China North East Petroleum Reports Full Year 2010 Financial Results

HARBIN, China and NEW YORK, March 15, 2011 /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 fourth quarter and full year ended December 31, 2010.  

Revenue for the fourth quarter of 2010 totaled $23.0 million from $20.0 million in the 2010 third quarter and $30.0 million in the prior year fourth quarter period.  Fourth quarter revenue growth was impacted by the third quarter impact related to severe flooding that washed out roads disabling the passage of oil delivery trucks.  Oil production was also slightly impacted by the natural depletion of production output among existing wells.  Total oil production in the 2010 fourth quarter was 161,279 barrels, a 19% increase sequentially from 135,473 barrels in the 2010 third quarter. The total number of wells in production as of December 31, 2010 was 295 compared to 289 wells in production as of December 31, 2009.  The average per barrel oil price for the fourth quarter was approximately US$77, an 11% increase from US$69 for the fourth quarter of 2009.  

The Company's oil drilling and service subsidiary, Tiancheng contributed $10.1 million of the revenue in the fourth quarter 2010 compared to $10.1 million in the 2010 third quarter and $13.6 million in the fourth quarter 2009.  Tiancheng completed drilling contracts for 35 wells with total drilling depth of 61,935 meters (203,199 feet) in the fourth quarter of 2010.  Tiancheng performed standard rig and equipment repair and maintenance work at year end that impacted drilling performance in the fourth quarter. Drilling activity was also lower in the fourth quarter as Tiancheng's customers continued to be impacted by previously reported flooding in the third quarter and therefore focused more on repairing and restoring oil production in the fourth quarter period. Tiancheng has experienced a resumption of regular drilling activity in the 2011 first quarter.

As of December 31, 2010, the Company had $61.0 million in cash and cash equivalents, compared to $28.7 million as of December 31, 2009.  Total assets were $150.5 million and total liabilities were $28.0 million and stockholders' equity was $122.5 million as of December 31, 2010.

Full Year 2010 Results

Net sales for full year 2010 were $99.5 million compared to $64.7 million for 2009.  In the twelve-month period, the Company drilled 6 new oil wells in the four oilfields which are owned by the Company.  The Company's crude oil production for the full year 2010 totaled 723,154 barrels, a 20% decrease from 908,126 barrels in 2009. Oil prices averaged approximately $75.49 per barrel, which represents a 35% increase over prior year period levels of approximately $55.97 per barrel.

Gross profit for FY2010 was $60.8 million, a 43.1% increase from $42.5 million last year.  Gross margin was 61.0% compared to 65.7% in FY2009.

Operating expenses for FY2010 were $7.8 million compared to $17.7 million in the prior year period.  This 56% decrease was primarily due to a $13.8 million decrease in impairment of oil properties offset by higher consulting fees and overhead expenses associated with new drilling operations when compared to the prior year period.  

Net income for full year 2010 was $58.4 million compared to a net loss of $22.1 million for full year 2009. The increase was the result of the significant revenue generated from new added drilling services operation and oil price surge, as well as the non cash gain in the fair value of warrants and lower operating expenses.

Mr. Jingfu Li, CEO of China North East Petroleum commented, "We are pleased that our fourth quarter oil production output showed signs of sequential improvement after experiencing severe flooding in the third quarter.  While the impact of this flooding continued to affect the fourth quarter production output within our four operating oil fields, our production has returned to a normalized rate in the 2011 first quarter.

We expect our drilling plan in the Jilin oilfields to grow at a moderate pace going forward as we focus our efforts on the exploration and test work in the Durimu oilfileld, our recently announced acquisition.  We believe that the extraction of oil from this oilfield in Inner Mongolia can result in significantly greater output than our existing wells in the Jilin oil field.   Upon the exploration and testing phase which is expected to last 12-18 months, we intend to aggressively drill in Durimu while also maintaining current production levels within our four existing oilfields.

Our Durimu acquisition allows us to expand our operations, secure additional oil reserves and generate better returns on our investment.  We are excited with the potential of our new acquisition and believe this recent developments provides NEP the opportunity to develop into a larger regional oil producing and oilfield services company designed to meet China's growing domestic energy needs."

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 9:00 am ET on Wednesday, March 16th.  Listeners may access the call by dialing # 1-719-325-2364. 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 March 30th, by dialing # 1-858-384-5517; passcode: 8932025.

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.

SOURCE China North East Petroleum Holdings Ltd.