China North East Petroleum Reports 2011 First Quarter Financial Results

HARBIN, China and NEW YORK, May 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 first quarter ended March 31, 2011.  

Revenue for the first quarter of 2011 totaled $21.8 million down from $28.9 million in the prior year period.  Revenue was impacted by a decrease in both oil production and drilling services compared to the prior year's quarter. Although total oil production increased sequentially from 135,473 barrels in the third quarter and 161,279 barrels in the fourth quarter of 2010, on a period over period basis, total oil production in the first quarter of 2011 declined 28.4% to 162,990 barrels, from 227,626 barrels in the prior year period. The total number of wells in production as of March 31, 2011 was 295 compared to 289 wells in production as of March 31, 2010.  The average price per barrel during the first quarter was approximately US$91.18, a 24.6% increase from US$73.16 during the first quarter of 2010.  The appreciation of oil prices in 2011 partially offset the decline in oil production.

The Company's oil drilling and service subsidiary, Tiancheng contributed $6.9 million of revenue in the first quarter of 2011 compared to $12.3 million in the first quarter of 2010.  During the quarter Tiancheng completed 26 wells with a total drilling depth of 45,327 meters (~148,711 feet).  Tiancheng's drilling activity was lower in the first quarter compared to the comparable period in 2010, due to an extended holiday season granted to the Tiancheng drilling crews in order to better prepare them for an anticipated active drilling period for the remainder of 2011.  In contrast, the Tiancheng drilling crews were not granted any holidays in the comparable period of 2010.

Gross profit for the first quarter of 2011 was $11.7 million, a 37.0% decrease from $18.6 million for the same period last year.  Gross margin in the quarter was 53.9% compared to 64.3% in first quarter of 2010.

Operating expenses for the quarter were $1.4 million compared to $1.7 million in the prior year period.  This 19% decrease was primarily due to the decrease in production output.  

Operating income decreased 38.8% to $10.4 million, or 47.6% of revenue in the first quarter 2011, from $17.0 million, or 58.4% of revenue in the prior year period.  

The Company had a $4.4 million non-cash gain in the quarter compared to a $10.8 million non-cash gain in the prior year period due to a change in the fair value of warrants.

Net income for the first quarter decreased 48% to $11.3 million, or $0.36 per diluted share, compared to $21.7 million, or $0.69 per diluted share in the prior year period. Excluding the non-cash change in fair value of warrants for the first quarter of 2011 and 2010, net income was $6.9 million, or $0.22 per diluted share, compared to $10.9 million, or $0.34 per diluted share in the prior year period.

Cash increased during the quarter to $75.2 million from $61.0 million as of December 31, 2010.  Total assets were $162.3 million, total liabilities were $26.1 million and stockholders' equity was $136.2 million as of March 31, 2011.

Mr. Jingfu Li, CEO of China North East Petroleum commented, "We are pleased that our crude oil production increased for the third consecutive quarter.  We also benefitted from a 25% rise in the price of oil in the first quarter compared to the prior year period."

"Drilling services in our Tiancheng production was slower in the first quarter.  However, Tiancheng's drilling activity has accelerated since March and is expected to remain strong going forward.  As a result of the higher price of oil, PetroChina Jilin has approved the drilling of a large number of new wells in its Jilin oilfield and we are hopeful our drilling services business can benefit from expanded drilling initiatives at PTR as well as among other private oil companies operating in the Jilin oilfield.  In fact, earlier this week, our Tiancheng subsidiary signed another contract with PTR to drill another twenty wells.  Drilling is scheduled to commence this month and conclude by the end of the year."  

"We are pleased to have recently closed our Durimu acquisition which has allowed us to secure additional oil reserves, and which will significantly expand our operations and generate better returns on our investment.  Our healthy cash flow from operations generated this quarter and expected in future quarters will provide us with adequate resources to further develop oil production activities within the Durimu oilfield.  We are excited about the potential of our recent acquisition which further propels NEP into a larger regional oil producing and oilfield services company."

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

Management will host a conference call at 8:30 am ET on Tuesday, May 10th.  Listeners may access the call by dialing # 1-719-325-4821. 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 May 24th, by dialing # 1-858-384-5517; passcode: 3567109.

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.  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 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.

SOURCE China North East Petroleum Holdings Ltd.