Hanwei Energy Services Corp.
TSX : HE

Hanwei Energy Services Corp.

November 13, 2014 20:27 ET

Hanwei Energy Reports Second Quarter Fiscal 2015 Financial and Operational Results and Announces Rights Offering

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov. 13, 2014) -

THIS RELEASE IS INTENDED FOR DISTRIBUTION IN CANADA ONLY AND IS NOT INTENDED FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Hanwei Energy Services Corp. (TSX:HE) ("Hanwei" or the "Company") today reported its financial results for the quarter ended September 30, 2014 and announced its intention to undertake a rights offering. All amounts are in Canadian Dollars unless otherwise noted.

For the six months ending September 30, 2014:

Revenues for the three and six months ended September 30, 2014 totaled some $3.9 million and $7.1 million as compared to $3.8 million and $7.6 million for the prior year. The Company has two reportable segments for its continuing operations: its FRP pipe manufacturing and its oil and gas production. The pipe segment produces and sells fiberglass reinforced plastic ("FRP") pipe for the oil and gas industry and other infrastructure applications. The oil and gas segment is engaged in the exploration and production of oil and natural gas in Western Canada.

  • FRP pipe sales for the three and six months ended September 30, 2014 totalled $2.5 million and $5.5 million, respectively, as compared to $3.8 million and $7.6 million for the same periods of the prior year, representing a decrease of 35% and 28%. The company experienced reduced sales orders from both the Kazakhstan market and the Chinese market. For the Kazakhstan market, sales fell to $1.3 million for the three months ended September 30, 2014 and $2.7 million for the six months ended September 30, 2014, as compared to $1.8 million and $4.6 million for the same periods of the prior year respectively. For the Chinese market, sales were $0.5 million and $1.6 million for the three and six months ended September 30, 2014 respectively as compared to $1.9 million and $2.7 million for the same periods of the prior year.
  • While sales from the Company's Kazakhstan and Chinese markets negatively impacted the results, sales from the Company's Canadian market improved to $0.7 million and $1.2 million respectively for the three and six months ended September 30, 2014, as compared to nil and $93,000 for the same periods of the prior year.
  • Revenues from the Company's oil and gas production for the three and six months ended September 30, 2014 amounted to $1.4 million and $1.6 million respectively. The Company did not have oil and production revenues during the same periods of the prior year.
  • For the six months ended September 30, 2014, the Company's average production was 217 boed including all oil, natural gas and liquids and for the three months ended September 30, 2014, the Company's average production was 366 boed. In particular:
    • The majority of this production was driven by the additional work over results from the Company's existing wells resulting in production for the three months ended September 30, 2014, of approximately 4,330 barrels of oil, 128,936 mcf of gas, and 7,881 barrels of liquids.
    • For the six months ended September 30, 2014, the Company produced approximately 5,158 barrels of oil, 145,823 mcf of gas, and 9,560 barrels of liquids.

EBITDA from continuing operation for the three months ended September 30, 2014 totalled some negative $86,000 and $228,000 respectively as compared to negative $118,000 and $292,000 respectively for the same periods of the prior year. Negative EBITDA for the three and six months ended September 30, 2014 was attributed to the postponed projects and tender delays in the Company's FRP pipe markets in China and Kazakhstan and corporate expenses. The Company's new oil and gas business generated positive EBITDA of $255,000 and $181,000 for the three and six months ended September 30, 2014.

The Company had a loss from continuing operations of $0.6 million and $1.8 million for the three and six months ended September 30, 2014 as compared to loss from continuing operations of $0.6 million and $1.7 million for the same periods of the prior year. This loss for the three and six months ended September 30, 2014 included non-cash depletion, depreciation and amortization expenses related to the Company's new oil and gas business of $0.5 million and $0.6 million respectively which was not operational in the prior year. Such allocated abandonment costs are applicable to all oil and gas operations in Alberta. Basic and diluted loss per share from continuing operations was $0.01 and $0.02 respectively for the three and six months ended September 30, 2014 as compared to basic and diluted income per share of the same amounts for the same periods of the prior year.

As of September 30, 2014:

  • the Company had a Net Asset Value per share (97.1 million shares outstanding) for its continuing operations of $0.40
  • total cash on hand was $4.8 million or $0.05 per share
  • the total principal amount of all bank loans was $9.1 million representing a 32% debt to equity ratio (total debt divided by total equity)

Key Updates

Update on Oil and Gas Activities

For the three months ended September 30, 2014, the Company produced approximately 366 barrels of oil equivalent per day ("boed"). Current production is primarily driven by the Company's 13-33-49-26W4 Nisku horizontal well that was fracked over the existing 550 meter lateral, with the well on stream and producing as of August 29th, 2014. This is also complimented by the Company's 14-32-49-26W4 Ellerslie gas well that continues to produce at a daily average rate of 1,000 thousand cubic feet per day (mcfd). The Company considers the initial improved oil production results a success and as such the Company is undertaking development planning for several new, multi-stage, hydraulically fracked, horizontal Nisku wells for its Leduc Lands.

Update on FRP Pipe Sales in Canada

Hanwei announced on October 29, 2014 that it had been awarded a new $4.1 million order, placed by an existing Canadian client, for the supply of the Company's high pressure, glass reinforced epoxy pipes and fittings. The Company expects sales into its Canadian market to build over the coming twelve months. Approximately 20 kilometers of Hanwei's high-pressure pipe has been installed and is operational with approximately $5.3 million of pipe delivered or ordered over the last twelve months to this market.

Rights Offering

The Company intends to undertake a rights offering by way of short form prospectus to raise gross proceeds of $9,710,062 (the "Rights Offering"). It is expected that the prospectus will be filed later this month.

Each holder of record of common shares of the Company (the "Common Shares"), as of a record date to be announced, will receive one right (a "Right") for each Common Share held. Each Right will entitle the holder thereof to acquire one Common Share at an anticipated subscription price of $0.10 per Common Share (based on current trading prices). The Rights Offering will include an additional subscription privilege under which holders of Rights who fully exercise their Rights will be entitled to subscribe for additional Common Shares, if available, that were not otherwise subscribed for in the Rights Offering. The Rights will be exercisable for 21 days. The record date and expiry date for the Rights Offering will be determined at the time of filing of the final short form prospectus.

The Rights Offering will be made to holders of Common Shares in all of the provinces of Canada. Rights certificates and prospectuses will not be mailed to holders of Common Shares resident outside of Canada. The Rights and Common Shares issuable upon the exercise of the Rights have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States or any of its territories or possessions or to U.S. persons. Accordingly, subscriptions will not be accepted from any security holder or transferee who is a U.S. person or resident in the United States, its territories or possessions.

In support of the Rights Offering, certain shareholders of the Company, including Mr. Fulai Lang, the Chairman of the Company's Board of Directors have agreed to guarantee the purchase, in aggregate, of a minimum of $3,000,000 of the Common Shares (the "Standby Commitment"). The Standby Commitment is subject to the execution of a definitive agreement satisfactory to all parties.

The Rights Offering is subject to regulatory approval, including that of the Toronto Stock Exchange. The Rights Offering is expected to close in January 2015. The proceeds from the Rights Offering will be used for ongoing work over and development activities of the Company's existing oil and gas holdings in its Leduc Lands in Alberta.

Further details concerning the Rights Offering and the procedures to be followed by holders of Common Shares will be contained in the preliminary short form prospectus which will be filed on the Company's profile at www.sedar.com. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final short form prospectus has been issued.

The Company had previously announced on September 3, 2014 that it had completed the private placement of 25,659,057 Common Shares at a price of $0.192 per Common Share for gross proceeds of approximately $4.93 million (the "Private Placement"). None of the subscribers to the Private Placement previously held any Common Shares of the Company and each was an arm's length individual. The Company views the undertaking of the Rights Offering, subsequent to the previously completed Private Placement, as fair and advantageous to existing shareholders of the Company providing an opportunity at their election to purchase additional Common Shares at a discount to the Private Placement pricing.

Hanwei will host a conference call to discuss its operational and financial results for the second quarter ended September 30, 2014. Graham Kwan, Executive Vice President and Rick Huang, Chief Financial Officer of Hanwei will host the call. Management invites analysts and investors to participate on the conference call:

  • Date: Friday, November 14, 2014

  • Time: 1:00 p.m., Eastern Time (10:00 am Pacific Time)

  • Dial in number: 1-888-438-5519 or 1-719-457-2661

A replay of the conference call will be available on the Company's website.

About Hanwei Energy Services Corp.

Hanwei Energy Services Corp.'s principal business operations are in two complementary key segments of the oil and gas industry as both an equipment supplier to the industry (as a leading manufacturer of high pressure, fiberglass reinforced plastic ("FRP") pipe products and associated technologies serving major energy customers in the global energy market) and as an operator of its producing oil and gas mineral rights at its Leduc Lands in Alberta.

Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.

FORWARD-LOOKING INFORMATION AND NON-GAAP MEASURES

Certain information in this press release is forward-looking within the meaning of certain securities laws, and is subject to important risks, uncertainties and assumptions a description of which is set out in the risk factors section of the Company's Annual Information Form dated June 20, 2014 and Management Discussion and Analysis for the year ended March 31, 2014 both of which are filed with Canadian securities regulators and available on SEDAR at www.sedar.com. The forward-looking information in this press release describes the Company's expectations as of the date of this press release.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS PRESS RELEASE PRESENTS THE EXPECTATIONS OF THE COMPANY AS OF THE DATE OF THIS PRESS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE. WHILE THE COMPANY MAY ELECT TO, THE COMPANY DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME, EXCEPT AS REQUIRED BY APPLICABLE SECURITIES LEGISLATION.

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