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China North East Petroleum Reports 2011 First Quarter Financial Results

HARBIN, China and NEW YORK, May 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 first quarter ended March 31, 2011.  

Revenue for the first quarter of 2011 totaled $21.8 million down from $28.9 million in the prior year period.  Revenue was impacted by a decrease in both oil production and drilling services compared to the prior year's quarter. Although total oil production increased sequentially from 135,473 barrels in the third quarter and 161,279 barrels in the fourth quarter of 2010, on a period over period basis, total oil production in the first quarter of 2011 declined 28.4% to 162,990 barrels, from 227,626 barrels in the prior year period. The total number of wells in production as of March 31, 2011 was 295 compared to 289 wells in production as of March 31, 2010.  The average price per barrel during the first quarter was approximately US$91.18, a 24.6% increase from US$73.16 during the first quarter of 2010.  The appreciation of oil prices in 2011 partially offset the decline in oil production.

The Company's oil drilling and service subsidiary, Tiancheng contributed $6.9 million of revenue in the first quarter of 2011 compared to $12.3 million in the first quarter of 2010.  During the quarter Tiancheng completed 26 wells with a total drilling depth of 45,327 meters (~148,711 feet).  Tiancheng's drilling activity was lower in the first quarter compared to the comparable period in 2010, due to an extended holiday season granted to the Tiancheng drilling crews in order to better prepare them for an anticipated active drilling period for the remainder of 2011.  In contrast, the Tiancheng drilling crews were not granted any holidays in the comparable period of 2010.

Gross profit for the first quarter of 2011 was $11.7 million, a 37.0% decrease from $18.6 million for the same period last year.  Gross margin in the quarter was 53.9% compared to 64.3% in first quarter of 2010.

Operating expenses for the quarter were $1.4 million compared to $1.7 million in the prior year period.  This 19% decrease was primarily due to the decrease in production output.  

Operating income decreased 38.8% to $10.4 million, or 47.6% of revenue in the first quarter 2011, from $17.0 million, or 58.4% of revenue in the prior year period.  

The Company had a $4.4 million non-cash gain in the quarter compared to a $10.8 million non-cash gain in the prior year period due to a change in the fair value of warrants.

Net income for the first quarter decreased 48% to $11.3 million, or $0.36 per diluted share, compared to $21.7 million, or $0.69 per diluted share in the prior year period. Excluding the non-cash change in fair value of warrants for the first quarter of 2011 and 2010, net income was $6.9 million, or $0.22 per diluted share, compared to $10.9 million, or $0.34 per diluted share in the prior year period.

Cash increased during the quarter to $75.2 million from $61.0 million as of December 31, 2010.  Total assets were $162.3 million, total liabilities were $26.1 million and stockholders' equity was $136.2 million as of March 31, 2011.

Mr. Jingfu Li, CEO of China North East Petroleum commented, "We are pleased that our crude oil production increased for the third consecutive quarter.  We also benefitted from a 25% rise in the price of oil in the first quarter compared to the prior year period."

"Drilling services in our Tiancheng production was slower in the first quarter.  However, Tiancheng's drilling activity has accelerated since March and is expected to remain strong going forward.  As a result of the higher price of oil, PetroChina Jilin has approved the drilling of a large number of new wells in its Jilin oilfield and we are hopeful our drilling services business can benefit from expanded drilling initiatives at PTR as well as among other private oil companies operating in the Jilin oilfield.  In fact, earlier this week, our Tiancheng subsidiary signed another contract with PTR to drill another twenty wells.  Drilling is scheduled to commence this month and conclude by the end of the year."  

"We are pleased to have recently closed our Durimu acquisition which has allowed us to secure additional oil reserves, and which will significantly expand our operations and generate better returns on our investment.  Our healthy cash flow from operations generated this quarter and expected in future quarters will provide us with adequate resources to further develop oil production activities within the Durimu oilfield.  We are excited about the potential of our recent acquisition which further propels NEP into a larger regional oil producing and oilfield services company."

Oil Pricing

Please note that NEP's sole customer, PTR, 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 8:30 am ET on Tuesday, May 10th.  Listeners may access the call by dialing # 1-719-325-4821. 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 May 24th, by dialing # 1-858-384-5517; passcode: 3567109.

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. The Company also recently added an oil service subsidiary through its acquisition of Song Yuan Tiancheng Drilling Engineering Co. Ltd. ("Tiancheng"). 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

 

 

 



        CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES ("NEP")

 

 

          Condensed Consolidated Statements of Operations and Comprehensive Income  

 

 

           For the three months ended March 31, 2011 and 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2011

 

 

2010

 

 

 

 

 

 

 

 

REVENUE 

 

 

 

 

 

 

    Sales of crude oil 

 

$

 

14,861,037

 

$

 

16,646,495

 

 

    Drilling revenue 

 

 

6,889,498

 

 

12,281,798

 

 

        Total Revenue 

 

 

21,750,535

 

 

28,928,293

 

 

 

 

 

 

 

 

COST OF REVENUE 

 

 

 

 

 

 

    Crude oil extraction costs 

 

 

2,224,789

 

 

1,219,243

 

 

    Drilling costs 

 

 

2,737,171

 

 

4,511,289

 

 

    Depreciation, depletion and amortization of oil properties 

 

 

1,482,594

 

 

1,611,105

 

 

    Depreciation of drilling equipment 

 

 

492,665

 

 

477,439

 

 

    Amortization of land use rights 

 

 

8,189

 

 

10,856

 

 

    Government oil surcharge 

 

 

3,059,899

 

 

2,494,718

 

 

        Total Cost of Revenue 

 

 

10,005,307

 

 

10,324,650

 

 

 

 

 

 

 

 

GROSS PROFIT  

 

 

11,745,228

 

 

18,603,643

 

 

 

 

 

 

 

 

OPERATING EXPENSES 

 

 

 

 

 

 

    Selling, general and administrative expenses 

 

 

746,311

 

 

1,525,026

 

 

    Professional fees 

 

 

547,500

 

 

75,056

 

 

    Depreciation of fixed assets 

 

 

79,021

 

 

95,380

 

 

        Total Operating Expenses 

 

 

1,372,832

 

 

1,695,462

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS  

 

 

10,372,396

 

 

16,908,181

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE) 

 

 

 

 

 

 

    Other income 

 

 

14,399

 

 

-

 

 

    Other expense 

 

 

(3,216)

 

 

(37,972)

 

 

    Interest expense 

 

 

-

 

 

(23,572)

 

 

    Interest income 

 

 

53,704

 

 

23,162

 

 

    Change in fair value of warrants 

 

 

4,373,943

 

 

10,840,918

 

 

        Total Other Income, net 

 

 

4,438,830

 

 

10,802,536

 

 

 

 

 

 

 

 

NET INCOME BEFORE INCOME TAXES 

 

 

14,811,226

 

 

27,710,717

 

 

    Income tax expense 

 

 

(2,662,772)

 

 

(4,600,070)

 

 

NET INCOME 

 

 

12,148,454

 

 

23,110,647

 

 

    Less: net income attributable to noncontrolling interests 

 

 

(867,411)

 

 

(1,365,262)

 

 

NET INCOME ATTRIBUTABLE TO NEP COMMON STOCKHOLDERS 

 

 

11,281,043

 

 

21,745,385

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME 

 

 

 

 

 

 

    Total other comprehensive income 

 

 

1,285,264

 

 

64,274

 

 

    Less: foreign currency translation gain attributable to noncontrolling interests 

 

 

-

 

 

(1,068,998)

 

 

    Foreign currency translation gain attributable to NEP common stockholders 

 

 

1,285,264

 

 

(1,004,724)

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO NEP COMMON STOCKHOLDERS 

 

$

 

12,566,307

 

$

 

20,740,661

 

 

 

 

 

 

 

 

Net income per share  

 

 

 

 

 

 

- basic 

 

$

 

0.38

 

$

 

0.75

 

 

- diluted 

 

$

 

0.36

 

$

 

0.69

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding during the year 

 

 

 

 

 

 

- basic 

 

 

29,604,860

 

 

28,870,641

 

 

- diluted 

 

 

31,357,383

 

 

31,302,781

 

 

 

 

 

 

 



   CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES ("NEP")

 

 

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

As of

 

 

 

 

March 31,

 

 

December 31,

 

 

 

 

2011

 

 

2010

 

 

 

 

(Unaudited)

 

 

(Audited)

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

    Cash and cash equivalents

 

$

 

75,154,685

 

$

 

60,974,007

 

 

    Accounts receivable

 

 

21,983,502

 

 

24,142,762

 

 

    Prepaid expenses and other current assets

 

 

1,434,878

 

 

434,094

 

 

    VAT tax recoverable

 

 

142,292

 

 

-

 

 

        Total Current Assets

 

 

98,715,357

 

 

85,550,863

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT

 

 

 

 

 

 

    Oil properties, net

 

 

40,873,145

 

 

41,892,288

 

 

    Fixed assets, net

 

 

14,345,467

 

 

14,767,538

 

 

    Oil properties under construction

 

 

235,317

 

 

61,482

 

 

        Total Property and Equipment

 

 

55,453,929

 

 

56,721,308

 

 

 

 

 

 

 

 

LAND USE RIGHTS, NET

 

 

601,371

 

 

606,983

 

 

GOODWILL

 

 

1,645,589

 

 

1,645,589

 

 

DEFERRED TAX ASSETS

 

 

5,855,909

 

 

5,975,231

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

 

162,272,155

 

$

 

150,499,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

    Accounts payable

 

$

 

4,513,255

 

$

 

4,156,349

 

 

    Other payables and accrued expenses

 

 

1,100,009

 

 

801,867

 

 

    Income tax and other taxes payable

 

 

6,630,706

 

 

5,076,074

 

 

    Due to a related party

 

 

15,267

 

 

15,124

 

 

    Due to an unrelated party

 

 

1,500,000

 

 

1,300,000

 

 

    Due to a stockholder

 

 

2,739,111

 

 

2,662,035

 

 

        Total Current Liabilities

 

 

16,498,348

 

 

14,011,449

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

    Warrants

 

 

9,582,572

 

 

13,956,515

 

 

        Total Long-term Liabilities

 

 

9,582,572

 

 

13,956,515

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

26,080,920

 

 

27,967,964

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES 

 

 

-

 

 

-

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

    NEP Stockholders' Equity

 

 

 

 

 

 

    Common stock ($0.001 par value, 150,000,000 shares authorized,

 

 

 

 

 

 

        29,604,860 shares issued and outstanding as of

 

 

 

 

 

 

        March 31, 2011 and December 31, 2010

 

 

29,605

 

 

29,605

 

 

    Additional paid-in capital

 

 

50,296,030

 

 

50,070,524

 

 

    Retained earnings

 

 

 

 

 

 

      Unappropriated

 

 

61,340,976

 

 

50,059,932

 

 

      Appropriated

 

 

2,837,647

 

 

2,837,647

 

 

    Accumulated other comprehensive income

 

 

8,903,779

 

 

7,618,515

 

 

        Total NEP Stockholders' Equity

 

 

123,408,037

 

 

110,616,223

 

 

    Noncontrolling interests

 

 

12,783,198

 

 

11,915,787

 

 

TOTAL EQUITY

 

 

136,191,235

 

 

122,532,010

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

 

162,272,155

 

$

 

150,499,974

 

 

 

 

 

 

 




Source: China North East Petroleum Holdings Ltd.
Related Stocks:
AMEX:NEP
Keywords: Oil/Energy
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