-19 to facilitate the company’s next push into production.
It has eight blocks over six production sharing contracts. Its GCZ block is in the greater Shizhuang South (GSS) PSC where GDG has a 60% interest and an option to increase to 70%.
At GCZ (47%), the company is partnering with CNPC subsidiary PetroChina, while at all its other blocks it partners with CNOOC.
While GDG entered into most of its PSCs in 2003 with 30-year terms, challenges to title in 2012/13 which have since been resolved have meant the PSCs were extended by two more years until 2035.