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.
James Finch contributes to StockInterview and other publications. Visit his archives for more articles at http://www.stockinterview.com or write to him: jfinch@stockinterview.com
