China North East Petroleum Reports 2011 Second Quarter Financial Results
HARBIN, China and NEW YORK, Aug. 10, 2011 /PRNewswire-Asia/ — China North East Petroleum Holdings Limited (the “Company”) (NYSE Amex: NEP), a leading independent oil producing and oilfield services company in Northern China, today announced consolidated financial results for the second quarter ended June 30, 2011.
Revenue for the 2011 second quarter totaled $24.3 million compared to $21.8 million in the 2011 first quarter and $27.7 million in the 2010 second quarter. When compared to the 2010 second quarter, the Company’s 2011 second quarter revenue was primarily impacted by a decrease in revenues from its drilling services segment.
Total oil production in the second quarter of 2011 was 161,498 barrels compared to 162,990 barrels in the 2011 first quarter and 198,775 barrels in the 2010 second quarter period. As of June 30, 2011 the Company had a total of 295 wells in production compared to 289 wells as of June 30, 2010. Revenue from the sale of crude oil increased 25.3% in the 2011 second quarter to $19.3 million from $14.9 million in the 2011 first quarter and $15.4 million in the 2010 second quarter. The average sales price per barrel during the 2011 second quarter was approximately US$119, a 54.5% increase from US$77.00 during the 2010 second quarter.
The Company’s oil drilling and service subsidiary, Tiancheng contributed $5.0 million of revenue in the 2011 second quarter compared to $6.9 million in the 2011 first quarter and $12.3 million in the 2010 second quarter. During the quarter Tiancheng completed 40 wells with a total drilling depth of 60,817 meters (~199,531 feet). Revenue in 2011 second quarter was impacted primarily due to PetroChina’s decision to supply the necessary drilling materials instead of purchasing materials directly from the Company, which resulted in reduced overall contract prices received from PetroChina. In addition, two of Tiancheng’s drilling rigs were transported a substantial distance during the quarter which reduced the utilization rate of its drilling rigs resulting in fewer wells drilled as well as lower overall drilling depth.
Gross profit for the 2011 second quarter was $15.1 million a 29.1% increase from $11.7 million in the 2011 first quarter and a 10.2% decrease from $16.9 million in the 2010 second quarter. Gross margin in the 2011 second quarter was 62.3% compared to 54.0% in the 2011 first quarter and 60.9% in the 2010 second quarter.
Operating expenses for the quarter were $0.9 million compared to $1.4 million in the 2011 first quarter and $1.1 million in the 2010 second quarter. The year-over-year decrease in operating expenses was primarily due to the decrease in revenue.
Operating income for the 2011 second quarter was $14.3 million, or 58.8% of revenue, compared to $10.3 million, or 47.7% of revenue in the 2011 first quarter, and $15.8 million, or 57.0% of revenue in the 2010 second quarter.
The Company had a $3.8 million non-cash gain in the quarter due to a change in the fair value of warrants compared to a $4.4 million non-cash gain in the 2011 first quarter and a $14.6 million non-cash gain in the 2010 second quarter.
Net income attributable to NEP common stockholders for the 2011 second quarter was $13.0 million, or $0.37 per diluted share, compared to $11.3 million, or $0.36 per diluted share, in the 2011 first quarter, and $25.0 million, or $0.80 per diluted share, in the 2010 second quarter.
Excluding the non-cash charge related to the fair value of warrants, 2011 second quarter net income was $9.2 million, or $0.26 per diluted share, compared to $6.9 million, or $0.22 per diluted share, in the 2011 first quarter and $10.4 million, or $0.33 per diluted share, in the 2010 second quarter.
Cash and cash equivalents increased in the second quarter to $80.4 million from $61.0 million as of December 31, 2010. Total assets grew to $217.9 million, total liabilities were $37.8 million and stockholders’ equity was $180.1 million as of June 30, 2011.
Mr. Jingfu Li, CEO of China North East Petroleum commented, “We were pleased that our crude oil sales, operating income and net income all improved sequentially over the first quarter of this year. Our sequential performance also benefitted from a sizeable increase in oil prices. In our oil production business, results were within our guidance range of 160-180 thousand barrels. The slight sequential decrease in this segment of our business was the result of a larger number of wells requiring fracture work which led to their short term closure. These wells have since been turned on and are generating greater yields than in the past. We expect to temporarily halt approximately 20 wells, or 6-8%, of our producing wells each quarter for fracture work in the coming quarters but remain comfortable with our quarterly per-barrel production guidance.”
“In our drilling business, Tiancheng completed 40 wells in the second quarter resulting in approximately $5.0 million in revenue for this segment of our business. Drilling revenue was lower due to PetroChina’s decision to supply drilling materials to all third party private drilling companies operating in the region instead of purchasing them from independent drillers. This initiative has reduced the size of our contracts, impacting Tiancheng’s overall revenue, cost of revenue and net profit in the second quarter while increasing gross profit and net profit margin at the same time. The Company expects PetroChina’s to continue this practice for the foreseeable future. We also experienced a reduced drilling utilization rate in the second quarter as two of our rigs were relocated from Inner Mongolia to Jilin. Our drilling crews have resumed their regular work schedule once again after an extended holiday in the first quarter. We expect Tiancheng’s drilling to continue at a pace of approximately 40-50 new wells per quarter in the second half of 2011.”
“During the quarter we also focused on our initiatives related to our Durimu oilfield acquisition. As part of this effort, we selected our independent geological survey consultant and began seismic testing in early July. We expect to complete our initial geological survey in the third quarter. At that point our in-house engineering team will work with our geological survey consultant to develop a preliminary production plan. The Company expects initial test drilling to commence in the fourth quarter and to last approximately 12 to 18 months. During this 12 to 18 month period, any oil produced will be sold to qualified buyers, which will generate revenue and cash flow to further support the Durimu oilfield exploration program. Once the initial stage is complete, we intend to increase the pace of drilling in Durimu with an expected overall increase in production, which will in turn generate greater revenue and cash flow.”
“As we move forward, our oil production arrangement with PetroChina remains an important component of our business. We are also pleased to independently pursue our own exploration and drilling initiatives which we believe can result in much greater oil production revenue and profits for our business over the course of the next several years.”
Oil Pricing
Please note that NEP’s sole customer, PetroChina, pays the Company a price per barrel that is calculated on a monthly basis based on 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. Platts, a division of The McGraw-Hill Companies, is a leading global energy and metals information provider. The grade of oil for which the Company is paid typically trades at a discount to West Texas or London Brent crude.
Conference Call
Management will host a conference call at 9:00 am ET on Thursday, August 11th. Listeners may access the call by dialing # 1-719-457-2573. To listen to the live webcast of the event, please go to http://www.viavid.net. Listeners may access the call replay, which will be available through August 25th, by dialing # 1-858-384-5517; passcode: 9270474.
ABOUT CHINA NORTH EAST PETROLEUM
China North East Petroleum Holdings Limited is an independent oil company that engages in the production of crude oil in Northern China. The Company is a pioneer in China’s private oil exploration and production industry, and the first Chinese non-state-owned oil company trading on the NYSE Amex.
The Company has a guaranteed arrangement with the PetroChina to sell its produced crude oil for use in the China marketplace. The Company currently operates five oilfields in Northern China. The Company also recently obtained exploration and drilling rights in the Durimu oilfield through its acquisition of Sunite Right Banner Shengyuan Oil and Gas Technology Development Co., Ltd. (“Shengyuan”). For more information about the Company, please visit http://www.cnepetroleum.com.
Statements in this press release, including but not limited to those relating to the Company‘s or management‘s intentions, beliefs, expectations, hopes, projections, assessment of risks, estimations, plans or predictions for the future, including the impact of the restatement, timing of filings with the SEC and other statements that are not historical facts are forward-looking statements that are based on current expectations. Statements regarding our ability to realize future production volumes, realize success in our drilling and development activity and forecasts of legal claims, prices, future revenues and income and cash flows and other statements that are not historical facts contain predictions, estimates and other forward-looking statements. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that these expectations will prove correct. Important factors that could cause actual results to differ materially from those in the forward-looking statements include delays and uncertainties that may be encountered in connection with seismic testing and test drilling in the Durimu oilfield, the anticipated benefits from the acquisition cannot be fully realized, the possibility that costs or difficulties related to the development of the Durimu oilfield will be greater than expected, and other risks described in the Company‘s annual report on Form 10-K for the year ended December 31, 2010 and its other filings with the SEC. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. Investors should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement and the Company undertakes no duty to update any forward-looking statement.
For more information, please contact:
China North East Petroleum US office
Tel: +1-909-610-2212
China North East Petroleum Investor Relations Department
Tel: +1-646-308-1707
(Financial Tables on Following Pages)
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES ("NEP")
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
For the three months
ended June 30,
2011 2010
---- ----
REVENUE
Sales of crude oil $19,279,416 $15,390,494
Drilling revenue 5,007,039 12,316,691
--------- ----------
Total Revenue 24,286,455 27,707,185
---------- ----------
COST OF REVENUE
Crude oil extraction costs 1,285,704 872,747
Drilling costs 1,424,975 4,849,429
Depreciation, depletion and
amortization of oil properties 1,326,111 2,131,933
Depreciation of drilling equipment 506,720 477,619
Amortization of land use rights 8,289 4,891
Government oil surcharge 4,598,445 2,507,920
--------- ---------
Total Cost of Revenue 9,150,244 10,844,539
--------- ----------
GROSS PROFIT 15,136,211 16,862,646
---------- ----------
OPERATING EXPENSES
Selling, general and administrative
expenses 432,922 843,129
Professional fees 336,396 117,678
Depreciation of fixed assets 82,306 96,042
------
Total Operating Expenses 851,624 1,056,849
------- ---------
INCOME FROM OPERATIONS 14,284,587 15,805,797
---------- ----------
OTHER INCOME (EXPENSE)
Other income 88 10,811
Other expense (1,864) (38,201)
Interest expense - (1,162)
Interest income 59,650 23,458
Change in fair value of warrants 3,821,730 14,598,248
----------
Total Other Income, net 3,879,604 14,593,154
--------- ----------
NET INCOME BEFORE INCOME TAXES 18,164,191 30,398,951
Income tax expense (4,110,791) (4,175,031)
---------- ----------
NET INCOME 14,053,400 26,223,920
Less: net income attributable to
noncontrolling interest (1,069,467) (1,236,828)
---------- ----------
NET INCOME ATTRIBUTABLE TO NEP
COMMON
STOCKHOLDERS 12,983,933 24,987,092
---------- ----------
OTHER COMPREHENSIVE INCOME
Total other comprehensive income 1,648,905 650,508
Less: foreign currency translation
gain attributable
to noncontrolling interest (20,559) 106,691
Foreign currency translation gain
attributable to NEP
common stockholders 1,628,346 757,199
COMPREHENSIVE INCOME ATTRIBUTABLE TO
NEP COMMON STOCKHOLDERS $14,612,279 $25,744,291
=========== ===========
Net income per share
- basic $0.38 $0.85
===== =====
- diluted $0.37 $0.80
===== =====
Weighted average number of shares
outstanding
during the period
- basic 34,158,193 29,500,642
========== ==========
- diluted 35,532,885 31,157,614
========== ==========
For the six months ended
June 30,
2011 2010
---- ----
REVENUE
Sales of crude oil $34,140,453 $32,036,989
Drilling revenue 11,896,537 24,598,489
---------- ----------
Total Revenue 46,036,990 56,635,478
---------- ----------
COST OF REVENUE
Crude oil extraction costs 3,510,493 2,091,990
Drilling costs 4,162,146 9,360,718
Depreciation, depletion and
amortization of oil properties 2,808,705 3,743,038
Depreciation of drilling equipment 999,385 955,058
Amortization of land use rights 16,478 15,747
Government oil surcharge 7,658,344 5,002,638
--------- ---------
Total Cost of Revenue 19,155,551 21,169,189
---------- ----------
GROSS PROFIT 26,881,439 35,466,289
---------- ----------
OPERATING EXPENSES
Selling, general and
administrative expenses 1,179,233 2,368,155
Professional fees 883,896 192,734
Depreciation of fixed assets 161,327 191,422
-------
Total Operating Expenses 2,224,456 2,752,311
--------- ---------
INCOME FROM OPERATIONS 24,656,983 32,713,978
---------- ----------
OTHER INCOME (EXPENSE)
Other income 14,487 10,811
Other expense (5,080) (76,173)
Interest expense - (24,734)
Interest income 113,354 46,620
Change in fair value of warrants 8,195,673 25,439,166
---------
Total Other Income, net 8,318,434 25,395,690
--------- ----------
NET INCOME BEFORE INCOME TAXES 32,975,417 58,109,668
Income tax expense (6,773,563) (8,775,101)
---------- ----------
NET INCOME 26,201,854 49,334,567
Less: net income attributable to
noncontrolling interest (1,936,878) (2,602,090)
---------- ----------
NET INCOME ATTRIBUTABLE TO NEP
COMMON
STOCKHOLDERS 24,264,976 46,732,477
---------- ----------
OTHER COMPREHENSIVE INCOME
Total other comprehensive income 2,934,169 714,782
Less: foreign currency translation
gain attributable
to noncontrolling interest (20,559) (962,307)
Foreign currency translation gain
attributable to NEP
common stockholders 2,913,610 (247,525)
COMPREHENSIVE INCOME ATTRIBUTABLE
TO
NEP COMMON STOCKHOLDERS $27,178,586 $46,484,952
=========== ===========
Net income per share
- basic $0.78 $1.60
===== =====
- diluted $0.74 $1.49
===== =====
Weighted average number of shares
outstanding
during the period
- basic 31,057,781 29,195,886
========== ==========
- diluted 32,665,062 31,398,739
========== ==========
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES ("NEP")
Condensed Consolidated Balance Sheets
As of
-----
June 30, December 31,
2011 2010
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $80,352,755 $60,974,007
Accounts receivable 22,737,538 24,142,762
Prepaid expenses and other current
assets 1,761,442 434,094
Total Current Assets 104,851,735 85,550,863
----------- ----------
PROPERTY AND EQUIPMENT
Oil properties, net 91,187,772 41,892,288
Fixed assets, net 14,132,803 14,767,538
Oil properties under construction 65,892 61,482
------ ------
Total Property and Equipment 105,386,467 56,721,308
----------- ----------
LAND USE RIGHTS, NET 597,993 606,983
GOODWILL 1,827,582 1,645,589
DEFERRED TAX ASSETS 5,263,302 5,975,231
--------- ---------
TOTAL ASSETS $217,927,079 $150,499,974
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $4,159,079 $4,156,349
Other payables and accrued
expenses 846,973 801,867
Income tax and other taxes payable 9,655,276 5,076,074
Due to a related party 15,473 15,124
Due to an unrelated party 1,510,000 1,300,000
Due to a stockholder 3,139,472 2,662,035
--------- ---------
Total Current Liabilities 19,326,273 14,011,449
---------- ----------
LONG-TERM LIABILITIES
Warrants 5,760,842 13,956,515
Deferred tax liabilities 12,698,645 -
---------- ---
Total Long-term Liabilities 18,459,487 13,956,515
---------- ----------
TOTAL LIABILITIES 37,785,760 27,967,964
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
EQUITY
NEP Stockholders' Equity
Common stock ($0.001 par value, 150,000,000 shares authorized,
35,454,860 and 29,604,860 shares issued and outstanding as of
June 30, 2011 and December 31,
2010 35,455 29,605
Additional paid-in capital 74,712,065 50,070,524
Retained earnings
Unappropriated 74,324,908 50,059,932
Appropriated 2,837,647 2,837,647
Accumulated other comprehensive
income 10,532,125 7,618,515
---------- ---------
Total NEP Stockholders' Equity 162,442,200 110,616,223
Noncontrolling interest 17,699,119 11,915,787
---------- ----------
TOTAL EQUITY 180,141,319 122,532,010
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $217,927,079 $150,499,974
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES ("NEP")
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the six months
ended June 30,
2011 2010
--- ---
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $26,201,854 $49,334,567
Adjusted to reconcile net income to
cash provided by operating
activities:
Depreciation, depletion and
amortization of oil properties 2,808,705 3,743,038
Depreciation of drilling equipment 999,385 955,058
Depreciation of fixed assets 161,327 191,422
Amortization of land use rights 16,478 15,747
Change in fair value of warrants (8,195,673) (25,439,166)
Stock-based compensation 72,942 1,234,750
Stock issuance for services 213,500 -
Deferred income tax 711,929 (247,188)
Gain on disposal of fixed assets (14,487) (10,851)
Changes in operating assets and
liabilities
(Increase) decrease in:
Accounts receivable 1,405,224 (7,754,150)
Prepaid expenses and other current
assets (1,327,348) (928,376)
Increase (decrease) in:
Accounts payable 2,730 (3,586,447)
Other payables and accrued expenses (48,592) (175,265)
Income tax and other taxes payable 4,579,202 2,750,639
--------- ---------
Net cash provided by operating
activities 27,587,176 20,083,778
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Addition to oil properties (202,752) (265,974)
Addition of fixed assets (28,197) (42,533)
Addition of oil properties under
construction - (106,347)
Proceeds from disposal of fixed
assets 17,670 11,519
Cash outflow for acquisition of a
subsidiary, net (10,254,276) -
----------- ---
Net cash used in investing
activities (10,467,555) (403,335)
----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of secured debenture - (10,500,000)
Proceeds from exercise of stock
warrants and options - 3,474,672
Increase in amount due to a
stockholder 477,437 3,897,494
Increase in amount due to a related
party - 61
Advance from an unrelated party 210,000 -
Decrease in amount due to a related
company - (116,890)
--- --------
Net cash provided (used in) by
financing activities 687,437 (3,244,663)
------- ----------
EFFECT OF EXCHANGE RATE ON CASH 1,571,690 537,100
--------- -------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 19,378,748 16,972,880
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 60,974,007 28,693,132
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $80,352,755 $45,666,012
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
FORMATION:
------------------------------------
Cash paid during the period for:
Income tax expense $4,689,511 $10,060,115
========== ===========
Interest expense $- $234,740
=== ========
SOURCE China North East Petroleum Holdings Ltd.
