omniture

China North East Petroleum Reports Third Quarter 2010 Financial Results

--3Q10 Revenue Increased 39% to $20.0 Million--

--3Q10 Operating Income Increased 32% $10.7 Million--

 


HARBIN, China and NEW YORK, Nov. 20, 2010 /PRNewswire-Asia-FirstCall/ -- 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 third quarter ended September 30, 2010.  

Revenue for the third quarter of 2010 increased 38.8% to $20.0 million from $14.4 million in the prior year period.  This increase was primarily a result of the contribution from the Tiancheng drilling services business as well as from the higher price of oil compared to the prior year period.  Tiancheng contributed $10.1 million of the revenue in the third quarter 2010.  The average per barrel oil price for the third quarter was US$72.30, a 12% increase from US$64.33 for the third quarter of 2009. Total oil production in the third quarter 2010 was 135,473 barrels, a 40% decrease from 224,219 barrels in the prior year third quarter period. This decrease was primarily due to unexpected severe flooding that washed out roads disabling the passage of oil delivery trucks.  Oil production was also slightly impacted by the natural depletion of production output among existing wells.  In the third quarter 2010, three new oil wells were drilled in the Company's oilfields, bringing the total number of producing wells to 292 compared to 259 in the third quarter of the prior year period.

Third quarter 2010 gross profit increased 37.1% to $12.7 million, or 63.6% of revenue, from $9.3 million, or 64.4% of revenue, in the third quarter of 2009.  

Third quarter 2010 operating expenses totaled $2.0 million compared to $1.1 million for the prior year third quarter period, an increase of 76%. The increase was primarily due to additional expenses related to new drilling operations and higher professional and consulting fees due to the company's recent restatement of financial results.

Operating income increased 31.8% year over year to $10.7 million, or 53.7% of revenue in the third quarter of 2010, from $8.2 million, or 56.6% of revenue in the third quarter of 2009.  

Other expenses for the third quarter of 2010, which primarily included a change in fair value of warrants were $0.4 million compared to an income gain of $2.0 million in the prior year third quarter period, primarily due to a change in fair value of warrants.  As a result, net income for the third quarter decreased 11% to $6.6 million, or $0.21 per diluted share, compared $7.4 million, or $0.31 per diluted share in the third quarter of 2009.

As of September 30, 2010, the Company had $50.5 million in cash and cash equivalents, compared to $28.7 million as of December 31, 2009.  Total assets were $143.4 million and total liabilities were $30.5 million and stockholders' equity was $112.9 million as of September 30, 2010.

Mr. Jingfu Li, CEO of China North East Petroleum commented, "Our third quarter business performance was aided by the contribution of our drilling services business and a strong rise in oil prices when compared to the prior year period.  While our per barrel oil production rate was lower, we believe our fourth quarter production will operate at a more normalized rate. Our Tiancheng oilfield services drilled 45 new wells in the third quarter and 156 wells through the first nine months of the year.  This business now has eight oil drilling teams with the same number of drilling rigs and it is the largest of the four private contract drilling and service companies operating in PetroChina's Jilin oilfield. Tiancheng has additional contracts under negotiation which we expect will result in the full utilization of its rigs and steady sales growth for the next several quarters."

"There are now 292 producing wells within the four oilfields in which we operate, which represents less than half of the total number of wells we believe can be drilled in these four oilfields.  We continue to view these four oilfields as viable growth opportunities for our business however, we have decelerated our well drilling plan year-to-date to instead focus on potential acquisition opportunities. We have identified several potential targets and believe that if we are successful with our acquisition efforts, it could result in significant contributions to our overall operations.  We remain focused on minimizing our operating expenses and growing our cash position for the time being and look forward to updating our investors on any developments related to our acquisitions opportunities in the near future."

"With respect to our financial disclosure controls and procedures, the management team is actively working to improve the control environment and to implement procedures that will ensure the integrity, accuracy and timeliness of our financial statement preparation process going forward.   We have utilized an outside consulting firm with specialized knowledge in financial accounting and specific knowledge of oil industry accounting to assist us with the review and restatement of past financial statements. We have also engaged Ernst & Young (China) Advisory Ltd. to assist us with SOX 404 compliance. Ernst & Young will also provide recommendations to our management for instituting necessary additional controls to enhance the risk management capability of our internal controls over financial reporting.  In the third quarter, we also implemented financial reporting training programs for specific staff members, particularly with respect to accounting for non-cash items.  We are making the effort to support these endeavors to ensure that our previous reporting delays do not recur."

"As we look at our business in the fourth quarter and beyond, we continue to evaluate opportunities to expand production, increase our scale, drill more wells, and expand into new regions.  Through our efforts today, we believe China North East Petroleum can play a larger regional role in China's oil production and services industry in the future," concluded Mr. Li.  

Nine Month 2010 Results

Net sales for the nine months ended September 30, 2010 were $76.6 million compared to $34.6 million for the prior year period.  In the nine-month period, the Company drilled 3 new oil wells with 3 wells under construction in the four oilfields which are owned by the Company.

Total oil production for nine-month period was 561,875 barrels compared to 671,351 barrels in the same period in the prior year period. Oil prices in nine-month period averaged approximately $74.00 per barrel, which represents a 42% increase over prior year period levels of approximately $52.00 per barrel.

Gross profit for the nine-month period was $48.2 million, a 120% increase from $21.9 million in the same period last year.  Gross margin was 62.9% compared to 63.2% in the prior year period.

Operating expenses for the nine-month period were $5.0 million compared to $16.7 million in the prior year period.  This decrease was primarily due to a $13.8 million decrease in impairment of oil properties offset by higher consulting fees and overhead expenses associated with new drilling operations when compared to the prior year period.  

Net income for the nine months ended September 30, 2010 were $53.6 million compared to net loss of $17.4 million for the same period in 2009. The increase was the result of the decrease of expense associated with the impairment of oil properties, loss on extinguishment of debt and the change in fair value of warrants as well as the increase of the total revenue generated from new added drilling services operation.

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.

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 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


Senior Vice President, Corporate Finance


Email: info@cnepetroleum.com




Bill Zima


ICR, Inc.


Tel:   +1-203-682-8233





(Financial tables on following pages)

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


Condensed Consolidated Balance Sheets














As of






September 30,


December 31,






2010


2009






(Unaudited)


(Audited)










ASSETS










CURRENT ASSETS







Cash and cash equivalents

$

50,520,855

$

28,693,132



Accounts receivable, net


23,375,295


16,231,369



Prepaid expenses and other current assets


823,087


678,349




Total Current Assets


74,719,237


45,602,850










PROPERTY AND EQUIPMENT







Oil properties, net


42,494,697


45,777,428



Fixed assets, net


15,097,941


16,466,117



Oil properties under construction


93,535


69,395




Total Property and Equipment


57,686,173


62,312,940










LAND USE RIGHTS, NET


610,242


630,387


GOODWILL


1,645,589


1,645,589


DEFERRED TAX ASSETS


7,892,582


7,538,868


DEPOSITS PAID FOR ACQUISITION OF LAND USE RIGHTS


810,678


-










TOTAL ASSETS

$

143,364,501

$

117,730,634


















LIABILITIES AND STOCKHOLDERS' EQUITY










CURRENT LIABILITIES







Accounts payable

$

7,863,131

$

13,373,640



Current portion of secured debenture


-


5,625,000



Other payables and accrued expenses


844,770


1,165,494



Due to a related party


14,930


14,626



Due to a related company


28,367


144,796



Income tax and other taxes payable


5,026,931


4,930,202



Due to a stockholder


2,703,736


89,269




Total Current Liabilities


16,481,865


25,343,027










LONG-TERM LIABILITIES







Secured debenture


-


4,875,000



Warrants


14,007,665


39,528,261




Total Long-term Liabilities


14,007,665


44,403,261










TOTAL LIABILITIES


30,489,530


69,746,288










COMMITMENTS AND CONTINGENCIES














EQUITY







NEP Stockholders' Equity







Common stock ($0.001 par value, 150,000,000 shares authorized,
29,504,860 shares issued and outstanding as of September 30, 2010
; 27,935,818 shares issued and outstanding as of December 31, 2009)


29,505


27,936











Additional paid-in capital


47,882,439


42,582,142



Retained earnings (deficits)







   Unappropriated


45,592,252


(7,995,947)



   Appropriated


2,524,055


2,524,055



Accumulated other comprehensive income


4,575,595


3,181,452




Total NEP Stockholders' Equity


100,603,846


40,319,638



Noncontrolling interests


12,271,125


7,664,708


TOTAL EQUITY


112,874,971


47,984,346










TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

143,364,501

$

117,730,634












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


Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)


(Unaudited)


















For the three months ended September 30,


For the nine months ended September 30,






2010


2009


2010


2009








(Restated)




(Restated)














REVENUE











Sales of crude oil

$

9,853,426

$

14,403,921

$

41,890,415

$

34,654,549



Drilling revenue


10,132,841


-


34,731,330


-




Total Revenue


19,986,267


14,403,921


76,621,745


34,654,549














COST OF REVENUE











Production costs


932,168


1,103,163


3,024,158


2,769,762



Drilling costs


3,059,478


-


12,420,196


-



Depreciation, depletion and amortization of oil properties


1,294,078


2,369,888


5,037,116


7,684,931



Depreciation of drilling equipment


481,385


-


1,436,443


-



Amortization of land use rights


7,937


2,982


23,684


8,943



Government oil surcharge


1,495,917


1,655,000


6,498,555


2,273,167




Total Cost of Revenue


7,270,963


5,131,033


28,440,152


12,736,803














GROSS PROFIT


12,715,304


9,272,888


48,181,593


21,917,746














OPERATING EXPENSES











Selling, general and administrative expenses


1,801,405


855,138


3,944,810


2,252,285



Professional fees


160,000


105,225


352,734


278,140



Consulting fees


224,750


89,265


449,500


159,260



Depreciation of fixed assets


94,404


69,947


285,826


209,748



Impairment of oil properties


-


1,456


-


13,833,812




Total Operating Expenses


2,280,559


1,121,031


5,032,870


16,733,245














INCOME(LOSS) FROM OPERATIONS


10,434,745


8,151,857


43,148,723


5,184,501














OTHER INCOME (EXPENSE)











Other income


1,319


7,134


10,839


7,134



Other expense


-


(20,780)


(74,882)


(22,581)



Interest expense


(2,246)


(236,931)


(26,980)


(777,595)



Amortization of deferred financing costs


-


-


-


(144,507)



Amortization of discount on debenture


-


-


-


(670,492)



Imputed interest expense


-


(70,210)


-


(120,127)



Interest income


30,996


25,141


77,616


44,905



Change in fair value of warrants


81,430


2,272,159


25,520,596


(9,805,886)



Loss on extinguishment of debt


-


-


-


(8,260,630)




Total Other Income (expense), net


111,499


1,976,513


25,507,189


(19,749,779)














NET INCOME (LOSS) BEFORE INCOME TAXES


10,546,244


10,128,370


68,655,912


(14,565,278)



Income tax expense


(2,851,199)


(1,955,789)


(11,626,300)


(1,955,789)


NET INCOME (LOSS)


7,695,045


8,172,581


57,029,612


(16,521,067)



Less: net loss ( income) attributable to noncontrolling interests


(837,903)


(704,386)


(3,439,993)


(866,915)


NET INCOME (LOSS)  ATTRIBUTABLE TO NEP COMMON STOCKHOLDERS


6,857,142


7,468,195


53,589,619


(17,387,982)














OTHER COMPREHENSIVE INCOME (LOSS)











Total other comprehensive income


1,984,970


19,608


2,699,752


88,980



Less: foreign currency translation (gain) loss attributable to noncontrolling interests


692,332


(1,961)


(269,975)


(8,898)



Foreign currency translation gain attributable to NEP common stockholders


2,677,302


17,647


2,429,777


80,082














COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NEP COMMON STOCKHOLDERS

$

9,534,443

$

7,485,842

$

56,019,395

$

(17,307,900)














Net income (loss) per share










- basic

$

0.23

$

0.34

$

1.84

$

(0.81)


- diluted

$

0.22

$

0.31

$

1.72

$

(0.81)














Weighted average number of shares outstanding during the period










- basic


29,829,089


21,780,364


29,191,932


21,143,560


- diluted


31,334,453


24,025,976


31,188,901


21,143,560
















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


Condensed Consolidated Statements of Cash Flows


(Unaudited)














For the nine months ended September 30,






2010


2009








(Restated)










CASH FLOWS FROM OPERATING ACTIVITIES








Net income (loss)


$

57,029,612

$

(16,521,067)



Adjusted to reconcile net income (loss) to cash provided by








operating activities:








Depreciation, depletion and amortization of oil properties



5,037,116


7,684,931



Depreciation of drilling equipment



1,436,443





Depreciation of fixed assets



285,826


209,748



Amortization of land use rights



23,684


8,943



Amortization of deferred financing costs



-


144,507



Amortization of discount on debenture



-


670,492



Amortization of stock option compensation



642,908


794,951



Loss on extinguishment of debt



-


8,260,630



Change in fair value of warrants



(25,520,596)


9,805,886



Impairment of oil properties



-


13,833,812



Warrants issued for services



17,827


175,855



Stock issued for consulting services



-


88,000



Stock-based compensation for employee service



1,346,667


607,500



Imputed interest expenses



-


120,127



Gain on disposal of fixed assets



(13,586)


(7,134)



Changes in operating assets and liabilities








(Increase) decrease in:








Accounts receivable



(7,143,926)


(2,279,360)



Prepaid expenses and other current assets



(144,738)


(3,206,650)



Value added tax recoverable



-


311,240



Deferred tax assets



(353,714)


(4,027,787)



Increase (decrease) in:








Accounts payable



(5,510,509)


(7,404,068)



Other payables and accrued expenses



(320,724)


163,052



Income tax and other taxes payable



96,729


1,242,325



Net cash provided by operating activities



26,909,019


10,675,933










CASH FLOWS FROM INVESTING ACTIVITIES








Purchase of oil properties



(754,291)


(3,053,668)



Purchase of fixed assets



(43,236)


(185,369)



Additions to oil properties under construction



(161,372)


-



Proceeds on disposal of fixed assets



11,709


28,656



Deposits paid for acquisition of land use right  



(810,678)





Cash outflow from acquisition of a subsidiary



-


(7,837,926)



Net cash used in investing activities



(1,757,868)


(11,048,307)










CASH FLOWS FROM FINANCING ACTIVITIES








Proceeds from issuance and sale in a public offering of  








common stock and warrants, net



-


17,276,003



Repayment of secured debenture



(8,696,260)


(2,500,000)



Proceeds from exercise of stock warrants and options



1,670,932


1,200



Increase in amount due to a stockholder



2,614,467


5,601,438



Increase (decrease) in due to a related party



304


(51,637)



Decrease in due to a related company



(116,429)


-



Net cash (used in) provided by financing activities



(4,526,986)


20,327,004










EFFECT OF EXCHANGE RATE ON CASH



1,203,558


(35,495)










NET INCREASE IN CASH AND CASH EQUIVALENTS



21,827,723


19,919,135










CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD



28,693,132


13,239,213










CASH AND CASH EQUIVALENTS AT END OF PERIOD


$

50,520,855

$

33,158,348










SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:







Cash paid during the period for:








Income tax expense


$

11,418,016

$

5,975,876











Interest expense


$

234,740

$

540,664



























SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

(1)  On January 10, 2010, 867,438 shares of common stock at $2.35 per share was issued to settle the secured debenture regarding the warrant  

(2) On March 29, 2010, 400,000 shares of common stocks valued at $3,232,000 were issued to the key management of Tiancheng; of which the Company recognized $1,346,667 as staff compensation expenses included in selling, general and administrative expenses for the nine months ended September 30, 2010

(3) In April 2010, a total of 29,865 shares of common stocks were issued in connection with cashless exercise of investor warrants

Source: China North East Petroleum Holdings Limited
Related Stocks:
AMEX:NEP
Keywords: Oil/Energy
collection