Hanwei Energy Services Corp.
TSX : HE

Hanwei Energy Services Corp.

June 22, 2016 16:31 ET

Hanwei Energy Services Reports Year End Fiscal 2016 Financial and Operational Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - June 22, 2016) - Hanwei Energy Services Corp. (TSX:HE) ("Hanwei" or the "Company"), today reported its financial results for the year ended March 31, 2016 (the "2016 Fiscal Year") and provided an operational update. All amounts are in Canadian Dollars unless otherwise noted.

Hanwei's principal business operations are in two complementary segments of the oil and gas industry as both a specialized pipe supplier to the industry and as an operator of its own producing oil and gas properties in Alberta. In general the global fall in oil and gas commodity prices negatively impacted the overall industry with numerous projects placed on hold. This significantly impacted revenue to the Company's Pipe manufacturing business unit and its Oil & Gas production unit. For the financial year ended March 31, 2016 a summary of the Company's annual financial results are as follows;

Summary of the 2016 Fiscal Year Financial Results from Continuing Operations
in thousands of CDN$ except percentages and per share data
FY2016 FY2015
Pipe Oil & Gas Corporate Total Pipe Oil & Gas Corporate Total
Revenue 6,483 1,886 8,369 15,529 3,371 18,900
EBITDA (1,981) (254) (8,231) (10,466) (4,058) 388 (264) (3,934)
EBITDA Margin -31% -13% n/a -125% (26%) 12% n/a (21%)
EBITDA per share (0.01) 0.00 (0.04) (0.05) (0.04) 0.00 (0.00) (0.04)
Net Income (loss) (4,056) (1,306) (8,259) (13,621)) (7,135) (1,090) 868 (7,357)
Diluted EPS (Basic and diluted) (0.02) (0.01) (0.04) (0.07) (0.08) (0.01) 0.01 (0.08)
Weighted average number of outstanding shares Basic 194,201,234 Basic 88,153,498
Diluted 194,201,234 Diluted 88,153,498

Operations

  • The decline in overall Company EBITDA was attributable to the Company's decline in FRP pipe sales, lower oil and gas commodity prices effecting the Company's oil and gas production revenues, and a one time, bad debt provision, net of provision write-off, of $7.3 million relating to the Company's disposition of its subsidiary in Tianjin China.
  • Not including the aforementioned bad debt provision EBITDA was negative $3.2 million as compared to negative EBITDA of $3.9 million for the prior year.
  • Revenues from the Canadian FRP pipe market were some $1.4 million representing 22% of total Company FRP Pipe sales as compared to $2.7 million in Canadian Pipe sales for the prior year. The Company had previously announced a $2.4 million order to a Canadian customer during the 2016 Fiscal Year of which $1.1 million was shipped and recognized as revenue in the year ended March 31, 2016. A further $0.5 million of this order was shipped in June 2016 and the balance of $0.8 million is expected to be shipped within calendar year 2016.
  • The Canadian Pipe market remains a growth market for the Company and with oil prices gradually improving over the last several months, project activity is expected to build. Subsequent to the year end the Company has also confirmed a new FRP pipe order to a Canadian client for approximately $0.9 million that is expected to be produced and shipped within the next 90 days.
  • The Company's traditional pipe markets of China and Kazakhstan remain weak. The Kazakhstan market has been doubly impacted by both foreign exchange rate erosion to the US dollar increasing capital equipment costs as well as lower commodity prices effecting profitability resulting in numerous projects being placed on hold or cancelled. In the Kazakhstan market, sales were $0.4 million (or 6% of total pipe revenues) for the year ended March 31, 2016, as compared to $7.4 million (or 48% of total pipe revenues) for the prior year.
  • The Company produced approximately 167 barrels of oil equivalent per day (boed), including 75 bbld of oil, 379 mcf/d of gas and 28 boe/d of liquids. The majority of the Company's oil production was from its 13-33 and 13-4 horizontal Nisku wells at its Leduc Lands located approximately 40 km south west of Edmonton, Alberta, and flow test production from its new 14-01 vertical well at its Entice Lands located approximately 22 km east of Calgary, Alberta.
  • Oil and gas production generated revenues net of royalties of $1.9 million and net back of $0.6 million, equivalent to gross revenue per boe of $31.01 with a netback of $10.30 per boe (or a netback margin of 33%) for the year ended March 31, 2016.

Capital Expenditures

  • In order to effectively allocate management and financial resources the Company's capital expenditures are focused on its Entice Lands due to potentially higher operating results at this property compared to the Company's Leduc Lands.
  • The Company spud its new 14-01-023-28W4 vertical well in November 2015 with subsequent flow tests, and spud its new 15-12-023-28W4 horizontal well in June 2016. These wells are expected to be completed during 2016 from a shared well pad that can accommodate a further 5 to 6 horizontal well surface locations. Upon these two initial wells being placed on production and initial results being forthcoming, the Company will assess a drill program considering additional horizontal wells at its Entice Lands with the goal of increasing operating cash flow.
  • The 14-01-023-28W4 vertical well was drilled and completed for an amount of $2.6 million. The 15-12-023-28W4 horizontal well has been budgeted for drilling and completion at an estimated cost including contingency of $2.2 million.

Oil and Gas Reserves

  • The reserves of the Company were evaluated by Sproule Associates Limited ("Sproule"), an independent qualified reserves evaluator, and set out in their report dated June 15, 2016, in which Sproule has evaluated, as of March 31, 2016, the oil and natural gas reserves attributable to the Company's PNG Producing Properties (the "2016 Reserves Report") and their report dated May 20, 2015, in which Sproule has evaluated, as of March 31, 2015, the oil and natural gas reserves attributable to the Company's Leduc Lands and prior to the Company completing its Commitment Agreement on its Entice Lands (the "2015 Reserves Report").
  • The chart below provides a comparison of the 2016 Reserves Report to the 2015 Reserves Report and the "Proved" and "Proved Plus Probable" remaining reserves of the Company therein. The positive increases in both reserves and Net Present Value of the remaining reserves is due to the addition of the Entice Lands within the PNG Producing Properties of the Company.
Remaining Reserves Net Present Values After Tax
Mboe; After Tax (M$) GrossCompanyCompany @ 0%@ 5.0%@ 10.0%@ 15.0%@ 20.0%
100%GrossNet M$M$M$M$M$
2016 Reserves Report
Total Proved 978.2912.2764.5 14,218.010,832.08,473.06,828.05,659.0
Total Proved + Probable 1,645.91,567.91,320.9 25,198.017,974.013,151.09,866.07,565.0
2015 Reserves Report
Total Proved 622559467 7,0025,7624,7954,0283,409
Total Proved + Probable 1,3041,2191,025 22,02615,69711,6058,8176,837
Variance
Total Proved 356353298 7,2165,0703,6782,8002,250
Total Proved + Probable 342349296 3,1722,2771,5461,049728

Bank Debt

The total principal amount of all bank loans was $6.8 million as at March 31, 2016, representing a 37% debt to equity ratio (total bank debt divided by total shareholders' equity). The Company believes that it has sufficient debt facilities to support its current operations and will continue to assess its debt structure based on the requirements of the business. A short-term loan of $4.8 million owed by Harvest (the Company's wholly owned subsidiary in China) to a Chinese bank is currently due with 7.9% per annum interest being paid. While this loan represents approximately 70% of the Company debt facilities it is discussing with the lender the renewal or extension of the loan.

Other

  • G&A for the fiscal year ended March 31, 2016 included the as before noted, one time, net bad debt provision of $7.3 million relating to the Company's disposition of its subsidiary in Tianjin China. Not including for the bad debt provision G&A expenses for the year ended March 31, 2016 were $4.2 million as compared to $5.9 million for the prior year representing G&A cost reductions of some $1.7 million.
  • As of March 31, 2016, the Company's cash and cash equivalent balance inclusive of short-term investments in Canadian GICs was some $5.0 million.
  • As of March 31, 2016, the Company had a Net Asset Value per share for its continuing operations of $0.16.

Hanwei will host a conference call to discuss its operational and financial results for the year ended March 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:

Date: Thursday, June 23, 2016

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

Dial in number: 1-888-397-5352 or 1-719-325-2308

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 and Entice 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 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.

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