VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb. 8, 2017) - Hanwei Energy Services Corp. (TSX:HE) ("Hanwei" or the "Company") today reported its financial results for the nine months ending December 31, 2016. All amounts are in Canadian Dollars unless otherwise noted.
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.
For the nine months ending December 31, 2016:
- Total Company revenues were approximately $6.2 million as compared to $7.2 million for the same period of the prior year. The decline in total revenues was driven by the continued weak demand from the China and Kazakhstan FRP pipe markets partially offset by the growth in the Company's FRP pipe business and oil and gas production in Canada.
- Total FRP pipe sales were $4.6 million as compared to $5.7 million for the same period of the prior year. The decline was primarily driven by the Company's China market which recorded sales of $1.3 million as compared to $4.6 million for the same period of the prior year. The China market has experienced a number of projects postponed or cancelled due to the drop in oil prices.
- Notwithstanding softness in the Company's China market, the Company's efforts in its Canadian market continue to provide positive results. Canada FRP pipe sales:
- Total some $3.2 million representing a 307% increase as compared to $0.8 million for the same period of the prior year
- Represent some 70% of total FRP pipe sales for this period
- Represent some 51% of total Company revenue for this period
- Revenues from the Company's oil and gas production net of royalties was $1.5 million as compared to $1.6 million for the same period of the prior year. The slight decrease in oil and gas revenues was primarily driven by lower commodity prices but offset by increased production volumes including results from a gas well work over at the Company's Leduc Lands in October 2016.
- The Company produced approximately 193 barrels of oil equivalent per day (boed) versus 160 boed for the same period of the prior year representing a 21% increase.
- Average sales price per boe was $30.90 with a netback of $10.32 per boe (or an operating netback margin of 33.4%) as compared to average sales price per boe of $35.33 with a netback of $15.10 per boe (or an operating netback margin of 42.7%) for the nine months ended December 31, 2015.
- Total Company EBITDA from continuing operations was $1.0 million as compared to negative EBITDA of $1.2 million for the same period of the prior year. The increase in EBITDA was driven by the growth in Canada FRP pipe sales and a one time $1.7 million refund of certain pre-payments for the FRP pipe business expensed in previous periods.
- The Company had a loss from continuing operations of $1.7 million as compared to loss from continuing operations of $2.6 million for the same period of the prior year. The reduction in loss from continuing operations was primarily due to the aforementioned reduction in China and Kazakhstan FRP pipe sales offset by gains in Canada FRP pipe sales and oil and gas production.
As of December 31, 2016 the Company had:
- Cash balance (inclusive of short term investments) of $1.8 million
- Net Asset Value per share for its continuing operations of $0.16 (on total shares outstanding of approximately 194.2 million)
During the three month period ended December 31, 2016, the Company renewed three bank loans with a Chinese bank in an aggregated amount of $4.7 million (RMB24.5 million). The new loans carry interest of 6.09% per annum and expire on December 19, 2017. Total bank debt is $4.7 million and represents a 24% debt to equity ratio (total bank debt divided by total shareholders' equity) as compared to 37% as at March 31, 2016.
Update on Oil and Gas Activities
The Company entered into a Joint Venture Agreement with a private oil and gas exploration and production company (with interests in Alberta, Saskatchewan and Manitoba) on November 1st, 2016 (the "Miniota Joint Venture") contemplating an area of mutual interest of approximately 9,600 acres (the "AMI") located near the town of Verden, Manitoba, accessed from the Trans Canada Highway. The terms of the Miniota Joint Venture contemplates the Company providing payment of $575,000 plus 50% of the development costs for two new vertical wells into the Lodgepole formation which will earn an approximate 2,230 acres of mineral and surface rights within the AMI (the "Initial Consideration"). The Company's share of the development costs for these two wells as part of the Initial Consideration is anticipated at approximately $500,000 or a total anticipated Initial Consideration of approximately $1,075,000 (the "Initial Consideration Amount"). On the basis the Company meets its requirements for the Initial Consideration the Company will receive 40% of the Joint Venture's operating cash flow until 150% of the Initial Consideration Amount is paid to Company. Thereafter the Company will receive 30% of the Joint Venture's operating cash flow. The Company has paid the initial payment and is in the process of undertaking assessment of the two aforementioned vertical wells.
Any activities subsequent to the Initial Consideration would be undertaken on a joint operating basis. If Company elects not to provide additional funds under the Miniota Joint Venture the Company would be subject to certain non-consent provisions requiring 300% or 500% of capital expended by the other consenting and funding party to be re-paid prior to operating cash flow being dispersed to the non-consenting, non-funding party.
Hanwei will host a conference call to discuss its operational and financial results for the third quarter ended December 31, 2016. 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:
||Thursday, February 9, 2017
||1:00 p.m., Eastern Time (10:00 am Pacific Time)
|Dial in number:
||1-888-601-3869 or 1-913-312-0683
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 oil and gas producer with properties in Alberta and joint venture interests in Manitoba.
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 21, 2016 and Management Discussion and Analysis for the year ended March 31, 2016 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.