NEP earnings Announcement:
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.
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{"s" : "nep","k" : "c10,l10,p20,t10","o" : "","j" : ""} 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
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