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China North East Petroleum Reports Third Quarter 2009 Financial Results
-- 3Q09 Production Output Increases 30% to 224,750 Barrels --
-- Issues Outlook for 4Q09 --
Related Quotes
| Symbol | Price | Change |
|---|---|---|
| NEP | 8.90 | 0.00 |
HARBIN, China and NEW YORK, Nov. 16 /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, 2009.
Third Quarter 2009 Results
Net sales in the third quarter were $14.4 million, down 24% from $19.1 million in the same period last year. This decrease was due to a 43% drop in the average oil sale price to $64.33 from $111.90 in the prior year period. Crude oil production output for the third quarter increased 30% to 224,219 barrels from 172,730 barrels in the prior year period, which offset the impact of lower oil prices. The increase in production output was mainly due to an increase in the number of producing wells to 259 (with 3 additional wells under construction) as of September 30, 2009 from 254 as of June 30, 2009 and 218 as of September 30, 2008. Of the wells operating on September 30, 2009, 227 producing wells are located in the Qian'an 112 oilfield, 18 in the Hetingbao 301 oilfield, 7 in the Daan 34 oilfield and 7 producing wells in the Gudian 31 oilfield.
Mr. Hongjun Wang, President of China North East Petroleum commented, "Despite a 43% decrease in the average oil sale price, we continue to report strong operating results, as our crude oil output increases year over year. We are pleased with our ability to broaden our production output, and with our ability to execute well against our internal plans. During the third quarter, we successfully raised $18.4 million in financing through a public offering of 4 million shares of our common stock. We were very encouraged by the market's response to our offering, and the funds allowed us to proactively pursue our consolidation goals. Shortly after our successful offering, we acquired Tiancheng, an oilfield services business. We are extremely excited about this acquisition, which transforms China North East Petroleum into a more diversified oil services and production company, with incremental revenue opportunities, additional lease opportunities, the ability to accelerate our drilling schedule and lower operating costs, and perhaps most importantly, diversify our cash flows in order to continue to achieve strong financial results in all market environments."
Cost of sales decreased by 39%, to $5.6 million for the three months ended September 30, 2009 from $9.2 million for the three months ended September 30, 2008. The decrease in cost of sales resulted primarily from a decrease in the oil surcharge paid to the PRC government, due to the decline in oil prices generally. For the current quarter, the Company paid an oil surcharge of $1.7 million to the PRC government as compared to $4.5 million paid for the prior year period. Gross profit in the third quarter decreased 11% to $8.8 million from $9.9 million in the same period last year. Third quarter gross margin increased 924 basis points to 61.2% compared to 52.0% in the prior year period.
Third quarter operating expenses increased to $1.1 million, or 7.5% of sales, from $1.0 million, or 5.1% of sales, in the third quarter of 2008. This is primarily a result of increased professional fees and consulting fees from recent business development activities. Third quarter operating profit was $7.8 million, or 54.2% of total sales, compared to $8.9 million, or 46.8% of total sales, in the prior year period.
Net income for the third quarter decreased 18% to $4.1 million, or $0.17 per diluted share, versus $5.0 million, or $0.24 per diluted share, in the third quarter of 2008.
On September 30, 2009, the Company had cash and cash equivalents of $33.2 million, compared with $22.7 million at the end of the second quarter. The current cash position includes $17.3 million net proceeds raised in a public offering in the third quarter. This was offset by the Company's $8.5 million initial cash payment for the Tiancheng acquisition in the 2009 third quarter. The remaining payment of $4.5 million was paid in October 2009.
Fourth Quarter and 2009 Financial Outlook
For the fourth quarter of 2009, the Company anticipates total revenue of approximately $28 million, which includes approximately $15 million in anticipated revenue from the oil production business and $13 million of revenue from Tiancheng oilfield services business. Net income in the fourth quarter is expected to be in the range of $9.1-$9.3 million, or $0.32 to $0.33 per diluted share, based on a weighted average share count of approximately 27.6 million shares. The Company's fourth quarter oil production revenue estimate is based on its heavy, sour grade of crude oil traded in Singapore priced at $65 per barrel. The Company expects to drill approximately 25 new wells in the fourth quarter.
For the full year 2009, the Company now expects full-year revenue of approximately $62.9 million. This estimate includes the fourth quarter contribution from Tiancheng. The Company also anticipates net income of approximately $18.3-$19.1 million, or diluted EPS of $0.78-$0.81, based on a weighted average share count of approximately 23.4 million shares, reflecting the partial-year impact of the shares issued in our recent offering. The Company expects to have a total of approximately 284 wells at the end of its 2009 fourth quarter.
Please note that the fourth quarter and full year guidance excludes an annual non-cash adjustment gain/charge associated with a change to its depreciation of oil properties. According to SEC regulations, companies principally involved in the exploration and production of petroleum need to update their proven oil reserve estimate annually. This change to the Company's proven oil reserve could impact the company's cost of goods sold in the 2009 fourth quarter and could have a material effect to its net income for the fourth quarter and full year 2009 periods. The company expects its full year audit to examine the depreciation rate of its oil properties will be completed at the end of the fourth quarter. More information related to this topic can be found in the Company's most recent 10-K filing with the SEC and its fourth quarter 2008 earnings press release.
Mr. Wang concluded, "We are very pleased with the evolution of our company. China Northeast Petroleum has now reached a point in our maturation where we have enough visibility to provide investors with guidance and updates on our progress relative to our stated goals. We are excited about the integration of Tiancheng, which we believe will be a strong complement to our oil production business. We are thrilled with our company's execution as it relates to our internal plans. We expect to be on target to drill another 25 wells in the fourth quarter, which makes the fourth quarter by far our busiest this year. We plan to drill another 60-70 new wells in 2010 within our four existing oilfields. We believe that there is an opportunity to drill an incremental 320 new wells within our existing oilfields over the next 3-5 years, positioning the company for significant growth over the coming years with minimal new capital investment.
"Finally, with our solid financial execution, our strong balance sheet, and our access to capital, we expect to continue to be a consolidator within the industry over the coming years. We will continue to be opportunistic about purchasing businesses that will allow us to increase in scale, drill more wells, acquire new leases, and expand into new regions, in order to add to our shareholder value and further diversify and strengthen our business well into the future."
Nine Month 2009 Results
Net sales for the nine months ended September 30, 2009 decreased 21% to $34.7 million compared to $44.1 million for the prior year period. In the nine-month period, the Company drilled 41 new oil wells in the four oilfields which are owned by the Company. Total oil production for nine-month period was 671,352 barrels, or approximately a 59% increase, as compared to 422,788 barrels in the same period in the prior year period. Oil prices in nine-month period averaged approximately $51.53 per barrel, which represents a decrease of 50% over prior year period levels of approximately $103.60 per barrel.
Gross profit for the nine-month period was $21.3 million, a 10% decrease from $23.6 million in the same period last year. Gross margin increased 788 basis points to 61.5% compared to 53.6% in the prior year period.
Operating expenses for the nine-month period were $2.8 million, or 8.0% of sales, compared to $2.0 million, or 4.4% of sales, in the prior year period. Operating income decreased 14% to $18.5 million, or 53.5% of sales, compared to $21.7 million, or 49.2% of sales, in the prior year period. The increase in operating expenses resulted primarily from higher selling and administrative expenses, higher depreciation due to increased fixed assets and an increase in fees related to financing activities.
Net income decreased by 25% to $9.1 million, or $0.41 per diluted share, from $12.2 million, or $0.62 per diluted share, for the first nine months of 2008.
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 Information China North East Petroleum's management team will host an earnings conference call on November 16, 2009 at 8:30am US Eastern time. Listeners may access the call by dialing #1-719-457-2607. 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 30th, by dialing #1-719-457-0820; pin number: 8142286.
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
Tel: +1-212-307-3568
Email: chao.jiang@cnepetroleum.com
Bill Zima
ICR, Inc.
Tel: +1-203-682-8200
China:
Yang Dio Zhang
Chief Financial Officer
Tel: +86-451-5558-0253
Email: dio.zhang@cnepetroleum.com
(Financial tables on following pages)
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited) (Unaudited)
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
NET SALES $14,403,921 $19,060,007 $34,654,549 $44,051,519
COST OF SALES
Production costs 1,103,163 895,155 2,769,762 2,390,432
Depreciation of oil
and gas properties 2,824,981 3,774,327 8,283,230 8,155,321
Amortization of
land use rights 2,982 2,975 8,943 8,743
Government oil
surcharge 1,655,000 4,480,955 2,273,167 9,865,655
Total Cost
of Sales 5,586,126 9,153,412 13,335,102 20,420,151
GROSS PROFIT 8,817,795 9,906,595 21,319,447 23,631,368
OPERATING EXPENSES
Selling, general
and administrative
expenses 749,204 793,479 1,932,541 1,339,404
Professional
fees 98,261 42,850 323,309 140,180
Consulting fees 142,332 91,926 298,627 319,764
Depreciation of
fixed assets 69,947 50,445 209,748 160,930
Total
Operating
Expenses 1,059,744 978,700 2,764,225 1,960,278
INCOME FROM
OPERATIONS 7,758,051 8,927,895 18,555,222 21,671,090
OTHER INCOME
(EXPENSE)
Other income 7,134 809 7,134 66,651
Other expense (20,780) (2,000) (22,581) (107,601)
Interest expense (236,931) (296,761) (777,595) (721,805)
Amortization of
deferred financing
costs (74,139) (74,140) (222,418) (172,992)
Amortization of
discount on
debenture (513,415) (486,803) (1,515,473) (1,135,874)
Imputed interest
expense (70,210) (16,794) (120,127) (49,535)
Interest income 25,141 4,238 44,905 34,204
Total
Other
Expense,
net (883,200) (871,451) (2,606,155) (2,086,952)
NET INCOME BEFORE
INCOME TAXES 6,874,851 8,056,444 15,949,067 19,584,138
Income tax
expense (2,186,156) (2,390,961) (5,273,823) (5,695,498)
NET INCOME 4,688,695 5,665,483 10,675,244 13,888,640
Less: net income
attributable to
noncontrolling
interests (635,986) (711,301) (1,533,605) (1,687,394)
NET INCOME
ATTRIBUTABLE TO
NEP COMMON
STOCKHOLDERS 4,052,709 4,954,182 9,141,639 12,201,246
OTHER COMPREHENSIVE
INCOME
Total other
comprehensive
income 41,798 152,651 125,193 2,020,632
Less: foreign
currency
translation gain
attributable to
noncontrolling
interests (4,180) (15,265) (12,520) (202,063)
Foreign currency
translation gain
attributable to
NEP common
stockholders 37,618 137,386 112,673 1,818,569
COMPREHENSIVE INCOME
ATTRIBUTABLE TO
NEP COMMON
STOCKHOLDERS $4,090,327 $5,091,568 $9,254,312 $14,019,815
Net income per
share
- basic $0.19 $0.25 $0.43 $0.63
- diluted $0.17 $0.24 $0.41 $0.62
Weighted average
number of shares
outstanding during
the period
- basic 21,780,364 19,987,123 21,143,560 19,480,284
- diluted 24,025,976 20,676,711 22,266,408 19,624,216
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES ("NEP")
Condensed Consolidated Balance Sheets
September 30, December 31,
2009 2008
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 33,158,348 $ 13,239,213
Accounts receivable, net 6,509,440 4,230,080
Prepaid expenses and other
current assets 3,987,771 781,121
Value added tax recoverable -- 311,240
Total Current Assets 43,655,559 18,561,654
PROPERTY AND EQUIPMENT
Oil and gas properties, net 65,847,281 70,193,852
Fixed assets, net 13,820,768 1,684,377
Oil and gas properties under
construction -- 714,629
Total Property and Equipment 79,668,049 72,592,858
LAND USE RIGHTS, NET 641,204 36,198
GOODWILL 1,645,589 --
DEFERRED FINANCING COSTS, NET 716,680 939,098
TOTAL ASSETS $ 126,327,081 $ 92,129,808
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,178,864 $ 10,985,894
Current portion of secured
debenture, net of discount 3,971,112 1,489,126
Other payables and accrued
expenses 5,677,494 742,264
Due to related parties 14,625 66,262
Income tax and other taxes
payable 5,598,835 3,710,870
Due to a stockholder 5,602,176 738
Total Current Liabilities 29,043,106 16,995,154
LONG-TERM LIABILITIES
Accounts payable 9,347,865 13,944,903
Secured debenture, net of
discount 2,815,879 6,594,700
Deferred tax payable 64,465 762,405
Total Long-term Liabilities 12,228,209 21,302,008
TOTAL LIABILITIES 41,271,315 38,297,162
COMMITMENTS AND CONTINGENCIES -- --
EQUITY
NEP Stockholders' Equity
Common stock ($0.001 par value,
150,000,000 shares authorized,
25,119,619 shares issued and
outstanding as of September 30,
2009; 20,784,080 shares issued
and outstanding as of December
31, 2008) 25,120 20,784
Additional paid-in capital 39,934,062 21,384,816
Deferred stock compensation (641,250) (1,248,750)
Retained earnings
Unappropriated 33,677,718 24,536,079
Appropriated 1,372,999 1,372,999
Accumulated other comprehensive
income 3,365,741 3,253,068
Total NEP Stockholders'
Equity 77,734,390 49,318,996
Noncontrolling interests 7,321,376 4,513,650
TOTAL EQUITY 85,055,766 53,832,646
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $126,327,081 $92,129,808
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2009 and 2008 (Unaudited)
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $9,141,639 $12,201,246
Adjusted to reconcile net income to
cash provided by operating activities:
Depreciation of oil and gas
properties 8,283,230 8,155,321
Depreciation of fixed assets 209,748 160,930
Amortization of land use
rights 8,943 8,743
Amortization of deferred
financing costs 222,418 172,992
Amortization of discount on
debenture 1,515,473 1,135,874
Amortization of stock option
compensation 475,207 163,402
Warrants issued for services 280,737 154,171
Noncontrolling interests 1,533,605 1,687,394
Stocks issued for consulting
services 88,000 27,125
Stock-based compensation for
employee services 607,500 168,750
Imputed interest expense 120,127 49,535
Gain on disposal of fixed
assets (7,134) --
Changes in operating assets and
liabilities
(Increase) decrease in:
Accounts receivable (2,279,360) (5,742,601)
Prepaid expenses and other
current assets (3,206,650) (1,863,807)
Value added tax recoverable 311,240 651,905
Deferred tax assets -- (209,102)
Increase (decrease) in:
Accounts payable (7,404,068) (3,458,626)
Other payables and accrued
expenses 242,706 (195,033)
Income tax and other taxes
payable 1,242,325 4,918,065
Deferred tax payable (697,940) (543,100)
Net cash provided by
operating activities 10,687,746 17,643,184
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of oil and gas
properties (3,053,668) (18,300,636)
Purchase of fixed assets (185,369) (668,233)
Additions to oil and gas
properties under construction -- (649,786)
Proceeds from disposal of
fixed assets 28,656 --
Cash outflow from acquisition
of a subsidiary (Note 4) (7,837,926) --
Net cash used in investing
activities (11,048,307) (19,618,655)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance and
sale in a public offering of
common stock and warrants, net 17,276,003 --
Payment of deferred financing
costs -- (1,186,229)
Proceeds from issuance of
secured debenture -- 15,000,000
Repayment of secured
debenture (2,500,000) (750,000)
Proceeds from exercise of
stock warrants 1,200 12,000
Increase in amount due to a
stockholder 5,601,438 660,153
Decrease in amounts due to
related parties (51,637) (2,644,819)
Net cash provided by
financing activities 20,327,004 11,091,105
EFFECT OF EXCHANGE RATE ON CASH (47,308) (1,428,255)
NET INCREASE IN CASH AND CASH EQUIVALENTS 19,919,135 7,687,379
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 13,239,213 74,638
CASH AND CASH EQUIVALENTS AT END OF PERIOD $33,158,348 $7,762,017
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income tax expense $5,975,876 $4,932,518
Interest expense $540,664 $721,805
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