EQS-News / 24/08/2016 / 22:56 UTC+8

For Immediate Release
Sino Oil and Gas Holdings Limited

Recorded a net profit of HK$5.7million in the first half of 2016
Business Overview
Hong Kong, 24 August 2016 - Leading oil and gas explorer and developer Sino Oil and Gas Holdings Limited (the "Company", Hong Kong stock code:702) today announced the unaudited interim results of the Company and its subsidiaries (collectively the "Group") for the six months ended 30 June 2015. During the period, the Group recorded a net profit of approximately HK$5,697,000(2015 interim: HK$13,876,000), which has decreased by 59% as compared with that of the same period in last year, mainly due to the gas selling price adjustment for industrial users of the Sanjiao coalbed methane project ("Sanjiao CBM Project") in November 2015. Meanwhile, as Sanjiao CBM Project has entered in development phase from exploration, the CBM sales has been recognised as the turnover of principal activities, the financing cost, construction related amortization and depreciation expenses increased during the period.

The Group recorded a turnover of approximately HK$78,381,000 (2015 interim: HK$5,963,000), which has increased substantially compared with that of the same period in last year. The turnover included the revenue from oil exploitation operations in Shaanxi Province; the sales derived from raw coal washing project located in Qinshui Basin, Shanxi Province; and the sales of coalbed methane ("CBM") respectively. Also, the government subsidy of approximately HK$9,592,000 (2015 interim: nil) on the sales of CBM for the year 2015 has been received and recorded as "other revenue" during the period.

Sanjiao CBM Project
As at 30 June 2016, the Sanjiao CBM Project has completed a total of 99 wells, comprising46 multilateral horizontal wells and 53vertical wells. Out of the total 99 wells, 82 wells were in the normal dewatering stage, of which 60wells had accessed to a gas collection pipeline network. A ground pipeline network of approximately 18 kilometers, inter-well pipelines of approximately42kilometers, and outbound pipelines of approximately 17kilometers were completed. Approximately total 59.7kilometers of 10KV power grid and branch power line were also completed.
During the period, the Group has started the low productivity wells rework programme. After the joint technology examination and economic assessment conducted by local and foreign experts, 18 wells with the greatest potential value have been selected. With cautious implementation schedule, the Group prepares operation plans, optimises the drainage system and improves the single well productivity. As of 30 June 2016, significant progress has been obtained through the reworks of low productivity wells, including the dewatering quantitative management, dewatering recovery of low productivity wells, blockage relief by nitrogen and fracturing reform etc. Steady increase of the single well productivity has been noted in a number of transformed wells. The low productivity wells reworks programme is expected to be completed by this year and to contribute additional productivity.

During the period, the Sanjiao CBM Project recorded the CBM sales amount to HK$30,435,000(2015 interim: approximately HK$42,268,000) and CBM production of approximately 32.49million cubic meters (2015 interim: approximately 27.9 million cubic meters) and CBM sales of approximately 26.52million cubic meters (2015 interim: approximately 27.38 million cubic meters), resulting in a gas sale-to-production rate of approximately81.6% for the period (2015 interim: approximately 98.1%). The Group is negotiating with an existing customer for renewal of sales contract, and has been speeding up the process. The sales performance is expected to be improved in the second half of this year.

Raw Coal Washing Project
The Group acquired a 75% equity interest of a raw coal washing project company located in Qinshui Basin, Shanxi Province in May 2015. The raw coal supplier of the project is a sizable state-owned coal enterprise in Qinshui basin and thereby the raw materials supply is stable. The project has been officially launched on 1 July 2015. It has already entered into stable production phase and also gradually developed sales channels. During the period, the project recorded a total sale of refined coal approximately 93,500 tonnes. The Group expects this project will bring a steady income and cash flow.

Through in-depth cooperation with the local sizable coal enterprises with further understanding to local geological environment, the Group is actively seeking to diversify the business model and cooperation projects, continuously to improve the CBM development business model and inject new momentum for the Group's growth. In January 2016, the Group entered into a non-legally binding Strategic Cooperation Framework Agreement ("Framework Agreement") with Shanxi Guxian Lanhua Baoxin Coal Company Limited (山西古縣蘭花寶欣煤業有限公司) ("Lanhua Baoxin"), pursuant to which the Company and Lanhua Baoxin, intend to establish a project management team for the development of CBM projects located in the coal mine block of Lanhua Baoxin Qinshui Basin and eastern edge of Ordos Basin. These are the regions with the richest CBM reserve in China, and also the most representative CBM production bases in China. This Framework Agreement has landmark significance to the Group, which benchmarked the Group's official entrance into the CBM market of Qinshui Basin.

Crude Oil Business
In order to optimise the Group's resources allocation so as to focus on the development of Sanjiao CBM project and also due to the fact thatcontinuous drop of domesic oil price in Shannxi Province, the Group has slowed down the crude oil business development.

For the period ended 30 June 2016, three oilfields in Liuluoyu, Yanjiawan and Jinzhuang, located at the Ordos Basin in Shaanxi Province, yielded an aggregate crude oil output of approximately 1,930 tonnes (2015 interim: approximately 1,900 tonnes).

Possible Acquisition-Oilfield in Alberta, Canada
With the purpose of further enriching the Group's resources reserves, apart from actively seeking suitable oil and gas blocks in China, the Group is also exploring investment opportunities in overseas upstream businesses. The Group hence entered into two non-legally-binding memorandums of understanding ("MOUs") in June and September 2014. The acquisition targets are oil and gas fields located in Alberta Province, Canada.
According to the MOUs, the Group is now conducting due diligence review on the resources and financial aspect of the target groups. The Vendor has collected seismic data so as to identify areas where oil and gas may have accumulated; and has drilled exploratory wells to evaluate if the site can produce enough oil or gas to make it economically viable to develop. On 31 December 2015, the Group and the Vendor have agreed to further extend the time limit for entering into formal agreements in respect of the terms in the MOUs to 30 September 2016. Meanwhile, during the period, after negotiation with the vendor, taking into account of the interests of shareholders and the Company, interest is charged at the rate of 8.5% per annum against the vendor on the refundable deposits on MOUs (i.e. CAD40 millions), with reference to the existing cost of capital to the Company. The interest income amounted to approximately HK$29,390,000 was disclosed in "other revenue".

Regarding the possible acquisitions, Dr Dai Xiaobing, Chairman of Sino Oil and Gas Holdings said: "The management is actively preparing for these possible acquisitions. The Company expects that acquiring overseas assets will further diversify the Group's global resources allocation, balance the development of the gas and oil business portfolio. This will strengthen its capacity of operations and establish its position as an international oil and gas explorer and developer. The shareholders' value can therefore be enhanced."

Prospects 
For the Group's development strategy, Dr Dai said, "Based on its core business of natural gas and oil exploration and development, the Group will strengthen its competitiveness, optimise its resources allocation and enhance investment returns. At the same time, we will attempt to expand into downstream businesses relying on the Group's upstream businesses as appropriate. On this basis, we will implement active but cautious financial strategies, and seek opportunities for mergers and acquisitions as well as integration of high-quality oil and gas assets globally, targeting to become a professional international oil and gas player."
For further enquiries, please contact: 
Celia Li
Corporate Communications Department
Phone：(852) 2802 3623
Email：celiali@sino-oilgas.hk 

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24/08/2016 Dissemination of a Press Release, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.
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