Even Randeep S. Grewal’s enemies admire his business acumen. Few would be surprised if the Green Dragon CEO someday appears on Forbes magazine’s list of billionaires. His company’s recent share offering on the London Stock Exchange’s AIM, which started with a market capitalization of US$525 million, was quite a bold coup, surprising some. Green Dragon placed just over 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.
Following the company’s admission to the AIM market, Grewal commented: “2007 promises to be a landmark year for CBM and its contribution to Chinese energy supply…This listing is an important and timely milestone in our growth-driven strategy.” The last time Grewal stooped to dealing with minor capital market annoyances, he personally bought all of Greka Energy Corp’s shares, then listed on the NASDAQ. Shareholders wanted him: He paid a 69 percent premium for his shares in 2003. Greka delisted from NASDAQ and delisted from the US Securities and Exchange Commission.
Since then, Grewal’s latest achievements have been harder to track, but based on the price of oil, his privately owned fiefdom is likely flush with cash. In a 2002 press release, Grewal revealed that then-public Greka Energy held 800 million barrels of recoverable heavy-gravity oil, which is ideal as feedstock for its asphalt refinery. That year, Greka’s production was 3,400 barrels of asphalt per day. According to ABC News, the state of California paid $359 per ton for asphalt, 61 percent more than last year. High gasoline prices are prompting major oil companies to squeeze more gasoline production from their crude oil. In any case, Grewal simply gets richer with every new barrel of asphalt or crude oil his company produces.
At least Green Dragon Gas is now publicly traded and offers shareholder participation. But, few shares are available to the public. Grewal may be generous with shareholders at the end of the day, but he’s not sharing with his stock this early in the game. In its filing statement with AIM, the company noted that issuing more shares to raise additional cash would be a last resort, or put more delicately, “…as appropriate under the circumstances.” Grewal would first resort to debt financing and other measures before offering shareholders additional liquidity.
It is no accident that GDG’s share price, which opened for trading at US$5.56 per share, quickly rose to a recent high of US$6.60 per share. A detailed study of Grewal’s latest venture explains the great confidence in Green Dragon Gas. Not to be confused with Grewal Energy, now called Greka Integrated, Green Dragon Gas is the parent company of Hong Kong-based Greka Energy. They have five CBM production sharing contracts with the Chinese state-owned company CUCBM (China United Coalbed Methane Company). The Green Dragon contracts refer to huge tracts of land (more than twice the size of Rhode Island), which could potentially hold 16.5 trillion cubic feet of methane gas.
According to the Green Dragon Gas website, Grewal is also president and CEO of California-based Greka Integrated, a company that describes itself as “involved in heavy oil and gas transportation, refining, real estate, and with interests in energy properties and refining assets”. It is the largest onshore oil company in Santa Barbara County with holdings in Bakersfield, Orange County and the Los Angeles Basin. Greka operates nearly 70 onshore production, processing and transportation facilities in Santa Barbara, California, as well as the Santa Maria asphalt refinery. It is the same one that produced 3,400 barrels of asphalt per day during 2002.
While others talk about a good game, Grewal excels at the power game. In his last published interview that we were able to unearth (August 2001), Grewal explained exactly how he planned to make Greka Energy a success story, namely by selling oil or using it as an asphalt product and then selling asphalt, depending on the price. And then he did. In a July 2002 press release, Grewal mentioned that his company would have long-term activities in China. And now it does, through Green Dragon Gas.
Explaining the company’s business plan, during his 2001 interview, Grewal brazenly boasted, “We’re profitable on $10 worth of oil. We’re profitable on $30 worth of oil. We’re profitable on $2 worth of gas and we’re profitable on $16 worth of gas. He called his asphalt plant “a natural hedge against fluctuating commodity prices.” It also provides a steady cash flow. And there is no doubt that Grewal is becoming more profitable with crude oil selling around $70/barrel.
Steve Chase, deputy director of energy for Santa Barbara County, which regulates the Greka refinery (and was involved in Greka’s fine, see below), calls the company’s business plan “absolutely brilliant.” Chase praised Greka in a New Times newspaper article, explaining the economics of the company: “Oil sells high or low, but asphalt doesn’t. If you’re an oil company with an asphalt refinery, you can sell in 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 hasn’t been without a few car accidents along the way. In 2002 and 2003, his company was cited for more than 70 violations, including oil spills and gas leaks, according to the Santa Barbara News-Press. 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 security manager, Gary Lowery. In June of this year, the US Environmental Protection Agency fined the company $127,500 for “unauthorized disposal of oil refinery wastewater into the facility’s injection wells, in violation of Federal Law of Safe Drinking Water”. This Greka has paid about $700,000 in settlements since Grewal took the company private. Life’s little annoyances become less of a problem when oil sells for well over $30 a barrel. Especially when this same oil was profitable at $10/barrel.
Grewal turns to China to build his fortune
Randeep Grewal entered the energy markets as President and CEO of a horizontal oil and gas drilling company, Horizontal Ventures. During the energy bear market, Grewal skillfully began a series of mergers and acquired oil and gas assets, leading to his first Greka Energy Corp. He knew where to find deals and skillfully began building his own energy empire. Horizontal drilling is an integral part of coalbed methane development, taking Grewal back to where he started: as a gas drilling company.
Also along the way, two of Grewal’s companies have suffered bankruptcies. Last 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 that it had no assets. The total shortfall for creditors 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 making its way through Chapter 11 bankruptcy proceedings.
Life is also full of many second chances. This time, however, through Greka Energy (Hong Kong) and Green Dragon Gas (GDG), Grewal owns what could one day become a multi-billion dollar gas project. Smith & Williamson, the underwriter of Green Dragon’s initial public offering, valued the company at $973 million, based on its success in recovering estimated GDG methane gas in place and the wellhead price at the time. Of the delivery.
Until recently, coalbed methane was treated as a hazardous waste product that killed coal miners in tunnel explosions. In China, depending on who you believe, between 4,000 and 6,000 coal miners die each year. At best, the methane was an unwanted byproduct of coal mining, which the Chinese blew into the atmosphere, compounding an already dire air pollution crisis.
When the Chinese began to realize that CBM provided a larger percentage of US 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’re dumping all that methane? In 2004, coalbed methane accounted for 8 percent of US gas production. That’s the same percentage China called for in its 11th Five-Year Plan for gas’s role in its energy mix. And as we mentioned in previous articles, China has stopped up to 40 percent of its gas-fired plants because it couldn’t get enough gas supplies.
Methane or C4, which is a purer gas than conventional gas, is found within the carbon lattice of coal at the molecular level. Less “sweet” natural gas, found in more conventional fields, was generated by hydrocarbon source rocks and is trapped in a porous and permeable reservoir rock, such as a carbonate reservoir or sandstone. The water pressure holds the coal seam methane in place, which required new drilling technology to extract it efficiently.
To extract methane from coal seams, a company drills wells into the coal seam and then drills and fractures the coal seams. By increasing permeability through this process, water can be pumped out of the coal seam. During this dehydration process, the pressure that holds the gas in place is reduced. This pressure differential vents gas through the frac systems to the wellbore. Clever! What had been killing coal miners and polluting China’s atmosphere could now be used to fuel gas-fired power plants.
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