AAG Energy 2018 Interim Net Profit Surges by 223% and EBITDA up by 109%, Gross Gas Production Up by 30%


AAG Energy

Mabi Concession Towards Commercialization

HONG KONG – (ACN Newswire) – AAG Energy Holdings Limited (“AAG Energy” or the “Group”; HKEX stock code: 2686), the leading independent coalbed methane (“CBM”) producer in China, announced it has achieved remarkable interim results with net profit of RMB205.7 million, up 222.9% year-on-year (“YoY”), for the six months ended June 30, 2018 (“1H 2018”).

During 1H 2018, the Group’s gross gas production increased by 30% YoY to 381.2 million cubic meters (“MMCM”) (13.5 billion cubic feet (“bcf”) (comprising Panzhuang’s gross production of 331.3 MMCM or 11.7 bcf and Mabi’s gross production of 49.9 MMCM or 1.8 bcf).

Due to increased demand for gas in China, Panzhuang’s average selling price (” released ASP”) increased from RMB1.26 per cubic meter in 1H2017 to RMB1.53 per cubic meter in 1H2018; Mabi’s realized ASP also went up from RMB1.13 per cubic meter in 1H2017 to RMB1.42 per cubic meter in 1H2018. The combination of improved performance of existing production wells from operation efficiency, new wells drilled in Panzhuang during 2017 and 2018, and better well design, implementation and performance in Mabi led to increased production output in 1H2018.

For 1H 2018, revenue increased by 90.8% to RMB430.5 million YoY. Net profit surged by 222.9% to RMB205.7 million, while EBITDA went up by 108.7% to RMB367.6 million.

AAG Energy has achieved considerable progress towards key operational objectives during 1H2018:

Panzhuang concession continues to outperform with stable production growth
– Gross production increased 24% YoY in 1H2018 to 331.3 MMCM (11.7 bcf)
– Sales utilization rate maintained at high level of 98%
– Daily average gas production during 1H2018 increased by 24.5% 1.83 MMCM per day (“MMCMD”) (64.6 million cubic feet (“mmcf”)/day)
– Ahead of schedule with 29 single lateral horizontal (“SLH”) wells and 6 pad drilled wells (“PDW”) completed drilling and 5 PDWs were fracture stimulated
– Added 29 wells into production after dewatering or other work over activities
– The average drilling cost for 1 SLH well in 1H2018 remained low at RMB2.9 million per well with wells drilled in just 16 days on average
– Upgrade work for central gathering station completed, which enables the Group to supply gas with higher pressure. There is a 35KV power facility construction in progress.

Mabi concession achieved considerable progress towards commercialization
– Produced 49.9 MMCM (1.8 bcf), a 91% YoY increase, despite that no new wells drilled in 1H 2018 as a results of the delay in Mabi Overall Development Plan Phase I (“ODP I”) regulatory approval
– Average daily production was 276 thousand cubic meters per day (“MCMD”) (9.73 mmcf/ day) for 1H2018
– Hydraulic fracturing completed for 24 wells, and put 57 wells into pilot production, including 9 wells in northern Mabi previously for exploration purpose. In total, there are 184 wells in pilot production as of the end of June 2018
– Carried out abandonment work for a total of 44 exploration wells. The site land reclamation work of 14 exploration wells has been completed
– In June 2018, PetroChina submitted Mabi ODP I to the NDRC to commence the NDRC Approval Process. The Group expects to obtain the approval from NDRC for Mabi ODP I by end of 2018 and be able to start the scaled development of ODP I in 2019

During 1H 2018, AAG Energy continued to achieve excellent progress on Health, Safety and Environmental performance metrics. Specifically, the employee’s Total Recordable Injury Rate, Lost Time Injury Rate, and Preventable Motor Vehicle Accident were all zero.

The Group will continue to invest in Panzhuang and Mabi as follows:

– Panzhuang
The Group is confident to complete the 2018 drilling plan of 49 SLH and 12 PDW wells. The new wells to be drilled in 2H2018 will contribute to production from 2019.

AAG expects production in 2H2018 will be greater than production in 1H2018 subject to
anticipated project execution and related government approval.

– Mabi
In light of the above Mabi ODP I progress, the Group has revised the 2018 capital expenditure (“CAPEX”) plan from the original RMB570 million down to RMB170 million and will continue to focus on the preparation of scaled commercial development, including fine tuning the implementation plan, and continue drilling and completion in core development zone. In 2H 2018, the Group plans to drill 39 PDW wells and to perform 5 well completion works.

Despite the change in the CAPEX plan, there will not be significant changes in the Group’s expected production target for Mabi in 2018 as most production is expected to be contributed from the existing 184 producing wells. The Group’s full year gross production expectation for Mabi remains 97.3 MMCM (3.4 bcf) subject to anticipated project execution, especially the optimization of existing wells and facilities, and related government approvals.

Update on Liming’s Partial Offer
On 14 May 2018, Liming Holdings Limited (“Liming”), an indirect wholly owned subsidiary of Xinjiang Xintai Natural Gas Co., Ltd., a company incorporated in the PRC and listed on the Shanghai Stock Exchange (stock code: 603393), announced it will make a voluntary conditional partial cash offer to acquire a maximum of 1,692,295,936 shares (representing approximately 50.5% of the shares in issue as at that date) or such higher number of shares representing 50.5% of the shares in issue as at the Final Closing Date at the offer price of HK$1.75 per share and extend an appropriate offer to cancel or acquire a maximum of 100,956,224 options and 20,444,228 RSU shares (representing approximately 50.5% of the outstanding options and RSU shares, respectively, as at that date). Liming further announced that as at 2 August 2018, all the conditions for the partial offer have been fulfilled and that the partial offer has become unconditional in all respects.

On 16 August 2018, being the final closing date, Liming announced that it had received valid acceptances of the partial offer in respect of 2,758,498,386 shares, representing approximately 82.3% of the issued share capital of the Company as at the date of the Announcement (or approximately 82.3% of the issued share capital of the Company as at 16 August 2018), 194,462,080 valid acceptances in respect of the option offer, and 36,116,793 valid acceptances in respect of the RSU offer. Pursuant to the terms of the partial offer, Liming will take up 1,692,871,886 shares at HK$1.75 per share. Pursuant to the terms of the option offer and RSU offer, Liming also will take up and cancel 100,323,140 options and 20,154,383 RSUs at HK$0.5647 per option and HK$1.75 per RSU, respectively.

Going forward, besides the government’s coal-to-gas policy, NDRC introduced a Circular on Straightening the Gas Station Price of Natural Gas Used for Residential Purpose (Fa Gai Price Gui [2018] No. 794) in late May 2018 to merge the two-tier gas pricing mechanism of residential-use gas prices together with non-residential-use gas prices in China. This will further improve expected gas prices in China and benefit the Group’s growth aspirations beyond being the leading independent producer of CBM in China.

Dr. Stephen Zou, Chairman and Executive Director of AAG Energy, said, “We are confident that as a high productivity, low-cost upstream gas producer with a strong balance sheet, the growth momentum of our business will continue in the second half of 2018 as we are well positioned to further expand our production in Panzhuang and commercial development in Mabi to satisfy China’s growing energy demand and realize good return to our shareholders.”

About AAG Energy Holdings Limited (HKEX stock code: 2686)
AAG Energy Holdings Limited is an international energy company and a leader in China’s CBM exploration and development sector. It focuses on developing and optimizing the value of unconventional gas resources to supply clean energy to the Chinese economy. AAG Energy’s key operating assets, Panzhuang and Mabi concessions, are located in the Southwestern part of Qinshui Basin, which boasts the largest proved CBM geological reserves of any basin in China. AAG Energy’s Panzhuang concession in partnership with China United Coalbed Methane Corporation Ltd., is the most commercially advanced Sino-foreign CBM asset in China and the first Sino-foreign CBM cooperative project to have entered full-scale commercial development and production. The Project has a designed annual production capacity of 500 million m3. AAG Energy’s Mabi CBM Project in partnership with PetroChina received preliminary ODP Phase I approval from NDRC in November 2013. The designed production capacity of Mabi Phase I is 1 billion m3 per year. With proven ability to commercialize CBM and a highly-respected management team, the Group has attracted support from leading international and Chinese investors. For further details, please visit www.aagenergy.com