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| 8-K - CHINA NORTH EAST PETROLEUM HOLDINGS LTD | m361108k.htm |
INVESTOR RELATIONS
PRESENTATION
PRESENTATION
Rodman & Renshaw Conference
March 2011
This presentation contains forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements concerning plans, objectives, goals,
strategies, future events, performance and results of operations, and
underlying assumptions and other statements that are other than
statements of historical facts. These statements are subject to uncertainties
and risks including, but not limited to, product and service demand and
acceptance, changes in technology, economic conditions, the impact of
competition and pricing, government regulation, and other risks contained
in statements filed from time to time with the Securities and Exchange
Commission. All such forward-looking statements, whether written or oral,
and whether made by or on behalf of the company, are expressly qualified
by the cautionary statements and any other cautionary statements which
may accompany the forward-looking statements. In addition, the company
disclaims any obligation to update any forward-looking statements to
reflect events or circumstances after the date hereof.
Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements concerning plans, objectives, goals,
strategies, future events, performance and results of operations, and
underlying assumptions and other statements that are other than
statements of historical facts. These statements are subject to uncertainties
and risks including, but not limited to, product and service demand and
acceptance, changes in technology, economic conditions, the impact of
competition and pricing, government regulation, and other risks contained
in statements filed from time to time with the Securities and Exchange
Commission. All such forward-looking statements, whether written or oral,
and whether made by or on behalf of the company, are expressly qualified
by the cautionary statements and any other cautionary statements which
may accompany the forward-looking statements. In addition, the company
disclaims any obligation to update any forward-looking statements to
reflect events or circumstances after the date hereof.
SAFE HARBOR STATEMENT
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COMPANY OVERVIEW
• China North East Petroleum (NYSE Amex: NEP)
• NEP is an independent oil company that engages in oil
drilling project management and the extraction of crude
oil in proven oilfields in Northern China.
drilling project management and the extraction of crude
oil in proven oilfields in Northern China.
• A Pioneer in China’s Private Oil Exploration, Production
& Services Industry
& Services Industry
• First Chinese non-state-owned oil company trading on
the NYSE Amex
the NYSE Amex
• NEP operates over 295 producing oil wells within 4
proven oilfields in Northern China (as of 12/31/10)
proven oilfields in Northern China (as of 12/31/10)
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Stock Summary
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Current Price (March, 1)
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$5.07
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52 week Range
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$4.75 - $10.09
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Average Volume (3mths)
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453,387
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Shares Outstanding
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32.5MM
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Market Cap
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$165MM
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Fiscal Year End
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31-Dec
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Financial Overview
($ in million)
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Q1-Q3: 2010
§ Revenue US$ 76.6
§ Net Income US$ 53.6
2009
§ Revenue US$ 64.7
§ Net Income US$ (22.1)*
* Loss due to the non-cash costs, including:
impairment of oil properties,
change in fair value of warrants,
and loss on extinguishment of debt
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• Uniquely positioned to benefit from China’s increasing domestic energy demands
• Vertically integrated operator with oil drilling and oilfield services platform
• Exclusive 20 year oil lease and extraction contract with PetroChina (PTR) to operate four
oilfields in Jilin Oilfield
oilfields in Jilin Oilfield
• Acquisition of Durimu oilfield significantly expands market presence & establishes strong
drilling platform for foreseeable future
drilling platform for foreseeable future
• No marketing costs: Guaranteed sales arrangement all produced crude oil
• Highly scalable operations
• Convenient and cost-effective to develop future oil wells
• Strong cash flow to help fuel continuous growth cycle
• Operations consistently >60% of revenues
INVESTMENT HIGHLIGHTS
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CHINA OILFIELDS MAP (Includes NEP’s Oilfield)
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CURRENT OIL PRODUCTION: JILIN OILFIELD
NEP granted 20-years lease and
extraction contract from Petro China
(PTR)
extraction contract from Petro China
(PTR)
• First 10 years, PTR receives 20%
of oil produced by NEP as
royalty
of oil produced by NEP as
royalty
• Second 10 years, PTR receives
40% of oil produced as royalty
40% of oil produced as royalty
NEP hires outside drilling contractors
NEP extracts oil and places oil into
storage tanks
storage tanks
NEP delivers oil, via truck (about 5 miles),
to PTR
to PTR
NEP agrees to sell all of its extracted oil to
PTR
PTR
All the financial and production numbers
are reported NET of royalties to PTR.
are reported NET of royalties to PTR.
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• STRONG CASH FLOW
• Cash flow from operations consistently
>60% of revenues
>60% of revenues
• HIGHLY SCALABLE
• ~20 days from commencement of drilling to
initial production
initial production
• LOW RESERVE RISKS
• Exploration was conducted by PTR to verify
oil reserves
oil reserves
• 100% success rate to date (applying latest
3D seismic imaging technology)
3D seismic imaging technology)
• NO MARKETING COST
• PTR guarantees to purchase all oil NEP
produced
produced
• MINIMAL ACCOUNTS RECEIVABLE RISK
• PTR has never defaulted on payment to
NEP
NEP
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DRILLING OPPORTUNITY WITHIN NEP’s FOUR JILIN OILFIELDS
As of the end of 2010, total number of current Producing wells is 295
The total number of suggested future wells is 380; total of 675 wells
Proved Oil Bearing Area
Geological Reserves
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NEP acquired oil drilling and services company, Song Yuan Tiancheng Drilling
Engineering Co. Ltd. ("Tiancheng") in late 2009
Engineering Co. Ltd. ("Tiancheng") in late 2009
• Acquisition transformed NEP into a more diversified and integrated operator
• Tiancheng is the largest of four PetroChina- licensed private drilling operators in NE China
region
region
• Vertical expansion enhances opportunities to secure new oilfield leases at more favorable
terms, accelerate our drilling schedule and lower operating costs
terms, accelerate our drilling schedule and lower operating costs
• Reduces company’s exposure to oil price volatility
• Tiancheng has consistently generated solid financial results
• Operating margins in mid-40% range
• Net margin in mid-30% range
• 251 wells drilled since acquisition
• Contributed $58 million in revenue since acquisition
TIANCHENG OIL DRILLING & SERVICES BUSINESS
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• 8 rigs: Two 13,000 foot rig
Three 9,800 foot rig
Three 6,500 foot rig
• Capacity to drill 200 wells annually
• Current customers are PetroChina and other
private oil producers
private oil producers
• Typical contract depth of well drilling: 3,000
feet to 8,200 feet
feet to 8,200 feet
• Avg. # of days to drill new well*: 7-9 days
• Avg. revenue per well drilled*: ~$230,000
• 320 employees
*based on a contract drilling depth of 5,900 feet
TIANCHENG OIL DRILLING & SERVICES BUSINESS
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January 2011: NEP announced acquisition of Shengyuan, an independent operator with exclusive
oilfield exploration and drilling rights to the 175 sq. km Durimu oilfield in Inner Mongolia.
oilfield exploration and drilling rights to the 175 sq. km Durimu oilfield in Inner Mongolia.
Deal Terms:
• Total consideration of US$43.4 million consisting of approximately USD$10.6 million in cash and 5.8
million shares of NEP restricted common stock in exchange for 100% ownership of Shengyuan.
million shares of NEP restricted common stock in exchange for 100% ownership of Shengyuan.
• 25 year exclusive exploration agreement (24 years remaining) with state-owned enterprise of the local
government to drill in the Durimu oilfield
government to drill in the Durimu oilfield
Assets:
• Three exploration wells
• 24 years of exclusive drilling and exploration rights to a 175 square kilometer oilfield, called Durimu
Reserves:
• The proven oil reserve within this oilfield currently is approximately 1.55MM barrels, based on the 3
exploration wells*
exploration wells*
• Based on geologist study conducted by PetroChina, the Durimu oilfield has a geological reserve of
approximately 77.5MM tons (approximately 573.5MM barrels); the recoverable reserve is approximately
25%, or 19.4MM tons (approximately 143.4MM barrels). This same survey estimated that the number of
wells drilled in this oilfield could exceed 2,000.
approximately 77.5MM tons (approximately 573.5MM barrels); the recoverable reserve is approximately
25%, or 19.4MM tons (approximately 143.4MM barrels). This same survey estimated that the number of
wells drilled in this oilfield could exceed 2,000.
OILFIELD ACQUISITION
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*Based on study conducted by independent worldwide petroleum consultant, Ralph E. Davis in
accordance with generally accepted petroleum engineering and evaluation principles in conformity with
SEC definitions and guidelines.
accordance with generally accepted petroleum engineering and evaluation principles in conformity with
SEC definitions and guidelines.
Financing:
• The Company expects to finance the cash portion of the purchase price agreements from cash on
balance sheet
Timing:
• The Company expects to close the intended acquisition by the end of its 2011 first quarter.
Operational plan upon closing:
• Conduct further seismic tests in the oilfield to gather more geo-data, and begin drilling additional
exploration wells to test productivity within the oilfield.
• Company to utilize 2-3 in-house drilling rigs to conduct initial work; initial stage expected to last
approximately 12-18 months.
• Upon completion of first stage of testing, NEP to aggressively drill in Durimu and increase overall
production.
• Drilling in Durimu will be done while maintaining current production levels within four existing Jilin
oilfields.
oilfields.
OILFIELD ACQUISITION (cont’d)
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Operational Performance
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STRONG FINANCIAL PERFORMANCE
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• Fiscal year 2010 earnings expects to report on March 15
• A earnings conference call will be held on the same date
• Li Jingfu - CEO
40 Years Experience in Oil Industry
Strong Knowledge and First-hand Experience in Oil Production and Operation
• Chen Shaohui - CFO
MBA, University of California
Strong knowledge and experience in U.S. Capital Markets
Experienced in US GAAP and Financial Reporting
• Jiang Chao - Senior Vice President, Corporate Finance
Master in Business and Finance, Surrey University UK
Strong knowledge and experience in U.S. Capital Markets
Experienced in Financial Reporting, Capital Raising and Investor Relations
• Zhang Xiang - Chief Geological Engineer
Over 20 years experience for PetroChina in geological exploration studies
Specializes in researching and implementing the latest E&P technologies to oilfields
One of most senior and respected geological engineers in Jilin oilfield
• Liu Xiaoyu - Senior Geological Engineer
Over 20 years oilfield technical and production management experience for PTR
Specializes in geological data analysis and production planning
MANAGEMENT TEAM
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• Rule Edward - Chairman of the Board
Strong Financial Knowledge and Experience
Director of Hong Kong and Australian Companies
Decades Experiences in China as Diplomat and Banker
Business Savvy in Asian Culture
• Tang Yau-Sing - Chairman of Audit Committee
Formal Auditor Background
Strong Financial Knowledge and Experience
Fellow of Association of Chartered Certified Accountants in the U.K. and the Hong Kong
Institute of Certified Public Accountants
Institute of Certified Public Accountants
Member of the Institute of Chartered Accountants in England and Wales and the Taxation
Institute of Hong Kong.
Institute of Hong Kong.
• Hu Ruishi - Director
30 Years Experience in Oil Industry
Strong Knowledge and First-hand Experience in Oil Production and Operation
Director of multiple PetroChina Joint Venture Companies
INDEPENDENT DIRECTORS
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• Uniquely positioned to benefit from China’s increasing domestic energy demands
• Vertically integrated operator with oil drilling and oilfield services platform
• Exclusive 20 year oil lease and extraction contract with PetroChina (PTR) to operate four
oilfields in Jilin Oilfield
oilfields in Jilin Oilfield
• Acquisition of Durimu oilfield significantly expands market presence & establishes strong
drilling platform for foreseeable future
drilling platform for foreseeable future
• No marketing costs: Guaranteed sales arrangement all produced crude oil
• Highly scalable operations
• Convenient and cost-effective to develop future oil wells
• Strong cash flow to help fuel continuous growth cycle
• Operations consistently >60% of revenues
INVESTMENT HIGHLIGHTS
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For Further Information
IR Department
(909) 610 2212 | info@cnepetroleum.com
Bill Zima
ICR Inc.
(203) 682 8200 | bill.zima@icrinc.com