China North East Petroleum Holdings Ltd. Announces Q1 & Q2 2010 and FY09 Financial Results

HARBIN, China and NEW YORK, Sept. 7 /PRNewswire-Asia-FirstCall/ -- China North East Petroleum Holdings Ltd. (the "Company" or "NEP") (NYSE Amex: NEP), a leading independent oil producer and oilfield services company in Northern China, today announced financial results for the financial quarters ended June 30, 2010, March 31, 2010 as well as for the full year 2009. As a result, the Company is now current with its disclosure obligations with the Securities and Exchange Commission.

As previously disclosed, the Company was unable to file its annual report of the year ended December 31, 2009 and its quarterly reports of the first two quarters of 2010 as a result of errors in the accounting for certain warrants issued in connection with a financing and the accounting for its oil producing properties and the attendant net book value of the properties. Due to the errors, the Company was required to restate previously filed financial statements for the year ended December, 31, 2008 and each of the first three quarters in 2008 and 2009.

In the process of restating its financial reports, the Company discovered certain irregularities regarding certain balance sheet accounts. Immediately after the discovery of the irregularities, the Company engaged John Lees Associates of Hong Kong ("JLA") to conduct an audit of the cash accounts of the Company and its subsidiaries. After rigorous review of all of the transactions that occurred in the Company's cash accounts during 2009, JLA issued a final report on July 10, 2010 which reported that no evidence exists to indicate that funds were misappropriated, stolen or otherwise misused by anyone. Furthermore, the JLA report did not find any material misstatements in the Company's prior financial reports filed with the SEC. In addition, the Company has adopted several internal control and procurement measures to ensure that such irregularities will not happen again.

The Company has worked aggressively to regain compliance with its reporting requirements both with the SEC and with NYSE Amex LLC. With the filing of the amendments to previously filed annual report and quarterly reports for 2008 and 2009, the annual report for 2009 and the quarterly reports of the first two quarters of 2010, the Company is satisfied to have provided financial statements up to the most recently completed quarter.

Company Comments Regarding First Half 2010 Performance

The Company's oil production division showed strong revenues for the first two quarters in 2010 despite a slight declined in production level as compared to the same period last year. The decline in oil production levels were primarily a result of a natural decline in oil production among existing wells, no new wells drilled in the first half of the year due to severe weather conditions in Northern China, and the Company's capital expenditure plan to allocate cash reserves for potential oil field lease/acquisition in the near future. Despite the decline in volume of oil produced, the Company benefited from rising oil prices and recorded revenue of $32.0 million from total production of 426,402 barrels of crude oil in the first half of 2010 compared to oil production revenue of $20.3 million and 445,150 barrels of crude oil produced in the prior year period.

The Company's drilling services division grew rapidly in the first half of 2010 and was a significant revenue contributor to the Company. In the first six months of 2010, Tiancheng secured contracts to drill 111 wells for PetroChina and other private oil companies for a total drilling depth of 173,237 meters (~568,363 feet) resulting in revenue of $24.6 million for the first half of 2010.

The Company's management continues to actively work on the expansion of its oil production division through future lease/acquisition of oil fields. At the same time, its Tiancheng drilling service division is expected to continue to secure new contracts to provide drilling services to third parties. The revenue from Tiancheng is expected to finance the future drilling and production of crude oil for the Company's oil production division.

Financial Results for the Second Quarter Ended June 30, 2010

Revenue for the second quarter of 2010 increased 144% to $27.7 million from $11.4 million in the prior year period. Tiancheng contributed $12.3 million of the revenue in the second quarter 2010. In the second quarter 2010, no new oil wells were drilled in the Company's oilfields, bringing the total number of producing wells to 289. Total oil production in the second quarter 2010 was 198,776 barrels, an 11% decrease from 223,059 barrels in the prior year second quarter period. Oil prices in the second quarter of 2010 averaged RMB 3,884 per ton (USD$77 per barrel), a 53% increase from second quarter 2009 levels of RMB 2,538 per ton (US$50 per barrel). Second quarter 2010 gross profit increased 128.4% to $16.9 million, or 60.9% of revenue, from $7.4 million, or 65.0% of revenue, in the second quarter of 2009. Operating income increased 145.5% year over year to $15.8 million, or 57.0% of revenue, from $6.4 million, or 56.7% of revenue.

The Company incurred GAAP net income of $25.0 million, or $0.81 per diluted share, in the second quarter of 2010. GAAP net income included $15.1 million in non-cash gains related to a change in fair value of warrants.

As of June 30, 2010, the Company had $46.5 million in cash, compared to $34.2 million as of March 31, 2010 and $28.7 million as of December 31, 2009. Total assets were $139.4 million and total liabilities were $36.4 million and stockholders' equity was $103.0 million as of June 30, 2010.

Financial Results for the First Quarter Ended March 31, 2010

Revenues for the first quarter of 2010 increased 225% to $28.9 million from $8.9 million in the first quarter 2009 due to increased oil production and revenue generated by the Company's newly acquired contract oil drilling entity, Tiancheng. Tiancheng contributed $12.3 million of the revenue in the first quarter 2010. In the first quarter 2010, no new oil wells were drilled in the Company's oilfields, bringing the total number of producing wells to 289. Total oil production in the first quarter 2010 was 227,626 barrels, a 3% increase from 222,091 barrels in the prior year first quarter period. Oil prices in first quarter of 2010 averaged RMB 3,692 per ton (USD$73 per barrel), an 83% increase from first quarter 2009 levels of RMB 2,023 per ton (US$40 per barrel). Gross profit increased 253.5% year over year to $18.6 million, or 64.3% of revenue, from $5.3 million, or 59.2% of revenue. Operating income was $16.9 million, or 58.4% of revenue, compared to operating loss of ($9.4 million) in the prior year period.

The Company incurred GAAP net income of $21.7 million, or $0.70 per diluted share, in the first quarter of 2010. GAAP net income included $7.9 million in non-cash gains related to a change in fair value of warrants.

Financial Results for the Year Ended December 31, 2009

For the year ended December 31, 2009, revenue increased 10.4% to $64.7 million from $58.6 million in 2008. Gross profit increased 20.4% to $42.1 million, or 65.1% of revenue, from $35.0 million, or 59.8% of revenue, in the prior year. Operating income increased 34.2% to $24.4 million, or 37.7% of revenue, from $18.2 million, or 31.0% of revenue, in 2008.

The GAAP net loss attributable to the Company was ($22.1 million), or ($0.99) per diluted share, compared to net income of $10.5 million, or $0.53 per share, in the prior year. The GAAP net loss included $49.5 million in non-cash charges related to the impairment of oil and gas properties, change in fair value of warrants and loss on extinguishment of debt.

Additional information regarding the Company's 2010 and 2009 financial results can be found in the Company's 10-Q and 10-K filings filed with the SEC.

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. 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 the restatement, final audits and reviews by the Company and its auditors, and other risks described in the Company's annual report on Form 10-K for the year ended December 31, 2008 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.

SOURCE China North East Petroleum Holdings Ltd.