China North East Petroleum Ups FY07 Revenue 266%

China North East Petroleum Holdings Limited, an oil producing company in Northern China, announced consolidated financial results for the fourth quarter and full year ended December 31, 2007.

For the full year, total sales increased 266% to $19.5 million compared to $5.3 million in the prior year period. The increase in revenues was a result of increased oil production and higher oil prices. Crude oil production for 2007 increased 218% to 38,962 tons (287,543 barrels) from 12,266 tons (90,520 barrels). Oil prices in 2007 averaged RMB3,937 per ton, or approximately US$72.94 per barrel, which represents an increase of 13% over 2006.

Gross profit increased to $10.5 million compared to $2.6 million in the prior year period. Gross margin increased 530 basis points to 54.1% from 48.8% in the prior year period due to greater economies of scale from an increased number of oil producing wells.

Selling, general and administrative expenses for the year were $880 thousand, or 4.5% of sales compared to $885 thousand, or 16.6% of sales, in the prior year period.

Operating profit in 2007 increased 578% to $9.2 million compared to $1.4 million in the prior year period. Full year operating margin increased to 47.4% compared to 25.6% in the prior year period, largely due to greater leverage associated with the increased revenue and higher crude oil prices.

Net income in 2007 increased to $5.1 million, or $0.21 per diluted share, compared to $952 thousand, or $0.03 per diluted share in the prior year period.

Total sales for the fourth quarter were $7.7 million, a 539% increase compared to $1.2 million over the same period last year. Crude oil production for the fourth quarter increased 178% to 12,634 tons (93,239 barrels) from 4,540 tons (33,505 barrels) for the quarter ended December 31, 2006.

Gross profit in the fourth quarter was $4.5 million, a 388% increase over $925 thousand in the same period last year. Fourth quarter gross margin decreased to 58.8% compared to 77.0% in the year ago period primarily due to the costs associated with an increase in the total number of wells and a higher percentage government oil surcharge associated with higher oil prices.

Operating income increased to $4.1 million, or 54.0% of sales, compared to $353 thousand, or 29.4% of sales in the prior year period.

Net income for the fourth quarter increased significantly to $2.1 million, or $0.11 per diluted share, versus $495 thousand, or $0.03 per diluted share, in the fourth quarter of 2006.

Mr. Hongjun Wang, President of China North East Petroleum commented, "We are extremely pleased with our progress for the fourth quarter and 2007 fiscal year. We finished the year operating 153 wells in four oilfields in the Jilin province. The rising price of oil throughout 2007 generated more cash for our business allowing us to increase the total number of wells in production from 90 at the beginning of 2007 to 153 at the end of the year. We also benefited from the implementation of water injection technologies that allowed us to maximize oil extraction at our existing wells.

We have a compelling operating model with a continuous cycle of growth-we drill wells, produce and maximize crude oil production, sell 100% of our oil to PetroChina, generate strong cash flow and earnings for our business, all of which allows us to reinvest our profit back into our business to fuel additional growth.

We recently secured $15 million through a debt financing. Approximately $10 million of the proceeds will be used to drill 100 new wells in 2008 with the remaining proceeds to be used for potential acquisitions and extraction technology to maximize well production. We are encouraged with our opportunities ahead."

Mr. Wang concluded, "We are very encouraged with our ability to further grow our revenue and profit in 2008. Our company enjoys a strong partnership with a major oil company, and the four oilfields in which we currently operate are proven oil bearing areas with strong reserves. CNEH has a compelling business model that is highly scalable, has minimal reserve risk, no sales costs, and generates strong cash flow. We see the opportunity to expand our operations through increased oil production, greater economies of scale and acquisition opportunities. We are building on our momentum over the last twelve months and believe that 2008 will be a monumental year for our business."


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