Hanwei Energy Services Corp.
TSX : HE

Hanwei Energy Services Corp.

February 16, 2015 19:06 ET

Hanwei Energy Services Reports Third Quarter Fiscal 2015 Financial and Operational Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb. 16, 2015) - Hanwei Energy Services Corp. (TSX:HE) ("Hanwei" or the "Company"), today reported its financial results for the quarter ended December 31, 2014 (the "Reporting Period"). All amounts are in Canadian Dollars unless otherwise noted.

Highlights

The financial results for the Reporting Period indicate a substantial increase in revenues over the prior year generated from the Company's Canadian oil and gas assets as well as recent increases in sales of the Company's FRP pipe products to Canadian customers.

  • The Company produced approximately 382 barrels of oil equivalent per day (boed), including 64 boed of oil, 238 boed of gas and 80 boed of liquids. This resulted in oil and gas revenues in the Reporting Period net of royalties of $1.1 million with production and operating expenses before G&A of $0.7 million producing net operating income of $0.4 million or a margin of 36%. The Company was not operating any oil and gas assets in the same period of the prior year.
  • The Company's FRP pipe sales for the Reporting Period totalled some $5.0 million as compared to $3.4 million for the same period of the prior year. The Canadian market is becoming a new growth market for the Company with revenues from this market increasing to $1.5 million compared to nil for the same period of the prior year.

These results have positively impacted the Company's total EBITDA from continuing operations for the Reporting Period, which totalled some $600,000 versus negative $367,000 for the same period of the prior year and representing an improvement of some $967,000.

Update on Oil and Gas Activities

Oil Production: Subsequent to the Reporting Period with the drop in oil and gas prices, the Company is undertaking activities to optimize its production and reduce its operating costs. As at the date of this MD&A, the Company has temporarily shut in its 14-32-49-26W4, 15-19-49-26W4M and 10-29-49-26W4M wells and has recently negotiated vendor pricing for its trucked water disposal that has reduced operating cost by approximately $5.00 per bbl. Inclusive of this cost improvement the Company's current field operating cost (before G&A) is approximately $20 per boe providing a current Field Netback of approximately $15 per boe on approximate $35 per boe of average oil and gas purchase pricing net of royalties. The majority of the Company's oil production remains from its 13-33-49-26W4 Nisku horizontal well producing on average 45 bbl per day of oil with 94 bbl per day of water (representing a 68% water cut).

Drill Program: The Company intends to undertake a minimal development program in the coming months that will include a new Nisku horizontal well, a water disposal well, and certain facility upgrades. The new horizontal well aims at increasing the Company's base oil production while maintaining the Company's leases on its mineral rights in Section 4 of its Township 50, Range 26 property. The new water disposal well is currently being investigated to further reduce trucking costs on existing and future wells. The cost for the aforementioned drill program is currently being reviewed and is expected to be approximately $5 million to be spent in 2015.

Land: The Company has supplemented its land holdings with the purchases in September and October of 2014 and in January of 2015, of approximately 1,064 acres of additional leases for mineral rights predominantly focused on its Nisku formation exploitation. These leases are all contiguous to the Company's core land holdings in Townships 49 to 50, Range 26 and were purchased for an aggregate cost of $514,000. The Company has not renewed leases on certain mineral rights that it has determined are not advantageous for its oil and gas exploitation. These leases account for in aggregate approximately 705 acres of mineral rights that will expire through March 2015 and are generally not contiguous to its core land holdings in Townships 49 to 50, Range 26. Inclusive of the above land transactions the Company owns approximately 4,865 acres of mineral and surface rights within its Leduc Lands.

Update on FRP Pipe Sales

Notwithstanding the aforementioned positive improvements in FRP sales, with the recent fall in oil prices several oil and gas operators in Canada and internationally have deferred or cancelled oil and gas development projects. As of the date of this news release the Company's FRP pipe sales orders contracted and yet to be delivered were $6.5 million and comprised of:

  • $1.2 million or 19% are from customers in the China market
  • $1.8 million or 27% are from customers in the Kazakhstan market
  • $3.5 million or 54% of total orders are from Canadian customers

The Company is in discussions with its customers as to the timing of these sales orders and whether or not certain of these orders may be delayed beyond the Company's current fiscal year ending March 31, 2015 given the current global fall in oil pricing that has affected production projects. This is inclusive of a $4.1 million order from an existing Canadian customer that was originally expected to be produced and shipped during the Company's fiscal year ending March 31, 2015. A first delivery was completed at a value of approximately $1.2 million. The Company is in discussions with the customer as to timing for production and shipment of the remaining $2.9 million of this pipe order that may be delayed beyond the Company's current fiscal year end.

Financial Summary

For the three months ended December 31, 2014:

  • Revenues were $6.4 million, representing an increase of 88% as compared to $3.4 million for the same period of the prior year.
  • EBITDA from continuing operations was $600,000 as compared to negative $367,000 for the same period of the prior year, representing an increase of $967,000.
  • These increases were primarily due to the Company's new oil and gas production revenues in Alberta (which was not operational in the prior year) and Canadian sales of its FRP pipe products together with positive operating margins from the Company's oil and gas production revenues.

For the nine months ended December 31, 2014:

  • Revenues were $13.4 million, representing an increase of 18% as compared to revenues of $11.0 million for the same period of the prior year.
  • EBITDA from continuing operations was $370,000 as compared to negative $659,000 for the same period of the prior year, representing an increase of $1,029,000.
  • These increases were also primarily due to the Company's new oil and gas production revenues in Alberta (which was not operational in the prior year) and Canadian sales of its FRP pipe products together with positive operating margins from the Company's oil and gas production revenues.

The Company had a loss from continuing operations of $0.6 million and $2.4 million for the three and nine months ended December 31, 2014 as compared to loss from continuing operations of $1.3 million and $3.0 million for the same periods of the prior year. This loss for the three and nine months ended December 31, 2014 included non-cash depletion, depreciation and amortization expenses related to the Company's new oil and gas business of $0.6 million and $1.2 million respectively which was not operational in the prior year.

As of December 31, 2014, the Company had a Net Asset Value per share for its continuing operations of $0.40 on a total of 97,100,617 shares outstanding.

Rights Offering

As announced on February 3, 2015, the Company has filed a final short form prospectus with the securities commissions in each of the provinces of Canada in respect of its previously announced rights offering for gross proceeds of up to $7,282,546 (the "Rights Offering").

Each holder of record of Hanwei common shares ("Common Shares"), as of the close of business on February 18, 2015 will receive one right (a "Right") for each Common Share held. Every one Right will entitle the holder thereof to acquire one Common Share upon payment of $0.075 per Common Share (the "Subscription Price"). The Rights may be exercised commencing on February 23, 2015 and the Rights will expire at 2:00 p.m. (Vancouver time) on March 17, 2015 (the "Expiry Time"). Holders of Rights who exercise their Rights in full will be entitled to purchase, at the Subscription Price, any Common Shares that are not otherwise subscribed for under the Rights Offering prior to the Expiry Time on a pro rata basis.

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"). A definitive agreement of the standby guarantee has been fully executed and a deposit of $3,100,000 from the standby purchasers has been received and placed into trust pursuant to the closing requirements of the Rights Issue by the Company.

The Rights Offering is expected to close in March 2015. The proceeds from the Rights Offering will be used for development activities of the Company's existing oil and gas holdings in its Leduc Lands in Alberta and ongoing corporate purposes.

Further details concerning the Rights Offering and the procedures to be followed by holders of Common Shares is contained in the preliminary short form prospectus which has filed on the Company's profile at www.sedar.com.

Graham Kwan, Executive Vice President and Rick Huang, Chief Financial Officer of Hanwei will host a conference call to discuss its operational and financial results for the quarter ended December 31, 2014. Management invites analysts and investors to participate on the conference call:

Date: Wednesday, February 18, 2015

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

Dial in number: 1-888-481-2877 or 1-719-325-2244

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

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

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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