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China North East Petroleum Reports Third Quarter 2008 Financial Results

November 14, 2008

              -- 3Q08 Revenue Increases 227% to $19.1 Million --            -- 3Q08 Gross Profit Increases 241% to $9.9 Million --              -- 3Q08 Net Income Increases 229% to $4.9 Million --          -- Reiterates FY08 Net Income and Diluted EPS Forecasts --   

HARBIN, China and NEW YORK, Nov.14 /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 third quarter ended September 30, 2008.

Third Quarter 2008 Results

Total sales for the third quarter were $19.1 million, a 227% increase compared to $5.8 million over the same period last year. This increase was due to an increase in crude oil production and the average price received for crude oil. Crude oil production for the third quarter doubled to 172,730 barrels from 86,222 barrels for the comparable quarter in the prior year. The increase in production was attributable to refracturing improvements and the implementation of water injection technology which improved efficiency of existing oil wells as well as from the addition of 30 new wells drilled during the third quarter of 2008.

The cost of sales in the third quarter increased by 214% to $9.2 million from $2.9 million for the three months ended September 30, 2007. The increase in cost of sales resulted primarily from the increase in production, depreciation of oil and gas properties, and an increase in the absolute amount of oil surcharges as a result of increased production.

Gross profit in the third quarter increased 241% to $9.9 million from $2.9 million in the same period last year. Third quarter gross margin increased to 52.0% compared to 49.9% in the year ago period.

Operating expenses increased to $978 thousand, or 5.1% of sales, from $291 thousand, or 5.0% of sales, in the third quarter 2007. This is primarily a result of an increase in selling, general and administrative costs. Operating income increased 241% to $8.9 million, or 46.8% of total sales, compared to $2.6 million, or 44.9% of total sales, in the prior year period.

Net income for the third quarter increased 229% to $4.9 million, or $0.24 per diluted share, versus $1.5 million, or $0.08 per diluted share, in the third quarter of 2007.

Mr. Hongjun Wang, President of China North East Petroleum commented, “We were pleased to report another strong quarter of revenue and profit growth and are on plan to report record production increases in 2008. We added 30 new wells during the third quarter bringing our total oil well count to 218 wells through September. Most of these wells have been installed in the Qian’an 112 oilfield where the majority of our wells are located.

During the quarter, we were particularly satisfied to see significant improvements to our financial liquidity. We grew our cash position by 220% sequentially to nearly $8 million and our operating cash flow improved notably as well. Based on the reserves within our four existing oilfields (Qian’an 112, Hetingbao 301, Daan 34, Gudian 31), we believe we have the capability of drilling approximately 675 wells in the coming years and believe the cash flows derived from oil we yield from our existing wells can support much of our well expansion activities in these areas.

Heading into the fourth quarter, we expect to be impacted by lower per- barrel oil prices which will likely impact revenue growth but believe we can sustain our full year net profit projection of $14.5-$15 million and diluted EPS of $0.62-$0.65 due to our strong production rates in the second half of the year as well as from a lower government oil surcharge rate. As oil prices decline, the amount of oil surcharge we are required to pay to the Chinese government declines. During this difficult market environment, we are keeping our operating costs low and continue to implement strict cost controls in all key areas of operation. We are encouraged with our opportunity in the market and continue to focus on expanding our position in China’s oil market by adding more wells to our production capacity and seeking additional oil fields to lease and operate. We continue to expect very healthy quarterly revenue, EBITDA and profit growth, even at current oil price levels, and believe the growth plan we have in place will yield strong financial results ahead,” concluded Wang.

Nine Month 2008 Results

Sales for the nine month period ended September 30, 2008 increased 273% to $44.1 million compared to $11.8 million for the nine month prior year period. Crude oil production through the first nine months of 2008 increased 143% to 422,788 barrels from 174,280 barrels for the comparable period in the prior year.

Gross profit for the first nine months was $23.6 million, a 292% increase over $6.0 million in the same period last year. Gross margin increased 260 basis points to 53.6% compared to 51.0% in the year ago period.

Operating expenses through the first nine months of 2008 were $2.0 million, or 4.4% of sales, compared to $939 thousand, or 8.0% of sales, in the prior year period. Operating income increased 326% to $21.7 million, or 49.2% of sales, compared to $5.1 million, or 43.1% of sales, in the prior year nine month period.

Net income increased by 223% to $9.8 million, or $0.54 per diluted share, from $3.0 million, or $0.12 per diluted share, for the nine months ended September 30, 2007.

2008 Financial Outlook

The Company expects 2008 crude oil production to total approximately 623,000 barrels and the anticipated number of oil producing wells is expected to total approximately 240 wells by year-end 2008. This is a 133% increase from 267,516 barrels produced in 2007, when the company finished the year with 157 wells.

Based on the Company’s results through the first nine months of 2008, its drilling schedule for the remainder of 2008, and the current per-barrel price of oil received from PTR, the Company reiterates comfort with 2008 net income growth of 190%-200% to $14.5-$15.0 million, and fully diluted earnings per share growth of 195%-200% to $0.62-$0.65, compared to the 2007 fiscal year. The fully diluted EPS estimate range is based on a share count of approximately 24.0 million shares and assumes the exercise of all outstanding Company warrants.

Oil Pricing

Please note that CNEH’s sole customer, PTR pays the Company a price per barrel which is calculated on a monthly basis, and is based upon a lagged, daily price per barrel average for a relatively heavy, sour grade of crude oil that trades in Singapore. This daily price index is one of a large number of crude oil price indices maintained by Platts, an international commodity and trading company. The grade of oil for which the company is paid typically trades at a discount to West Texas or London Brent crude.

Government Oil Surcharge

Under a regulation introduced in June 2006 by the Chinese government, a surcharge of 20% has been imposed on Chinese oil producers on the portion of the selling price of crude oil which exceeds $40 per barrel and a surcharge of 40% is imposed on the portion of the selling price of crude oil which exceeds $60 per barrel.

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 following pages)           CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES   Condensed Consolidated Statements of Operations and Comprehensive Income                                  (Unaudited)               (Unaudited)                              Three months ended        Nine months ended                                 September 30             September 30                             2008          2007        2008         2007                         $  19,060,007  $  5,826,506 $44,051,519 $ 11,804,007   NET SALES    COST OF SALES       Production costs       895,155       704,568   2,390,432    1,669,166      Depreciation of       Oil and gas       properties          3,774,327     1,361,732   8,155,321    2,601,561      Amortization of       intangible assets       2,975         2,695       8,743        7,972      Government oil       surcharge           4,480,955       848,315   9,865,655    1,500,902            Total Cost             of Sales      9,153,412     2,917,310  20,420,151    5,779,601      GROSS PROFIT            9,906,595     2,909,196  23,631,368    6,024,406    OPERATING EXPENSES      Selling, general       and administrative       expenses              793,479       194,697   1,339,404      694,103       Professional fees       42,850        26,245     140,180       46,245       Consulting fees         91,926        27,125     319,764       81,375      Depreciation of       fixed assets           50,445        42,609     160,930      117,593            Total             Operating             Expenses        978,700       290,676   1,960,278      939,316     INCOME FROM    OPERATIONS             8,927,895     2,618,520  21,671,090    5,085,090    OTHER INCOME    (EXPENSE)       Other income               809            --      66,651           --       Other expense           (2,000)       (3,878)   (107,601)      (3,878)       Interest expense      (296,761)      (28,186)   (721,805)     (51,290)      Amortization of       deferred financing       costs                 (74,140)           --    (172,992)          --       Amortization of       discount on       debenture            (486,803)           --  (1,135,874)          --      Imputed interest       expense               (16,794)       (6,404)    (49,535)    (139,079)       Interest income          4,238           615      34,204        1,105      Gain on disposal      of fixed assets             --           460          --       15,217      Recovery of deposit       from a supplier       previously written       off                        --         2,515          --      358,609            Total Other             Income             (Expense),             net            (871,451)      (34,878) (2,086,952)     180,684     NET INCOME BEFORE TAXES    AND MINORITY INTERESTS 8,056,444     2,583,642  19,584,138    5,265,774        Income tax expense  (2,390,961)     (885,188) (5,695,498)  (1,825,513)       Minority interests    (726,566)     (198,959) (1,889,457)    (399,836)    NET INCOME              4,938,917     1,499,495  11,999,183    3,040,425    OTHER COMPREHENSIVE   INCOME      Foreign currency      translation gain       152,651       235,873   2,020,632      450,633     COMPREHENSIVE INCOME $  5,091,568  $  1,735,368 $14,019,815 $  3,491,058    Net income per share    - basic              $       0.25  $       0.08 $      0.62 $       0.12   - diluted            $       0.24  $       0.08 $      0.61 $       0.12    Weighted average number of shares    outstanding during the period    - basic                19,987,123    19,224,080  19,480,284   25,780,857   - diluted              20,676,711    19,224,080  19,624,216   25,780,857              CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES                     Condensed Consolidated Balance Sheets                                                  September       December                                                  30, 2008       31, 2007                                                (Unaudited)      (Audited)                                     ASSETS    CURRENT ASSETS      Cash and cash equivalents                $    7,762,017  $       74,638     Accounts receivable, net                     10,595,234       4,852,633    Prepaid expenses and other     current assets                               2,261,853         398,046    Current portion of deferred     financing costs, net                           296,557              --    Value added tax recoverable                          --         651,905      Total Current Assets                       20,915,661       5,977,222    PROPERTY AND EQUIPMENT    Oil and gas properties, net                  56,007,998      40,345,008    Fixed assets, net                             1,462,703         885,474    Oil and gas properties under     construction                                   784,851       2,550,058      Total Property and Equipment               58,255,552      43,780,540     LAND USE RIGHTS, NET                              39,168          45,076    LONG-TERM DEFERRED FINANCING   COSTS, NET                                       716,680              --    DEFERRED TAX ASSETS                              209,102              --     TOTAL ASSETS                              $   80,136,163  $    49,802,838                         LIABILITIES AND STOCKHOLDERS' EQUITY    CURRENT LIABILITIES      Accounts payable                         $   10,806,009 $     6,580,930    Current portion of secured     debenture, net of discount                   1,399,451              --    Other payables and accrued     liabilities                                    825,947       1,020,980    Due to related parties                           14,588          28,036    Note payable                                         --         273,444    Income tax and other taxes     payable                                      7,605,514       2,687,449    Due to a stockholder                            783,258         123,105      Total Current Liabilities                  21,434,767      10,713,944    LONG-TERM LIABILITIES    Accounts payable                              7,783,956      15,467,661    Secured debenture, net of     discount                                     6,197,571              --    Deferred tax payable                                 --         543,100    Due to a related party                          486,714       3,118,085      Total Long-term Liabilities                14,468,241      19,128,846    TOTAL LIABILITIES                             35,903,008      29,842,790    COMMITMENTS AND CONTINGENCIES                         --              --    MINORITY INTERESTS                             3,014,421       1,124,964    STOCKHOLDERS' EQUITY    Common stock ($0.001 par value, 150,000,000     shares authorized, 20,784,080 shares issued     and outstanding as of September 30, 2008;     19,224,080 shares issued and outstanding as     of December 31, 2007)                           20,784          19,224    Additional paid-in capital                   21,147,979      11,361,579    Deferred stock compensation                  (1,451,250)        (27,125)    Retained earnings        Unappropriated                           17,200,090       5,200,907        Appropriated                                916,263         916,263    Accumulated other comprehensive     income                                       3,384,868       1,364,236      Total Stockholders' Equity                 41,218,734      18,835,084    TOTAL LIABILITIES AND   STOCKHOLDERS' EQUITY                     $    80,136,163  $   49,802,838              CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES                Condensed Consolidated Statements of Cash Flows       For the nine months ended September 30, 2008 and 2007 (Unaudited)                                                2008               2007   CASH FLOWS FROM OPERATING   ACTIVITIES         Net income                    $        11,999,183 $        3,040,425       Adjusted to reconcile        net income to cash        provided by operating        activities:         Depreciation of oil          and gas properties                   8,155,321          2,601,561         Depreciation of fixed          assets                                 160,930            117,593         Amortization of land          use rights                               8,743              7,972         Amortization of          deferred financing          costs                                  172,992                 --         Amortization of          discount on debenture                1,135,874                 --         Amortization of stock          option compensation                    163,402                 --         Warrants issued for          services                               154,171                 --          Minority interests                    1,889,457            399,836         Stocks issued for          services                                27,125             81,375         Stocks-based          compensation for          service                                168,750                 --         Imputed interest          expenses                                49,535            139,079         Gain on disposal of          fixed assets                                --            (15,217)       Changes in operating        assets and liabilities        (Increase) decrease in:          Accounts receivable                  (5,742,601)        (2,026,688)         Prepaid expenses and          other current assets                (1,863,807)          (262,501)         Due from related          parties                                     --             38,692         Value added tax          recoverable                            651,905         (1,200,623)         Deferred financing          costs                               (1,186,229)                --          Deferred tax assets                    (209,102)                --          Increase (decrease)          in:          Accounts payable                     (3,458,626)         3,781,456         Other payables and          accrued liabilities                   (195,033)            (2,824)         Income tax and other          taxes payable                        4,918,065          2,123,234          Deferred tax payable                   (543,100)           363,774         Net cash provided by          operating activities                16,456,955          9,187,144    CASH FLOWS FROM INVESTING    ACTIVITIES         Purchase of oil and          gas properties                     (18,300,636)        (8,992,444)         Purchase of fixed          assets                                (668,233)          (321,211)         Additions to oil and          gas properties under          construction                          (649,786)          (714,885)         Proceeds on disposal          of fixed assets                             --             23,451         Net cash used in          investing activities               (19,618,655)       (10,005,089)    CASH FLOWS FROM FINANCING   ACTIVITIES         Proceeds from the          issuances of notes          payable                                     --            798,128         Repayment of note          payable                                     --           (133,021)         Proceeds from          issuance of secured          debenture                           15,000,000                 --         Repayment of secured          debenture                             (750,000)                --         Decrease in other          loans payable                               --            (25,612)         Proceeds from          exercise of stock          warrants                                12,000                 --         Increase in due to a          stockholder                            660,153            146,813         (Decrease) increase          in due to related          parties                             (2,644,819)         1,280,048         Net cash provided by          financing activities                12,277,334          2,066,356    EFFECT OF EXCHANGE RATE ON    CASH                                      (1,428,255)          (950,576)    NET INCREASE IN CASH AND    CASH EQUIVALENTS                           7,687,379            297,835    CASH AND CASH EQUIVALENTS    AT BEGINNING OF PERIOD                        74,638             13,746     CASH AND CASH EQUIVALENTS    AT END OF PERIOD                 $         7,762,017 $          311,581    SUPPLEMENTAL DISCLOSURE OF CASH    FLOW INFORMATION:     Cash paid during the period      for:        Income tax expense            $         4,932,518 $          208,315        Interest expense              $           721,805 $           51,290      SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING ACTIVITIES:  

During 2008, the Company issued 360,000 shares of common stock valued at $1,620,000 as employee stock bonuses.

China North East Petroleum Holdings Ltd.

CONTACT: China: Yang Dio Zhang, Chief Financial Officer, +86-451-55580253,or dio.zhang@cnepetroleum.com; Or United States: Chao Jiang, Director ofFinance, +1-212-307-3568, or chao.jiang@cnepetroleum.com; Or Bill Zima of ICR,Inc., +1-203-682-8200




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