Green Dragon Gas Ltd. has entered into a conditional agreement with Pacific Asia China Energy Inc. ('Pace') through its wholly owned subsidiary, Greka China Ltd. ('Greka') to acquire Pace.
Pace is a Vancouver listed public company with operations exclusively in China focused on Coal Bed Methane ('CBM') through a Production Sharing Contract (PSC) covering a 946 sq km block in Guizhou province with CUCBM. Additionally, Pace has a 50 per cent interest in a joint venture drilling service company with exclusive rights to utilize Mitchell Drilling's Dymaxion horizontal drilling technology in China for de-gassing coal mines and exploiting CBM. Mitchell Drilling is one of Australia's most established CBM drilling contractors with a specialization in horizontal drilling. Pace's website provides further details of its operations. Following the acquisition Pace's offices in Canada will be closed, its Beijing offices will be consolidated with Greka's while Kunming will continue as a regional office to manage the PSC.
Greka, through a wholly-owned British Columbia subsidiary, subject to completion of due diligence, will acquire all of Pace's outstanding shares at a price of $0.38 per share in cash (the 'Transaction'). The total value of the Transaction is approximately CDN $35.18 million. This all-cash Transaction for 100 percent of Pace's shares represents a 58 per cent premium to Pace's closing price on March 26, 2008.
In the nine months ending 30 November 2007, Pace made a net loss of CDN $4.1 million and its net assets at that date were CDN $19.6 million (unaudited). The acquisition will be funded from Green Dragon's existing cash resources and/or from the proceeds of the issue of new shares or through the issue of debt.
The Transaction has been unanimously approved by the Pace Board of Directors. Pace's Board of Directors has also resolved to recommend to their shareholders that they vote in favour of the Transaction.
Pace's directors and officers, who collectively hold approximately 25 per cent of the outstanding common shares of Pace, have entered into lock up agreements with Greka to vote their shares in favour of the Transaction, subject to their ability to withdraw such support in the event that the Arrangement Agreement is terminated.
Mr. Randeep S. Grewal, Green Dragon's Chairman & CEO stated "This timely acquisition is accretive to the Company and its shareholders as we continue to expand our operations and further enhance our position within the emerging CBM industry in China. The acquisition will provide us with complementary sets of assets to the Company's current operations. The additional 946 sq km CBM block in Guizhou provides a new focus area within the central inner China niche built by the Company to date. Furthermore, this acquisition increases our PSC acreage to 7,566 sq km making GDG the largest foreign CBM operator in China. Additionally, the Pace-Mitchell joint venture adds two Schramm rigs to the fleet of five ordered by Greka Technical Services providing commonality within rigs while enhancing the capability to drill horizontal wells. The interchangeability will ease the cross-training of personnel and optimize the rig utilization enabling the Company to capitalize on its significant drilling inventory."
"I look forward to the addition of the China based Pace employees and management to the Greka China team. We expect the complementary nature of the asset accretion to provide for a similar growth in the employee base with no redundancies within the China based employees. We expect to maintain a seamless transition to the continuity of the Guizhou PSC development from its current exploration stage onto commercialization" Mr Grewal added.
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