HARBIN, China and NEW YORK, November 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 third quarter ended September 30, 2011.
Revenue for the 2011 third quarter totaled $23.8 million compared to $24.3 million in the 2011 second quarter and $20.0 million in the 2010 third quarter. Total oil production in the third quarter of 2011 was 155,552 barrels compared to 161,498 barrels in the 2011 second quarter and 135,473 barrels in the 2010 third quarter period. In the third quarter, thirty wells were taken off-line, each for a period of 10-15 days, to conduct fracture work which reduced overall production activity, compared to twenty wells last quarter. As of September 30, 2011 the Company's total wells in production remained at 295 wells. Revenue from the sale of crude oil decreased 4.5% in the 2011 third quarter to $18.4 million from $19.3 million in the 2011 second quarter and increased 86.8% from $9.9 million in the 2010 third quarter. The average sales price per barrel during the 2011 third quarter was approximately US$114.0, a 4.2% decrease from US$119.0 during the 2011 second quarter and a 57.7% increase from US$72.3 during the 2010 third quarter.
The Company's oil drilling and service subsidiary, Tiancheng contributed $5.4 million of revenue in the 2011 third quarter compared to $5.0 million in the 2011 second quarter and $10.1 million in the 2010 third quarter. During the quarter Tiancheng completed 27 wells with a total drilling depth of 46,354 meters (~152,080 feet). Tiancheng's revenue in the third quarter was in-line with the prior quarter although lower than the 2010 third quarter due to PetroChina's decision to supply its own drilling materials instead of purchasing materials from the Company, which reduced the overall price of the drilling contracts with PetroChina. In addition, two of Tiancheng's eight drilling rigs were transported to Durimu which resulted in fewer wells drilled and a reduced overall drilling depth.
Gross profit for the 2011 third quarter was $10.4 million, a 31.3% decrease from $15.1 million in the 2011 second quarter and an 18.3% decrease from $12.7 million in the 2010 third quarter, primarily due to lower average contract prices. Gross margin in the 2011 third quarter was 43.7% compared to 62.3% in the 2011 second quarter and 63.6% in the 2010 third quarter.
Operating expenses for the third quarter were $1.7 million compared to $0.9 million in the 2011 second quarter and $2.3 million in the 2010 third quarter. The year-over-year decrease in operating expenses was primarily due to the decrease in selling, general and administrative expenses.
Operating income for the 2011 third quarter was $8.7 million, or 36.4% of revenue, compared to $14.3 million, or 58.8% of revenue in the 2011 second quarter, and $10.4 million, or 52.2% of revenue in the 2010 third quarter.
The Company had a $2.8 million non-cash gain in the quarter due to a change in the fair value of warrants compared to a $3.8 million non-cash gain in the 2011 second quarter and a $0.1 million non-cash gain in the 2010 third quarter.
Net income attributable to NEP common stockholders for the 2011 third quarter was $8.3 million, or $0.23 per diluted share, compared to $13.0 million, or $0.37 per diluted share, in the 2011 second quarter, and $6.9 million, or $0.22 per diluted share, in the 2010 third quarter.
Excluding the non-cash charge related to the fair value of warrants, 2011 third quarter net income was $5.6 million, or $0.15 per diluted share, compared to $9.2 million, or $0.26 per diluted share, in the 2011 second quarter and $6.8 million, or $0.22 per diluted share, in the 2010 third quarter.
Cash and cash equivalents increased in the third quarter to $88.0 million from $61.0 million as of December 31, 2010. Total assets grew to $218.7 million, total liabilities were $27.4 million and stockholders' equity was $191.3 million as of September 30, 2011.
Mr. Jingfu Li, CEO of China North East Petroleum commented, "Our third quarter business performance was slightly lower than the second quarter 2011 but higher than the third quarter 2010 with increased oil production output. In our oil production segment, we conducted fracture work on thirty wells, which was a higher level compared to the prior quarter and resulted in each of the thirty wells being off-line for an average of 10-15 days. This fracture work on our existing wells is necessary to maximize production. We expect to conduct fracture work on another 30 of our 295 wells in the fourth quarter. As we conduct this level of fracture work, we expect our regular quarterly operational output for our 295 current wells in production to be in the range of 145-155 thousand barrels. We also plan to resume basic levels of drilling activity in our Jilin oilfields with plans to drill 7-10 wells in the fourth quarter."
"Regarding our expansion initiatives, Durimu continues to move in the right direction and is showing tremendous potential. We successfully completed 2D seismic testing work in Durimu in the third quarter and were encouraged to see positive preliminary results. We have sent two drilling teams to the Durimu oilfield to prepare the exploration well drilling program and are prepared to deploy additional drilling teams to expedite test drilling if necessary."
"With over $88 million in cash at the end of the third quarter, we have an exceptionally strong cash position. While we remain focused on our expansion initiatives, we will continue to minimize our costs wherever possible. We are encouraged with our overall efforts to develop promising opportunities to support our revenue and profit growth in the years ahead."
Oil Pricing
Please note that NEP's sole customer for its oil production, 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 9:30 am ET on Thursday, November 10th. Listeners may access the call by dialing # 1-719-325-4858. 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 November 24th, by dialing # 1-858-384-5517; passcode: 8246582
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 a decrease in crude oil prices, delays in production caused by weather events such as flooding, 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 | For the nine months ended | |||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||
REVENUE | ||||||||||||
Sales of crude oil | $ 18,404,050 | $ 9,853,426 | $ 52,544,503 | $ 41,890,415 | ||||||||
Drilling revenue | 5,384,719 | 10,132,841 | 17,281,256 | 34,731,330 | ||||||||
Total Revenue | 23,788,769 | 19,986,267 | 69,825,759 | 76,621,745 | ||||||||
COST OF REVENUE | ||||||||||||
Crude oil extraction costs | 4,034,400 | 932,168 | 7,544,893 | 3,024,158 | ||||||||
Drilling costs | 1,387,857 | 3,059,478 | 5,550,003 | 12,420,196 | ||||||||
Depreciation, depletion and amortization of oil properties | 3,081,501 | 1,294,078 | 5,890,206 | 5,037,116 | ||||||||
Depreciation of drilling equipment | 515,047 | 481,385 | 1,514,432 | 1,436,443 | ||||||||
Amortization of land use rights | 8,695 | 7,937 | 25,173 | 23,684 | ||||||||
Government oil surcharge | 4,366,785 | 1,495,917 | 12,025,129 | 6,498,555 | ||||||||
Total Cost of Revenue | 13,394,285 | 7,270,963 | 32,549,836 | 28,440,152 | ||||||||
GROSS PROFIT | 10,394,484 | 12,715,304 | 37,275,923 | 48,181,593 | ||||||||
OPERATING EXPENSES | ||||||||||||
Selling, general and administrative expenses | 940,843 | 2,026,155 | 2,120,076 | 4,394,310 | ||||||||
Professional fees | 685,295 | 160,000 | 1,569,191 | 352,734 | ||||||||
Depreciation of fixed assets | 102,979 | 94,404 | 264,306 | 285,826 | ||||||||
Total Operating Expenses | 1,729,117 | 2,280,559 | 3,953,573 | 5,032,870 | ||||||||
INCOME FROM OPERATIONS | 8,665,367 | 10,434,745 | 33,322,350 | 43,148,723 | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Other income | 267 | 1,319 | 14,754 | 10,839 | ||||||||
Other expense | (8,269) | - | (13,349) | (74,882) | ||||||||
Interest expense | - | (2,246) | - | (26,980) | ||||||||
Interest income | 69,772 | 30,996 | 183,126 | 77,616 | ||||||||
Change in fair value of warrants | 2,755,375 | 81,430 | 10,951,048 | 25,520,596 | ||||||||
Total Other Income, net | 2,817,145 | 111,499 | 11,135,579 | 25,507,189 | ||||||||
NET INCOME BEFORE INCOME TAXES | 11,482,512 | 10,546,244 | 44,457,929 | 68,655,912 | ||||||||
Income tax expense | (2,412,101) | (2,851,199) | (9,185,664) | (11,626,300) | ||||||||
NET INCOME | 9,070,411 | 7,695,045 | 35,272,265 | 57,029,612 | ||||||||
Less: net income attributable to noncontrolling interest | (757,720) | (837,903) | (2,694,598) | (3,439,993) | ||||||||
NET INCOME ATTRIBUTABLE TO NEP COMMON STOCKHOLDERS | 8,312,691 | 6,857,142 | 32,577,667 | 53,589,619 | ||||||||
OTHER COMPREHENSIVE INCOME | ||||||||||||
Total other comprehensive income | 1,468,896 | 1,984,970 | 4,403,065 | 2,699,752 | ||||||||
Less: foreign currency translation gain attributable to noncontrolling interest | 12,975 | 692,332 | (7,584) | (269,975) | ||||||||
Foreign currency translation gain attributable to NEP common stockholders | 1,481,871 | 2,677,302 | 4,395,481 | 2,429,777 | ||||||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO | $ 9,794,562 | $ 9,534,444 | $ 36,973,148 | $ 56,019,396 | ||||||||
Net income per share | ||||||||||||
- basic | $ 0.23 | $ 0.23 | $ 1.00 | $ 1.84 | ||||||||
- diluted | $ 0.23 | $ 0.22 | $ 0.96 | $ 1.72 | ||||||||
Weighted average number of shares outstanding | ||||||||||||
during the period | ||||||||||||
- basic | 35,547,717 | 29,829,089 | 32,576,094 | 29,191,932 | ||||||||
- diluted | 36,358,363 | 31,334,453 | 33,976,721 | 31,188,901 | ||||||||
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES ("NEP") | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
As of | ||||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 88,035,030 | $ | 60,974,007 | ||||
Accounts receivable | 23,720,495 | 24,142,762 | ||||||
Prepaid expenses and other current assets | 2,002,248 | 434,094 | ||||||
Total Current Assets | 113,757,773 | 85,550,863 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Oil properties, net | 88,630,138 | 41,892,288 | ||||||
Fixed assets, net | 13,694,903 | 14,767,538 | ||||||
Oil properties under construction | 214,462 | 61,482 | ||||||
Total Property and Equipment | 102,539,503 | 56,721,308 | ||||||
LAND USE RIGHTS, NET | 592,729 | 606,983 | ||||||
GOODWILL | 1,827,582 | 1,645,589 | ||||||
DEFERRED TAX ASSETS | - | 5,975,231 | ||||||
TOTAL ASSETS | $ | 218,717,587 | $ | 150,499,974 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 3,871,728 | $ | 4,156,349 | ||||
Other payables and accrued expenses | 811,025 | 801,867 | ||||||
Income tax and other taxes payable | 7,874,283 | 5,076,074 | ||||||
Due to a related party | 15,637 | 15,124 | ||||||
Due to an unrelated party | 1,500,000 | 1,300,000 | ||||||
Due to a stockholder | 3,172,059 | 2,662,035 | ||||||
Total Current Liabilities | 17,244,732 | 14,011,449 | ||||||
LONG-TERM LIABILITIES | ||||||||
Warrants | 3,005,467 | 13,956,515 | ||||||
Deferred tax liabilities | 7,132,604 | - | ||||||
Total Long-term Liabilities | 10,138,071 | 13,956,515 | ||||||
TOTAL LIABILITIES | 27,382,803 | 27,967,964 | ||||||
COMMITMENTS AND CONTINGENCIES | - | - | ||||||
EQUITY | ||||||||
NEP Stockholders' Equity | ||||||||
Common stock , $0.001 par value, 150,000,000 shares authorized,35,584,860 and 29,604,860 shares issued, 35,558,810 and 29,604,860 shares outstanding as of September 30, 2011 and December 31, 2010 | 35,585 | 29,605 | ||||||
Additional paid-in capital | 75,421,936 | 50,070,524 | ||||||
Retained earnings | ||||||||
Unappropriated | 82,631,755 | 50,059,932 | ||||||
Appropriated | 2,837,647 | 2,837,647 | ||||||
Common stock held in treasury, at cost ( 26,050 and 0 shares as of September 30, 2011 and December 31, 2010) | (50,000) | - | ||||||
Accumulated other comprehensive income | 12,013,996 | 7,618,515 | ||||||
Total NEP Stockholders' Equity | 172,890,919 | 110,616,223 | ||||||
Noncontrolling interest | 18,443,865 | 11,915,787 | ||||||
TOTAL EQUITY | 191,334,784 | 122,532,010 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 218,717,587 | $ | 150,499,974 | ||||
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES ("NEP") | ||||||
Condensed Consolidated Statements of Cash Flows | ||||||
(Unaudited) | ||||||
For the nine months ended September 30, | ||||||
2011 | 2010 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net income | $ 35,272,265 | $ 57,029,612 | ||||
Adjusted to reconcile net income to cash provided by | ||||||
operating activities: | ||||||
Depreciation, depletion and amortization of oil properties | 5,890,206 | 5,037,116 | ||||
Depreciation of drilling equipment | 1,514,432 | 1,436,443 | ||||
Depreciation of fixed assets | 264,306 | 285,826 | ||||
Amortization of land use rights | 25,173 | 23,684 | ||||
Change in fair value of warrants | (10,951,048) | (25,520,596) | ||||
Stock-based compensation | 1,061,794 | 2,007,402 | ||||
Gain on disposal of fixed assets | (14,754) | (13,586) | ||||
Changes in operating assets and liabilities | ||||||
(Increase) decrease in: | ||||||
Accounts receivable | 422,267 | (7,143,926) | ||||
Prepaid expenses and other current assets | (1,568,154) | (144,738) | ||||
Deferred tax assets | 408,071 | (353,714) | ||||
Increase (decrease) in: | ||||||
Accounts payable | (284,621) | (5,510,509) | ||||
Other payables and accrued expenses | (84,540) | (320,724) | ||||
Income tax and other taxes payable | 2,798,209 | 96,729 | ||||
Net cash provided by operating activities | 34,753,606 | 26,909,019 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Addition to oil properties | (206,495) | (754,291) | ||||
Addition of fixed assets | (23,220) | (853,914) | ||||
Addition of oil properties under construction | - | (161,372) | ||||
Proceeds from disposal of fixed assets | 17,670 | 11,709 | ||||
Cash outflow for acquisition of a subsidiary, net | (10,254,276) | - | ||||
Net cash used in investing activities | (10,466,321) | (1,757,868) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Repayment of secured debenture | - | (8,696,260) | ||||
Proceeds from exercise of stock warrants and options | - | 1,670,932 | ||||
Payment for treasury stock purchase | (50,000) | - | ||||
Increase in amount due to a stockholder | 510,024 | 2,614,467 | ||||
Increase in amount due to a related party | - | 304 | ||||
Advance from an unrelated party | 200,000 | - | ||||
Decrease in amount due to a related company | - | (116,429) | ||||
Net cash provided (used in) by financing activities | 660,024 | (4,526,986) | ||||
EFFECT OF EXCHANGE RATE ON CASH | 2,113,714 | 1,203,558 | ||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 27,061,023 | 21,827,723 | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 60,974,007 | 28,693,132 | ||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ 88,035,030 | $ 50,520,855 | ||||
SUPPLEMENTAL DISCLOSURE OF | ||||||
Cash paid during the period for: | ||||||
Income tax expense | $ 8,123,828 | $ 11,418,016 | ||||
Interest expense | $ - | $ 234,740 | ||||
