EQS-News: Sino Oil and Gas (00702.HK) recorded a net profit of HK$5.7million in the first half of 2016

EQS-News / 24/08/2016 / 22:56 UTC+8 
 
For Immediate Release 
Sino Oil and Gas Holdings Limited 
 
Recorded a net profit of HK$5.7million in the first half of 2016 
 
Business Overview 
Hong Kong, 24 August 2016 - Leading oil and gas explorer and developer Sino 
Oil and Gas Holdings Limited (the "Company", Hong Kong stock code:702) today 
announced the unaudited interim results of the Company and its subsidiaries 
(collectively the "Group") for the six months ended 30 June 2015. During the 
period, the Group recorded a net profit of approximately HK$5,697,000(2015 
interim: HK$13,876,000), which has decreased by 59% as compared with that of 
the same period in last year, mainly due to the gas selling price adjustment 
for industrial users of the Sanjiao coalbed methane project ("Sanjiao CBM 
Project") in November 2015. Meanwhile, as Sanjiao CBM Project has entered in 
development phase from exploration, the CBM sales has been recognised as the 
turnover of principal activities, the financing cost, construction related 
amortization and depreciation expenses increased during the period. 
 
The Group recorded a turnover of approximately HK$78,381,000 (2015 interim: 
HK$5,963,000), which has increased substantially compared with that of the 
same period in last year. The turnover included the revenue from oil 
exploitation operations in Shaanxi Province; the sales derived from raw coal 
washing project located in Qinshui Basin, Shanxi Province; and the sales of 
coalbed methane ("CBM") respectively. Also, the government subsidy of 
approximately HK$9,592,000 (2015 interim: nil) on the sales of CBM for the 
year 2015 has been received and recorded as "other revenue" during the 
period. 
 
Sanjiao CBM Project 
As at 30 June 2016, the Sanjiao CBM Project has completed a total of 99 
wells, comprising46 multilateral horizontal wells and 53vertical wells. Out 
of the total 99 wells, 82 wells were in the normal dewatering stage, of 
which 60wells had accessed to a gas collection pipeline network. A ground 
pipeline network of approximately 18 kilometers, inter-well pipelines of 
approximately42kilometers, and outbound pipelines of approximately 
17kilometers were completed. Approximately total 59.7kilometers of 10KV 
power grid and branch power line were also completed. 
 
During the period, the Group has started the low productivity wells rework 
programme. After the joint technology examination and economic assessment 
conducted by local and foreign experts, 18 wells with the greatest potential 
value have been selected. With cautious implementation schedule, the Group 
prepares operation plans, optimises the drainage system and improves the 
single well productivity. As of 30 June 2016, significant progress has been 
obtained through the reworks of low productivity wells, including the 
dewatering quantitative management, dewatering recovery of low productivity 
wells, blockage relief by nitrogen and fracturing reform etc. Steady 
increase of the single well productivity has been noted in a number of 
transformed wells. The low productivity wells reworks programme is expected 
to be completed by this year and to contribute additional productivity. 
 
During the period, the Sanjiao CBM Project recorded the CBM sales amount to 
HK$30,435,000(2015 interim: approximately HK$42,268,000) and CBM production 
of approximately 32.49million cubic meters (2015 interim: approximately 27.9 
million cubic meters) and CBM sales of approximately 26.52million cubic 
meters (2015 interim: approximately 27.38 million cubic meters), resulting 
in a gas sale-to-production rate of approximately81.6% for the period (2015 
interim: approximately 98.1%). The Group is negotiating with an existing 
customer for renewal of sales contract, and has been speeding up the 
process. The sales performance is expected to be improved in the second half 
of this year. 
 
Raw Coal Washing Project 
The Group acquired a 75% equity interest of a raw coal washing project 
company located in Qinshui Basin, Shanxi Province in May 2015. The raw coal 
supplier of the project is a sizable state-owned coal enterprise in Qinshui 
basin and thereby the raw materials supply is stable. The project has been 
officially launched on 1 July 2015. It has already entered into stable 
production phase and also gradually developed sales channels. During the 
period, the project recorded a total sale of refined coal approximately 
93,500 tonnes. The Group expects this project will bring a steady income and 
cash flow. 
 
Through in-depth cooperation with the local sizable coal enterprises with 
further understanding to local geological environment, the Group is actively 
seeking to diversify the business model and cooperation projects, 
continuously to improve the CBM development business model and inject new 
momentum for the Group's growth. In January 2016, the Group entered into a 
non-legally binding Strategic Cooperation Framework Agreement ("Framework 
Agreement") with Shanxi Guxian Lanhua Baoxin Coal Company Limited 
(??????????????) ("Lanhua Baoxin"), pursuant to which the Company and Lanhua 
Baoxin, intend to establish a project management team for the development of 
CBM projects located in the coal mine block of Lanhua Baoxin Qinshui Basin 
and eastern edge of Ordos Basin. These are the regions with the richest CBM 
reserve in China, and also the most representative CBM production bases in 
China. This Framework Agreement has landmark significance to the Group, 
which benchmarked the Group's official entrance into the CBM market of 
Qinshui Basin. 
 
Crude Oil Business 
In order to optimise the Group's resources allocation so as to focus on the 
development of Sanjiao CBM project and also due to the fact thatcontinuous 
drop of domesic oil price in Shannxi Province, the Group has slowed down the 
crude oil business development. 
 
For the period ended 30 June 2016, three oilfields in Liuluoyu, Yanjiawan 
and Jinzhuang, located at the Ordos Basin in Shaanxi Province, yielded an 
aggregate crude oil output of approximately 1,930 tonnes (2015 interim: 
approximately 1,900 tonnes). 
 
Possible Acquisition-Oilfield in Alberta, Canada With the purpose of further 
enriching the Group's resources reserves, apart from actively seeking 
suitable oil and gas blocks in China, the Group is also exploring investment 
opportunities in overseas upstream businesses. The Group hence entered into 
two non-legally-binding memorandums of understanding ("MOUs") in June and 
September 2014. The acquisition targets are oil and gas fields located in 
Alberta Province, Canada. 
 
According to the MOUs, the Group is now conducting due diligence review on 
the resources and financial aspect of the target groups. The Vendor has 
collected seismic data so as to identify areas where oil and gas may have 
accumulated; and has drilled exploratory wells to evaluate if the site can 
produce enough oil or gas to make it economically viable to develop. On 31 
December 2015, the Group and the Vendor have agreed to further extend the 
time limit for entering into formal agreements in respect of the terms in 
the MOUs to 30 September 2016. Meanwhile, during the period, after 
negotiation with the vendor, taking into account of the interests of 
shareholders and the Company, interest is charged at the rate of 8.5% per 
annum against the vendor on the refundable deposits on MOUs (i.e. CAD40 
millions), with reference to the existing cost of capital to the Company. 
The interest income amounted to approximately HK$29,390,000 was disclosed in 
"other revenue". 
 
Regarding the possible acquisitions, Dr Dai Xiaobing, Chairman of Sino Oil 
and Gas Holdings said: "The management is actively preparing for these 
possible acquisitions. The Company expects that acquiring overseas assets 
will further diversify the Group's global resources allocation, balance the 
development of the gas and oil business portfolio. This will strengthen its 
capacity of operations and establish its position as an international oil 
and gas explorer and developer. The shareholders' value can therefore be 
enhanced." 
 
Prospects 
For the Group's development strategy, Dr Dai said, "Based on its core 
business of natural gas and oil exploration and development, the Group will 
strengthen its competitiveness, optimise its resources allocation and 
enhance investment returns. At the same time, we will attempt to expand into 
downstream businesses relying on the Group's upstream businesses as 
appropriate. On this basis, we will implement active but cautious financial 
strategies, and seek opportunities for mergers and acquisitions as well as 
integration of high-quality oil and gas assets globally, targeting to become 
a professional international oil and gas player." 
 
For further enquiries, please contact: Celia Li 
Corporate Communications Department 
Phone:[phone] 
Email:[e-mail] 
 
24/08/2016 Dissemination of a Press Release, transmitted by EQS Group. 
The issuer is solely responsible for the content of this announcement. 
 
Media archive at www.todayir.com 
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(END) Dow Jones Newswires

August 24, 2016 10:56 ET (14:56 GMT)