CHINA-FOCUSED Green Dragon Gas has paid ConocoPhillips US$40 million in a bid to settle a dispute with the supermajor over a farm-out deal gone wrong.

Green Dragon had received US$42.6 million from ConocoPhillips under a farm-out agreement entered into in August 2009 with its wholly-owned subsidiary, Greka International.

Under the terms of the initial deal, ConocoPhillips was to make an initial payment of US$20 million to Greka to cover costs previously incurred, as well as agreeing to fund up to a total of US$30 million for further reserve development and drilling of gas production wells on the Shizhuang South (“GSS”) block, and further exploration on the Shizhuang North (“GSN”) and Qinyuan (“GQY”) blocks.

ConocoPhillips could have then exercised an option to acquire a 50 per cent interest in three of Greka’s six Chinese coal bed methane production sharing contracts by paying US$120 million.

But a decision by ConocoPhillips not to fund Green Dragon’s work program on its Qinyuan Block led Greka to deliver a termination notice for the planned farm out in late 2010.

Green Dragon chairman Randeep S. Grewal said that the US$42.6 million originally paid to the company had provided shareholders with significant value over the years.

“This accreted value remains with the Company,” he said.

“The conclusion of this matter is the last of several that had pre-occupied us in protecting the substantial shareholder value that was being challenged.”

The agreement, which follows a period of arbitration and subsequent appeals by the company, has seen ConocoPhillips agree to forego all claims and awards to them within the various proceedings in multiple jurisdictions.

The payment has been made from Green Dragon’s existing cash resources, the company said in an announcement.