China Tracker - Details for China North East Petroleum (CNEP)

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 China North East Petroleum
Shares Outstanding (MRQ): 31.36 mill 
New Shares / Dilution (TTM): 0.05 mill0.17%
New Shares / Dilution (since Dec 31, 2008): 11.43 mill57.38% 
Cash (MRQ): 75.15 mill0.00%
Account Receivables (MRQ): 21.98 mill0.00%
Account Receivables (Q/Q): -2.16 mill  
Long-Term Debt (MRQ): 9.58 mill0.00%
Revenue Growth (Q/Q): -5.13% 
Revenue Growth (Y/Y): -24.81%
Net Income Growth (Q/Q): 40.73% 
Net Income Growth (Y/Y): -37.90%
EPS Growth (Y/Y): -38.01%
Net Margin (Q/Q): 31.8% (21.4%)10.30% 
Net Margin (Y/Y): 31.8% (38.4%)-6.70% 
EPS | P/E (2 MRQ Projection): $0.750.00 
CFPS | P/CF (2 MRQ Projection): $1.690.00 
Price/Sales (2 MRQ Projection): 0.00
Price/Book (MRQ): 0.00 
Auditor: Baker Tilly
 Forward Projections (Fiscal Year)
EPS | P/E (Estimates updated 2011-05-11): $0.950.00 
 Basic Facts and History (show more)
Reporting Type: U.S. Company (10-K Filings) 
Going Public: Reverse Merger on 2004-03-29 
Uplisting to Senior Exchange: on 2009-06-15 at $5.29 (-100.00% since Uplisting)

 Business Outlook

Recent Chain of Events:
2012-09-24 -- Last SEC Filing
2012-06-21 -- Delisting from NYSE Amex
2012-03-01 -- Trading halted by NYSE Amex
2011-11-09 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

(Source: Trading China, 2012-09-30)

On September 15, 2010, the Company engaged Ernst & Young (China) Advisory Ltd. to assist the Company to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. More specifically, the Company engaged Ernst &Young to help the Company understand its overall controls environment, as well as key financial accounting procedures, to identify any differences between the Company's internal controls and those required by SEC rules and regulations, and to define areas that needed improvement and the method for implementation of such improvement.

Ernst & Young proceeded in two phases, which took several months. Its work, performed for the Company and its four subsidiaries, included, among other things, the collection and review of data, policies, regulations and procedural documentation, a variety of testing and re-testing, the development of internal control templates for management, the identification of areas of improvement and the issuance of recommendations. Ernst & Young has completed both phases of its work and has concluded its engagement.

Based on the results of the E&Y engagement, the Company has developed an improvement plan for implementation in 2011. The Company believes that the improvement plan substantially improves the quality of its internal controls and is in line with legal and regulatory requirements. The independent auditor for the Company will perform interim internal control tests in the second quarter of 2011.

(Source: 8-K Filing, 2011-05-23)

Drilling services in our Tiancheng production was slower in the first quarter. However, Tiancheng's drilling activity has accelerated since March and is expected to remain strong going forward. As a result of the higher price of oil, PetroChina Jilin has approved the drilling of a large number of new wells in its Jilin oilfield and we are hopeful our drilling services business can benefit from expanded drilling initiatives at PTR as well as among other private oil companies operating in the Jilin oilfield. In fact, earlier this week, our Tiancheng subsidiary signed another contract with PTR to drill another twenty wells. Drilling is scheduled to commence this month and conclude by the end of the year.

We are pleased to have recently closed our Durimu acquisition which has allowed us to secure additional oil reserves, and which will significantly expand our operations and generate better returns on our investment. Our healthy cash flow from operations generated this quarter and expected in future quarters will provide us with adequate resources to further develop oil production activities within the Durimu oilfield. We are excited about the potential of our recent acquisition which further propels NEP into a larger regional oil producing and oilfield services company.

(Source: PR Newswire, 2011-05-10)

    see all Business Outlook notes

 Analyst Coverage (show less)
2011-06-10Rodman & RenshawUpgradeOutperform$5.50

Upgrading to Market Outperform on valuation. We've been on the sidelines for a while on NEP given its lack of production growth as well as overall concerns regarding the performance of Chinese stocks. And while we still have these concerns, and note that NEP has had accounting issues in the past (trading in it was suspended for a few months last year), we think the stock is just too cheap at current levels, as NEP has ~$2/share of cash on its balance sheet and is generating excess cash flow. The stock is trading at only 1.0x 2011e EBITDA, well below the peer average of 8.4x. And while we're not sure how long NEP will be jaded by Chinese-company accounting concerns, we just don't see its valuation staying this depressed over the long term. Given this, we think buying NEP makes sense for value players with a long-term time horizon. We are resuming our NAV-based target price at $5.50, which implies a 2011 EBITDA multiple of only 2.4x.

2011-05-10Rodman & RenshawReiterationMarket Performn/a

While we do see upside potential in the company's assets, we don't see NEP outperforming until it demonstrates that it can generate material production growth again...something we're not expecting until late this year.

2011-03-17Rodman & RenshawReiterationMarket Performn/a

NEP reported Q4 operating EPS of $0.15, missing our $0.23 estimate. CFPS of $0.29 was also below our $0.32 estimate. Higher-than-expected income tax expense and G&A were the primary culprits. Q4 production of 1.8 MBo/d had been pre-announced.

Focus turns to Durimu. NEP plans to shift its focus to the Durimu Field in Inner Mongolia once the acquisition is completed. The company plans to drill 20-30 test wells in the field this year. As for the company's existing assets in Jilin, NEP plans to drill 10-20 wells in order to hold production flat. We estimate this level of activity, plus the company's planned seismic acquisition, equates to a capex budget of ~$30 million for the year. NEP should have ample liquidity to fund a budget of this level.

Raising 2011 production forecast. Current production is running ~2.2 MBo/d, higher than we were expecting based on our prior discussions with management. However, given the company's shift to Durimu, we're not expecting any material growth from these levels until later this year when production from the field starts to ramp up. Despite this, the higher current run rate takes our 2011 production forecast up to 2.2 MBo/d from 1.7. For 2012, we are forecasting production of 2.5 MBo/d.

No surprises on the reserve front. NEP reported year end reserves of 5.5 MMBo, in line with our expectations. Year-end reserves were all oil and 38% PUD. For the year, NEP replaced 9% of its production at a cost of ~$18/Boe. Its year-end PV10 was ~$153 million, which implies a per-unit value roughly in line with what we were using in our NAV.

Raising estimates. Due to our higher production forecast, our 2011 EPS/CFPS estimates rise to $1.11/$1.49 from $1.01/$1.30. For 2012, our estimates rise to $1.13/$1.54 from $0.99/$1.28. While we're pleased to see production doing better than expected, we're going to maintain our Market Perform rating at this time as we see more compelling ideas elsewhere in the E&P space.

2011-02-07Rodman & RenshawReiterationMarket Performn/a

Q4 production shy of expectations. NEP reported Q4 production of 1.8 MBoe/d, 3% light of our forecast. As a result of the company's focus shift to its Durimu acquisition, we do not expect additional production growth until late this year. And based on the lack of new wells in Q4, we expect to see volumes fall slightly in Q1. We continue to forecast production to fall by 10%-15% y/y in 2011.

Fewer than expected drilling contracts completed in Q4. The company's drilling service subsidiary completed 35 wells in Q4, shy of the 53 wells we were forecasting (it had averaged 52 wells in the prior 3 quarters). The lower activity level was attributed to maintenance work as well as the impact of previously-reported flooding in the region. As a result, we estimate Q4 operating income for the unit to be $4.5 million, below our prior estimate of $7.1 million and down from $6.5-$7.5 million/quarter in the prior three quarters. We expect activity to return to more normal levels in Q1. As a result of the update, we are trimming our Q4 EPS/CFPS estimates to $0.23/$0.32. For 2011, our CFPS estimate falls a penny to $1.30.  Maintain Market Perform. We view the update as disappointing. While we do see significant upside potential in the company's assets, we don't see NEP outperforming until it demonstrates that it can generate material production growth again...something we're not looking for until late this year.

2011-01-31Rodman & RenshawReiterationMarket Perform$7.00

NEP recently announced plans to acquire Shengyuan Oil and Gas Technology Development Co. (Shengyuan) for $43.4 million ($10.6 million cash and 5.8 million shares). The acquisition gives NEP a 24-year exclusive contract to explore and develop the 175 km2 Durimu field in Inner Mongolia. To date, 3 exploration wells have been drilled on the acreage, and proved reserves are estimated at 1.5 MMBo. The asset currently has no production. PetroChina has estimated the field to have potential reserves of 143 MMBo, or 105-110 MMBo net to NEP. The deal is expected to close by the end of Q1.

Focus likely to shift to Durimu. Assuming NEP can successfully develop the field, Durimu appears to have a number of advantages over its Jilin assets. First, it provides a much bigger target in terms of reserve potential. Second, it likely generates better returns as the wells appear to have higher deliverability as well as better royalties (25%, vs. royalties on its existing leases which will increase to 40% over the next couple of years). Third, the remaining term on this license is much longer than on its existing licenses (24 years vs. ~12 years). As a result, NEP plans to shift its focus to Durimu over time. Initial plans call for a 3D seismic shoot as well as 10-20 wells over the next 12-18 months. NEP plans to move 2-3 of its drilling rigs to the field to facilitate this activity.

Acquisition appears slightly accretive to our NAV. Given the limited information available about the new asset, we are going to take a conservative approach to valuing it. We are initially risking Durimu's potential by 95%, which equates to 5-6 MMBoe. We value this at ~$55-$60 million, or ~$10.50/Boe, As a result, the acquisition appears slightly accretive to our NAV. As we get more information on the characteristics of the Durimu wells, we will reassess our estimates.

Reducing production forecast. While the company shifts its focus to Durimu, it only plans to drill 30-40 wells annually on its Jilin assets in order to hold production flat. As a result, we're not expecting to see sequential production growth this year until Q4. And given that NEP didn't drill any wells last quarter, and isn't likely to resume drilling until after the Chinese New Year, our production forecast appears too high. As a result, we're trimming our Q4'10 and 2011 production forecast to 1.8 and 1.7 MBo/d, respectively, from 1.9 and 2.0 MBo/d.

Maintain Market Perform. 2010 was a bumpy year for the company, with production having likely fallen ~20%. And given the shift in focus to Durimu, 2011 production is likely down another 10%-15%. With the falling production and lack of near-term catalysts, we don't expect the stock to be a near-term outperformer. As a result, although we see upside potential to our $7 NAV, we're maintaining our Market Perform rating at this time.

    see all Analyst Ratings

 Recent Financings
2009-09-16Priced$18.40 mill4.00 mill shares$4.60

 Investor Presentations
2011-03-07 (HTML)   VIEW
2010-03-07 (HTML)   VIEW
Oil & Gas
READ: Score Cards Explained
DETAILS: Safety/Risk Model for CNEP
Current Price:  n/a
F10k Day (2004-09-17): -100.00%$0.80
2009 Close: -100.00%$9.25
2010 Close: -100.00%$5.76
2011 Close: -100.00%$2.05
High (2012-02-22): -100.00%$3.68
Low (2012-10-02): -100.00%$0.20
Market Capitalization: n/a
Total Shares: 31.36 mill
Float: n/a
Avg Volume: n/a
Last Quarter: 2011-03-31
Revenue (MRQ): 21.75 mill
Net Income (MRQ): 6.91 mill
Op. Cash Flow (MRQ): 13.55 mill
all financial data provided without warranty