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.
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 manager, 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.
Grewal Turns to China to Build His Fortune
Randeep Grewal’s came into the energy markets as chairman and chief executive of an oil and gas horizontal drilling company, Horizontal Ventures. During the energy bear market, Grewal cleverly began a series of mergers and acquiring oil and gas assets, which led to his first Greka Energy Corp. He knew where to find deals and deftly began assembling his energy empire. Horizontal drilling is integral to coalbed methane development, which brings Grewal back to where he started – as a gas drilling company.
Also along the way, two of Grewal’s companies have suffered bankruptcies. This past November, Saba Enterprises, formerly Greka Energy Corporation, filed for Chapter 7 bankruptcy, after two creditors won judgments totaling $19.5 million. In its petition the company announced it had no assets. The total creditor shortfall could rise to more than $24 million. In 1999, another company of which Grewal was a director, Sabacol – a subsidiary of Saba Petroleum, was dissolved following the sale of its assets after working its way through Chapter 11 bankruptcy proceedings.
Life is also filled with many second chances. This time, however, through Greka Energy (Hong Kong) and Green Dragon Gas (GDG), Grewal owns what might someday become a multi-billion dollar gas project. Smith & Williamson, Green Dragon’s IPO underwriter valued the company at $973 million, depending on its success in recovering GDG’s estimated methane gas in place and the wellhead price at time of delivery.
Until recently, coalbed methane was treated as a hazardous waste product which killed coal miners in tunnel explosions. In China, depending upon whose numbers you believe, between 4,000 and 6,000 coal miners die each year. At best, methane was an unwelcome byproduct of coal mining, which the Chinese vented into the atmosphere aggravating an already atrocious air pollution crisis.
When the Chinese began to realize CBM was providing a greater percentage of the U.S. gas production, they wanted to develop their own vast resources. After all, the Chinese are pragmatists. Why pay through the nose to import LNG, when you are throwing away all that methane? In 2004, coalbed methane accounted for 8 percent of U.S. gas production. That’s the same percentage number China mandated in its eleventh five-year plan for the role of gas in its energy mix. And as we’ve mentioned in previous articles, China has idled as much as 40 percent of its gas-fired plants because it could not obtain sufficient gas supplies.
Methane or C4, which is a more pure gas than conventional gas, is found within the carbon lattice of coal at a molecular level. The less “sweet” natural gas, which is found in more conventional fields, was generated by hydrocarbon source rocks and is trapped in a porous and permeable reservoir rock, such as carbonate reserve or sandstone. Water pressure holds coalbed methane in place, which required new drilling technology, to efficiently extract.
To extract coalbed methane, a company drills wells into the coal seam, and then perforates and fractures the coal seams. By increasing permeability through this process, water is able to be pumped out of the coal seam. During this de-watering process, pressure holding the gas in place is reduced. This pressure differential vents the gas through the fracture systems into the well. Voila! What had been killing coal miners and polluting China’s atmosphere could now be utilized to power gas-fired energy plants.
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