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Will China's CBM Help Make the Next Energy
Billionaire?
by James Finch 30-08-2006 |
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Article:
Even the enemies of Randeep S. Grewal admire his business savvy. Few might be
surprised if the CEO of Green Dragon shows up some day on the Forbes magazine
list of billionaires. His company's recent share offering on the London Stock
Exchange's AIM, commencing with a market capitalization of US$525 million, was
quite the bold stroke, raising a few eyebrows. Green Dragon placed a bit more
than 4.5 million shares, less than 5 percent of the company's outstanding
shares, to raise $25 million. Randeep Grewal kept the remaining 95.2 percent of
Green Dragon for himself.
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Upon the company's admission to the AIM market Grewal remarked, "2007 promises
to be a landmark year for CBM and its contribution to the Chinese energy
supply.This listing is an important and timely milestone in our growth driven
strategy." The last time Grewal stooped to deal with the minor annoyances of the
capital markets, he personally bought up all the shares of Greka Energy Corp,
then trading on the NASDAQ. Shareholders loved him - he paid a 69 percent
premium for their shares in 2003. Greka delisted from NASDAQ and deregistered
with the U.S. Securities Commission.
Since then, it's been more difficult to track Grewal's latest accomplishments,
but based upon the price of oil, his privately owned fiefdom is likely flush
with cash. In a 2002 news release, Grewal revealed the then-public Greka Energy
owned 800 million barrels of recoverable heavy gravity oil, which is ideal as
feedstock for his asphalt refinery. That year Greka's throughput was 3400
barrels of asphalt per day. According to ABC News, the state of California paid
$359/ton for asphalt - up 61 percent over the past year. High gasoline prices
are driving major oil companies to squeeze more gasoline production out of their
crude oil. In any event, Grewal simply gets wealthier with every new barrel of
asphalt or crude oil his company produces.
At least Green Dragon Gas is now publicly traded, offering shareholder
participation. But, few shares are available to the public. Grewal may be
generous to shareholders at the end of the day, but he's not parting with his
shares this early in the game. In his filing statement with AIM, the company
noted that issuing further shares to raise additional cash would come as a last
resort, or more delicately stated, ". as appropriate under the circumstances."
Grewal would first turn to debt financings and other measures before offering
shareholders additional liquidity.
It is not an accident the share price of GDG, which opened for trading at
US$5.56/share quickly rose to a recent high of $6.60/share. A close study of
Grewal's last company explains the high confidence in Green Dragon Gas. Not to
be confused with his previously named Grewal Energy, which is now called Greka
Integrated, Green Dragon Gas is the parent company of Hong-Kong based Greka
Energy. They hold five CBM production-sharing contracts with China's state-owned
CUCBM (China United Coalbed Methane Company). Green Dragon's contracts are upon
massive tracts of land (more than twice the size of Rhode Island), which could
potentially host 16.5 trillion cubic feet of methane gas.
According to the Green Dragon Gas website, Grewal is also chairman and chief
executive of the California-based Greka Integrated, a company which is described
as being "involved in heavy oil and gas transportation, refining, real estate
and with interests in energy properties and refining assets." It is Santa
Barbara County' largest onshore oil company with holdings in Bakersfield, Orange
County and the Los Angeles basin, Greka operates almost 70 onshore production,
processing and transportation facilities in Santa Barbara (California), as well
as the Santa Maria Asphalt Refinery. It is the same one which produced 3400
barrels of asphalt every day during 2002.
While others talk a good game, Grewal excels at the energy game. In his last
published interview which we were able to dig up (August 2001), Grewal explained
exactly how he planned to make Greka Energy a success story, i.e. selling oil or
using it product asphalt and then sell asphalt, depending upon the price. And
then he did. In a July 2002 news release, Grewal mentioned his company would
have long-term activities in China. And now it does - through Green Dragon Gas.
In explaining the company's business plan, during his 2001 interview, Grewal
unabashedly boasted, "We're profitable at $10 oil. We're profitable at $30 oil.
We're profitable at $2 gas, and we're profitable at $16 gas." He called his
asphalt plant "a natural hedge to fluctuating commodity prices." It also
provides consistent cash flow. And there is no doubt Grewal is ever more
profitable with crude oil selling around $70/barrel.
Steve Chase, Santa Barbara County's deputy energy director, who regulates
Greka's refinery (and has participated in fining Greka - see below), calls the
company's business plan "absolutely brilliant." Chase praised Greka in a New
Times newspaper article, explaining the company's economics, "Oil sells either
high or low, but asphalt doesn't. If you're an oil company with an asphalt
refinery, you can sell into two different markets. When oil is low, you use it
to make asphalt. When it's high, you (just) sell it."
Despite Chase's praise, Grewal's road to success has not been without a few car
wrecks along the way. In 2002 and 2003, his company was cited for more than 70
violations, which included oil spills and gas releases, according to the Santa
Barbara News-Press newspaper. The country's district attorney filed felony
charges against Greka after an explosion near the asphalt refinery injured two
workers. Greka settled for civil penalties of $200,000.
In November 2005, Greka Integrated lost its breach-of-contract lawsuit against a
former safety mana ger, Gary Lowery. In June of this year, the U.S.
Environmental Protection Agency fined the company $127,500 for "unauthorized
disposal of oil refinery wastewater into the facility's injection wells, in
violation of the federal Safe Drinking Water Act." This Greka has paid out about
$700,000 in settlements since Grewal took the company private. Life's little
annoyance become less problematic when one is selling oil for much more than
$30/barrel. Especially when this same oil was profitable at $10/barrel.
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