HARBIN, China and NEW YORK, August 11, 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, | For the six months ended June 30, | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
REVENUE | |||||||||||||
Sales of crude oil | $ 19,279,416 | $ 15,390,494 | $ 34,140,453 | $32,036,989 | |||||||||
Drilling revenue | 5,007,039 | 12,316,691 | 11,896,537 | 24,598,489 | |||||||||
Total Revenue | 24,286,455 | 27,707,185 | 46,036,990 | 56,635,478 | |||||||||
COST OF REVENUE | |||||||||||||
Crude oil extraction costs | 1,285,704 | 872,747 | 3,510,493 | 2,091,990 | |||||||||
Drilling costs | 1,424,975 | 4,849,429 | 4,162,146 | 9,360,718 | |||||||||
Depreciation, depletion and amortization of oil properties | 1,326,111 | 2,131,933 | 2,808,705 | 3,743,038 | |||||||||
Depreciation of drilling equipment | 506,720 | 477,619 | 999,385 | 955,058 | |||||||||
Amortization of land use rights | 8,289 | 4,891 | 16,478 | 15,747 | |||||||||
Government oil surcharge | 4,598,445 | 2,507,920 | 7,658,344 | 5,002,638 | |||||||||
Total Cost of Revenue | 9,150,244 | 10,844,539 | 19,155,551 | 21,169,189 | |||||||||
GROSS PROFIT | 15,136,211 | 16,862,646 | 26,881,439 | 35,466,289 | |||||||||
OPERATING EXPENSES | |||||||||||||
Selling, general and administrative expenses | 432,922 | 843,129 | 1,179,233 | 2,368,155 | |||||||||
Professional fees | 336,396 | 117,678 | 883,896 | 192,734 | |||||||||
Depreciation of fixed assets | 82,306 | 96,042 | 161,327 | 191,422 | |||||||||
Total Operating Expenses | 851,624 | 1,056,849 | 2,224,456 | 2,752,311 | |||||||||
INCOME FROM OPERATIONS | 14,284,587 | 15,805,797 | 24,656,983 | 32,713,978 | |||||||||
OTHER INCOME (EXPENSE) | |||||||||||||
Other income | 88 | 10,811 | 14,487 | 10,811 | |||||||||
Other expense | (1,864) | (38,201) | (5,080) | (76,173) | |||||||||
Interest expense | - | (1,162) | - | (24,734) | |||||||||
Interest income | 59,650 | 23,458 | 113,354 | 46,620 | |||||||||
Change in fair value of warrants | 3,821,730 | 14,598,248 | 8,195,673 | 25,439,166 | |||||||||
Total Other Income, net | 3,879,604 | 14,593,154 | 8,318,434 | 25,395,690 | |||||||||
NET INCOME BEFORE INCOME TAXES | 18,164,191 | 30,398,951 | 32,975,417 | 58,109,668 | |||||||||
Income tax expense | (4,110,791) | (4,175,031) | (6,773,563) | (8,775,101) | |||||||||
NET INCOME | 14,053,400 | 26,223,920 | 26,201,854 | 49,334,567 | |||||||||
Less: net income attributable to noncontrolling interest | (1,069,467) | (1,236,828) | (1,936,878) | (2,602,090) | |||||||||
NET INCOME ATTRIBUTABLE TO NEP COMMON | |||||||||||||
STOCKHOLDERS | 12,983,933 | 24,987,092 | 24,264,976 | 46,732,477 | |||||||||
OTHER COMPREHENSIVE INCOME | |||||||||||||
Total other comprehensive income | 1,648,905 | 650,508 | 2,934,169 | 714,782 | |||||||||
Less: foreign currency translation gain attributable | |||||||||||||
to noncontrolling interest | (20,559) | 106,691 | (20,559) | (962,307) | |||||||||
Foreign currency translation gain attributable to NEP | |||||||||||||
common stockholders | 1,628,346 | 757,199 | 2,913,610 | (247,525) | |||||||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO | |||||||||||||
NEP COMMON STOCKHOLDERS | $ 14,612,279 | $ 25,744,291 | $ 27,178,586 | $46,484,952 | |||||||||
Net income per share | |||||||||||||
- basic | $ 0.38 | $ 0.85 | $ 0.78 | $ 1.60 | |||||||||
- diluted | $ 0.37 | $ 0.80 | $ 0.74 | $ 1.49 | |||||||||
Weighted average number of shares outstanding | |||||||||||||
during the period | |||||||||||||
- basic | 34,158,193 | 29,500,642 | 31,057,781 | 29,195,886 | |||||||||
- diluted | 35,532,885 | 31,157,614 | 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 | ||||||||
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 | ||||||
