Coal bed methane specialist Green Dragon Gas (LON:GDG) says it is making substantial progress towards reaching its production goal at the end of its capital expenditure programme.

The China-focused company remains hopeful of producing 18 billion cubic feet (Bcf) of gas at the end of the period, in which it has invested heavily in drilling activity within the GSS Production Block.

Capital expenditure in the first half of the year rose to US$34.3 mln from US$19.9 mln to reflect this increased investment.

"The first half of this year was spent on materially increasing the drilling activity within the GSS Production Block and related planned infra-structure enhancements," said chairman and chief executive Randeep Grewal.

"The building blocks continue to fall into place for us to achieve our 18 Bcf production target at the end of our capex programme from this block in southern Shanxi province.

"In my view, our ability to meet our corporate targets and to monetize our production is within reach.

"It is worth noting that the target of 18 Bcf can be achieved from a little over 200 LiFaBriC wells and hence this is an achievable ask," the chairman continued.

"We will continue to surround GSS with infra-structure enhancements and retail outlets to monetize the production growth in a timely fashion."

Grewal highlighted the installation of the 10 MW Caterpillar Power Plant and the completion of the pipeline from the GSS production facility to the PetroChina Huabei facility joining the West East Pipeline infrastructure as significant milestones for the company in the period.

He added that the six months have seen the company continue to move from an explorer to a producer during what he called "an era of building infrastructure".

Green Dragon also said revenues had slipped one per cent to US$35.7 mln from US$36.2 mln in the first half of 2011.

It attributed the decline to a large BHY (Beijing Huayou) client temporarily closing a power facility for an upgrade, which meant a four per cent fall in gas sales volumes to 6.3 Bcf.

However, the company reduced losses for the six months to 30 June to US$10.5 mln from US$14.2 mln the year before, while it ended the period with cash and cash equivalents of ￡69.9 mln.

The company also increased retail gas sales by 12 per cent to US$8.6 mln from US$7.7 mln in 2011.