-- Acquisition Expands Company's Vertical Integration Within China's Oil E&P Industry --
HARBIN, China and NEW YORK, Oct. 1 /PRNewswire-Asia-FirstCall/ -- China North East Petroleum Holdings Limited (the "Company" or "NEP") (NYSE Amex: NEP), an oil producing company in Northern China, today announced that it has acquired all of the equity interest in Song Yuan Tiancheng Drilling Engineering Co. Ltd. ("Tiancheng"), an oil drilling and services company based in Song Yuan City, China. This acquisition marks NEP's expansion into the oilfield services industry and enhances the Company's vertical integration within China's private oil exploration and production (E&P) industry.
NEP paid USD$13.0 million in cash for 100% of the equity interest in Tiancheng. Due to PRC legal restrictions, 5% of the equity interest has to be held in trust for the benefit of NEP.
Tiancheng is a leading oil drilling and services company with seven rigs in operation. With approximately 320 employees, it has the capacity to drill 220 wells on an annual basis. Tiancheng is the largest of three PetroChina- licensed private drilling operators based on the total number of drilling rigs. The company counts PetroChina and two private oil producers as its main customers. PetroChina represents the majority of the company's revenue and NEP has not utilized Tiancheng for drilling services in the past. In 2008, Tiancheng generated revenue of approximately $14.7 million, net profit of $5.2 million and was cash flow positive from operations.
"We are extremely pleased with this acquisition, which transforms China North East Petroleum into a more diversified oil exploration and production company," commented Mr. Hongjun Wang, President of China North East Petroleum. "We believe that the vertical expansion of our business into oilfield services will increase our competitive advantage and provide us with an opportunity to capture additional business from China's state-owned oil companies, who continue to invest heavily in the drilling and services sector. This agreement allows us to better develop lease opportunities with China's SOE's at terms that are more favorable for our company. Further, possessing in- house drilling rigs can accelerate our drilling schedule and lower operating costs. Tiancheng has generated consistently solid financial results, including operating margins in the mid-40% range, net margins in the mid-30% range and steady operating cash flow."
"With the addition of Tiancheng, we are building a platform that strengthens our relationships with SOEs, enhances our business development opportunities, reduces our exposure to oil price volatility and further establishes NEP as a major player in China's private oil E&P industry. We look forward to providing our shareholders with an update on our business in the coming weeks," concluded Mr. Wang.
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 four oilfields in Northern China. For more information about the Company, please visit http://www.cnepetroleum.com .
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.
For more information, please contact:
United States:
Chao Jiang
Executive Vice President of Finance
Tel: +1-212-307-3568
Email: chao.jiang@cnepetroleum.com
Bill Zima
ICR, Inc.
Tel: 203-682-8200
China:
Yang Dio Zhang
Chief Financial Officer
Tel: +86-451-5558-0253
Email: dio.zhang@cnepetroleum.com
