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
(山西古縣蘭花寶欣煤業有限公司) ("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：(852) 2802 3623
Email：celiali@sino-oilgas.hk 



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24/08/2016 Dissemination of a Press Release, transmitted by EQS Group.
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