Gross Gas Production Elevates by 16% ;
Profit from Operations and EBITDA Surges by 17.9% and 21.5% Respectively;
Growth Momentum Continues with Realized Net Sales Revenue Up by 16.7%
HONG KONG — AAG Energy Holdings Limited (“AAG Energy” or the “Group”; HKEX code: 2686), a leading independent coalbed methane (“CBM”) producer in China, announced its unaudited condensed interim results for the six months ended 30 June 2017 (“review period”). Despite the low natural gas price in China and the global Oil and Gas market becoming increasingly competitive, AAG Energy remained strong and continued to deliver business growth.
In the first half of 2017 (“1H2017”), the Group’s gross gas production increased by 16% year-on-year (“YoY”) to 293 million cubic meters (“MMCM”) (10.3 billion cubic feet (“bcf”), comprising of Panzhuang’s gross production of 266.7 MMCM or 9.4 bcf and Mabi’s gross production of 26 MMCM or 0.9 bcf).
During the review period, AAG Energy realized a higher average selling price of RMB1.26 per cubic meter (1H2016: RMB1.20 per cubic meter) due to increased demand for gas in the winter months. The new wells drilled in Panzhuang in 2016 and 2017 combined with better well design and operation in Mabi led to increased production output in 1H2017.
Realized net sales revenue increased by 16.7% to RMB225.6 million compared with 1H2016. Profit from operations increased by 17.9% to RMB128.8 million. EBITDA increased by 21.5% to RMB176.1 million.
Dr. Steve Zou, Chairman and Executive Director of AAG Energy, said: “2017 has been a terrific year for AAG Energy so far. We focus on increasing natural gas production while driving costs down. In 1H2017, our business remains strong and continues to grow. Panzhuang concession continued to outperform in the industry boasting the highest production concession in China and the lowest cost in the region. Mabi has been focusing on improving pilot well performance and cost control while preparing for full scale commercial development, pending approval of the Overall Development Plan.”
AAG Energy has achieved considerable progress towards key operational objectives during 1H2017:
– Health, Safety and Environmental (“HSE”)
The Group continues to make excellent progress on HSE performance metrics. Specifically, the employee total recordable incident rate and lost time incident rate were both 0.00, while the preventable motor vehicle accident rate was 0.79 during 1H2017, showing strong performance.
– Panzhuang concession – Continues to outperform with production growth
Panzhuang concession was designated as the leading CBM project in China under the Thirteenth Five-Year Development and Utilization Plan for Coalbed Methane (“Energy Plan”) released by the National Energy Administration. Panzhuang gross production increased by 11% YoY to 266.7 MMCM (9.4 bcf). Sales utilization rate was 98% compared with 97.8% in 1H2016. Daily average gas production was 1.47 MMCM per day (“MMCMD”) (51.9 million cubic feet (“mmcf”)/day), an increase of 11% YoY.
The Panzhuang 2017 work plan focuses on increasing production growth while keeping costs down. In 1H2017, AAG Energy is ahead of schedule with 21 single lateral horizontal (“SLH”) wells and 2 and pad drilled wells (“PDW”) completed drilling, with only 8 SLH wells left to drill before completing the original drilling plan of 29 SLH wells for the full year. The Group fracture stimulated 3 vertical pad drilled wells (“PDW”). In 1H2017, an addition of 23 wells began production in Panzhuang after dewatering or other work over activities. Drilling costs were down with average drilling cost in 1H2017 for 1 SLH well down to RMB3 million with wells drilled in just 17.2 days, representing an over 25% savings and 4.1days quicker YoY.
The current production capacity of Panzhuang surface facilities is about 2.45 MMCMD, with 6 gas gathering stations, 17 wellhead compressors, 52.4 km of trunk links and 89.0 km of single well pipelines completed. Upgrading of the central gathering station is in progress and a new 35KV transformer station will be added, which will further improve surface compression capacity.
– Mabi concession – Considerable progress towards commercialization
Mabi concession is the leading development stage CBM natural gas project in China designated under the Energy Plan. In 2017, Mabi’s focus is on improving pilot well performance and cost control while preparing for full scale commercial development after Overall Development Plan (“ODP”) approval is received. In 1H2017, Mabi produced 26 MMCM (917.8 mmcf), a 130% YoY increase. Average daily production in Mabi was 144.2 MCMD (5 mmcf/day), an increase of 130% YoY. In Mabi, there are 93 wells at various stages of pilot production.
AAG Energy completed drilling a total of 16 wells in 1H2017. The low cost PDW, with hydraulic fracturing completion will allow for one well to reach multiple coal seams at the lowest investment. Drilling cost per well for Mabi in 1H2017 is RMB0.3 million lower than budgeted RMB1.2 million. Based on the recent success of Mabi pilot production improvement and development optimization, the Mabi concession is ready for scaled commercial development.
– Mabi exploration program update
For the Mabi exploration program, hydraulic fracturing and testing program continued, with 4 appraisal wells fractured to further test the reservoir potential during the review period. The pilot production test in the Northeastern area continued to show good progress during 1H2017. The exploration focus has been gradually moving to field phasing development preparation.
– ODP approvals – Progress on track
All Mabi Overall Development Plan Phase I (“ODP I”) associated pre-approvals have been secured. The revised Mabi ODP I report based on the latest progress made in the Mabi pilot program and changed market conditions passed the internal review by our project partner CNPC during the second quarter of 2017, and the communication with the NDRC is underway regarding submission of Mabi’s ODP I.
Looking ahead, AAG Energy is confident the Group will meet the below guidance:
– Panzhuang
With the acceleration of drilling program, the full year plan is updated to include drilling an additional 15 SLH wells for a total of 44 SLH wells and 8 PDWs in 2017. The additional wells to be drilled in 2H2017 will contribute to production in 2018. Surface facility investments will include the continuing central station upgrade, construction of power station and related trunk line for supporting future development.
The full year gross production expectation for Panzhuang is 557 MMCM (19.6 bcf), subject to anticipated project execution and related government approvals.
– Mabi
In Mabi, the Group will focus on fine tuning stimulations of PDWs and developing the Mabi ODP I implementation plan. This includes drilling new wells in core areas, infill drilling in existing development areas, and building a core developed zone where downstream infrastructure already exists. The drilling and completion technology will build off the success in recent years of low cost PDWs while observing longer term performance of SLH wells.
The full year plan includes drilling approximately 60 new PDWs, 36 well completion works and 8 re-fractures. The full year gross production expectation for Mabi is 57 MMCM (2 bcf) subject to anticipated project execution and related government approvals.
To support future business growth, AAG Energy has been actively pursuing new oil and gas opportunities in China and elsewhere which meets the Group’s development strategy. Under the current lower oil price environment, valuation of oil and gas assets is very attractive. With a strong balance sheet and its management team’s strong technical knowhow, the Group is well poised for expansion through partnering with other oil and gas producers and/or acquiring attractive assets in the near term.
Chinese government has been encouraging coal users to switch to gas. China’s total gas consumption was up 12% year on year to 117 billion cubic meters (“bcm”) for the period from January to June 2017, according to SIA Energy, an independent China-focused oil and gas consulting firm, owing to the coal-to-gas conversion program which bring out additional gas demand in 2017 as the Chinese government encourages coal users to switch to gas.
“Gas use promotion policy and environmental protection will consistently drive gas demand in the medium and long term. AAG Energy, being a highly effective, low-cost upstream gas producer with a strong balance sheet, is well positioned to expand production in Panzhuang and commercial development in Mabi to satisfy China’s growing energy demand. At the same time, we will continue to pursue new oil and gas business opportunities in China and other regional markets to expand our business, supplying clean energy to vicinity communities and realizing continuous satisfactory return to shareholders.” Dr. Zou concluded.