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China North East Petroleum Reports First Quarter 2008 Financial Results

Posted on: Thursday, 15 May 2008, 09:00 CDT

-- 1Q08 Revenue Increases 476% to $10.8 Million -- -- 1Q08 Net Income Increases 1,052% to $3.3 Million -

HARBIN, China and NEW YORK, May 15 /Xinhua-PRNewswire-FirstCall/ -- China North East Petroleum Holdings Limited (the "Company") (BULLETIN BOARD: CNEH) , an oil producing company in Northern China, today announced consolidated financial results for the first quarter ended March 31, 2008.

Total sales for the first quarter were $10.8 million, a 476% increase compared to $1.9 million over the same period last year. The increase in revenues was a result of increased oil production and higher oil prices. Crude oil production for the first quarter increased 259% to 15,691 tons (115,800 barrels) from 4,367 tons (22,561 barrels) for the first quarter ended March 31, 2007. On a sequential basis, crude oil production increased 3,057 tons (22,561 barrels), or 24%, compared to the quarter ended December 31, 2007.

Gross profit in the first quarter was $6.0 million, a 506% increase over $994 thousand in the same period last year. First quarter gross margin increased 270 basis points to 55.6% compared to 52.9% in the year ago period primarily due to the higher price of oil.

Operating income increased significantly to $5.6 million, or 51.8% of sales, compared to $695 thousand, or 37.0% of sales in the same period of the prior year.

Net income for the first quarter increased significantly to $3.3 million, or $0.17 per diluted share, versus $287 thousand, or $0.01 per diluted share, in the first quarter of 2007.

Mr. Hongjun Wang, President of China North East Petroleum commented, "The first quarter of 2008 was a strong start to the fiscal year. Our record sales results continue to benefit from a combination of increased oil output as well as higher oil prices, both of which resulted in record profit for our business. We are making excellent progress expanding the size and scale of our business and our continuous cycle of drilling wells, maximizing production from our wells, and distributing our product to PetroChina Jilin (PTR) generated very strong cash flow and profits for our business in the first quarter.

All of our revenues are currently derived from four oilfields within the Qian'an oilfield in the Jilin province, a proven oil-bearing area with significant oil deposits. Our firmly established twenty-year contract with PTR is a significant advantage that allows us to extract oil from Qian'an and exclusively sell our produced crude oil back to PTR. This partner is providing greater opportunities for better capitalized oil producers and our success thus far enhances our chances of attracting additional oil assets and leases in the Jilin province.

We now have 157 wells in production as of the end of the first quarter and expect this number to grow on a quarterly basis as we progress through the year. Our increased cash position provides us with greater flexibility to not only drill new wells this year, but also allows us to further develop oil extraction technologies and selectively pursue acquisition opportunities.

2008 is shaping up to be a promising year for CNEH. The momentum in our business remains strong and we have a healthy balance of growth initiatives that can further expand our revenue and earnings performance in the current year and beyond," concluded Wang.

ABOUT CHINA NORTH EAST PETROLEUM

China North East Petroleum Holdings Ltd. is engaged in the production of crude oil in Northern China. The Company has a guaranteed arrangement with the Jilin Refinery of PetroChina to sell its produced crude oil for use in the China marketplace. The Company currently operates four oilfields in Northern China.

Statements in this press release which are not historical data are forward-looking statements which involve known and unknown risks, uncertainties or other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, but are not limited to, those detailed in the company's periodic filings with the Securities and Exchange Commission.

(Financial Tables on the Following Pages) CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES Condensed Consolidated Balance Sheets March 31, December 31, 2008 2007 (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 12,734,345 $ 74,638 Accounts receivable, net 5,981,125 4,852,633 Prepaid expenses and other current assets 682,928 398,046 Current portion of deferred financing costs, net 296,557 -- Value added tax recoverable -- 651,905 Total Current Assets 19,694,955 5,977,222 PROPERTY AND EQUIPMENT Oil and gas properties, net 42,616,236 40,345,008 Fixed assets, net 1,046,714 885,474 Oil and gas properties under construction 1,127,198 2,550,058 Total Property and Equipment 44,790,148 43,780,540 LAND USE RIGHTS, NET 44,045 45,076 LONG-TERM DEFERRED FINANCING COSTS, NET 864,959 -- TOTAL ASSETS $ 65,394,107 $ 49,802,838 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 7,732,748 $ 6,580,930 Current portion of secured debenture, net of discount 737,342 -- Other payables and accrued liabilities 1,561,934 1,020,980 Due to related parties 14,241 28,036 Note payable 284,811 273,444 Income tax and other taxes payable 5,001,942 2,687,449 Due to a stockholder 131,387 123,105 Total Current Liabilities 15,464,405 10,713,944 LONG-TERM LIABILITIES Accounts payable 8,665,641 15,467,661 Secured debenture, net of discount 6,636,074 -- Deferred tax payable 475,445 543,100 Due to a related party 1,579,572 3,118,085 Total Long-term Liabilities 17,356,732 19,128,846 TOTAL LIABILITIES 32,821,137 29,842,790 COMMITMENTS AND CONTINGENCIES -- -- MINORITY INTERESTS 1,646,440 1,124,964 STOCKHOLDERS' EQUITY Common stock, $0.001 par value, 150,000,000 shares authorized, 19,224,080 shares issued and outstanding 19,224 19,224 Additional paid-in capital 19,177,327 11,361,579 Deferred stock compensation -- (27,125) Retained earnings Unappropriated 8,511,921 5,200,907 Appropriated 916,263 916,263 Accumulated other comprehensive income 2,301,795 1,364,236 Total Stockholders' Equity 30,926,530 18,835,084 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 65,394,107 $ 49,802,838 CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three months ended March 31, 2008 2007 NET SALES $ 10,823,974 $ 1,879,947 COST OF SALES Production costs 712,305 336,790 Depreciation of oil and gas properties 1,874,692 389,227 Amortization of land use rights 2,842 2,624 Government oil surcharge 2,211,320 157,131 Total Cost of Sales 4,801,159 885,772 GROSS PROFIT 6,022,815 994,175 OPERATING EXPENSES Selling, general and administrative expenses 257,594 220,265 Professional fees 57,512 16,000 Consulting fees 51,875 27,125 Depreciation of fixed assets 52,232 36,027 Total Operating Expenses 419,213 299,417 INCOME FROM OPERATIONS 5,603,602 694,758 OTHER INCOME (EXPENSE) Other expense (2,311) -- Interest expense (119,697) (10,591) Amortization of deferred financing costs (24,713) -- Amortization of discount on debenture (162,268) -- Imputed interest expenses (26,896) (131,846) Interest income 4,042 248 Total Other Expense, net (331,843) (142,189) NET INCOME BEFORE TAXES AND MINORITY INTERESTS 5,271,759 552,569 Income tax expense (1,439,269) (221,407) Minority interests (521,476) (43,799) NET INCOME 3,311,014 287,363 OTHER COMPREHENSIVE INCOME Foreign currency translation gain 937,559 87,251 COMPREHENSIVE INCOME $ 4,248,573 $ 374,614 Net income per share - basic $ 0.17 $ 0.01 - diluted $ 0.17 $ 0.01 Weighted average number of shares outstanding during the period - basic 19,224,080 29,224,080 - diluted 20,418,420 29,224,080 CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2008 and 2007 (Unaudited) 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,311,014 $ 287,363 Adjusted to reconcile net income to cash provided by operating activities: Depreciation of oil and gas properties 1,874,692 389,227 Depreciation of fixed assets 52,232 36,027 Amortization of land use rights 2,842 2,624 Amortization of deferred financing costs 24,713 -- Amortization of discount on debenture 162,268 -- Minority interests 521,476 43,799 Stocks issued for services 27,125 27,125 Imputed interest expenses 26,896 131,846 Changes in operating assets and liabilities (Increase) decrease in: Accounts receivable (1,128,492) 358,931 Prepaid expenses and other current assets (284,882) (28,390) Due from related parties -- (49,836) Value added tax recoverable 651,905 58,901 Deferred charges (1,186,229) -- Increase (decrease) in: Accounts payable (5,650,202) 490,089 Other payables and accrued liabilities 540,954 2,296 Income tax and other tax payable 2,314,493 462,572 Deferred tax payable (67,655) -- Net cash provided by operating activities 1,193,150 2,212,574 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of oil and gas properties (748,820) (2,742,832) Purchase of fixed assets (174,005) (123,925) Additions to oil and gas properties under construction (211,709) -- Net cash used in investing activities (1,134,534) (2,866,757) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of secured debenture 15,000,000 -- Decrease in other loans payable -- (25,612) Increase in amount due to a stockholder 8,282 89,193 (Decrease) increase in amounts due to related parties (1,552,308) 1,170,121 Net cash provided by financing activities 13,455,974 1,233,702 EFFECT OF EXCHANGE RATE ON CASH (854,883) (67,207) NET INCREASE IN CASH AND CASH EQUIVALENTS 12,659,707 512,312 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 74,638 13,746 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,734,345 $ 526,058 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income tax expense $ 1,283,180 $ 60,462 Interest expense $ 11,204 $ 10,591

China North East Petroleum Holdings Limited

CONTACT: Yang Dio Zhang, Chief Financial Officer of China North EastPetroleum Holdings Limited, +86-451-55580253, or dio.zhang@cnepetroleum.com,or in the United States, Chao Jiang of China North East Petroleum HoldingsLimited, Director of Finance, +1-212-307-3568, or chao.jiang@cnepetroleum.com;or Bill Zima of ICR, Inc. for China North East Petroleum Holdings Limited, +1-203-682-8200

Source: PRNewswire

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