China Rongsheng Updates on Drilling at Kyrgyzstan Oil Project

China Rongsheng Heavy Industries Group Holdings Limited (China Rongsheng Heavy Industries, the Company or We, and together with its subsidiaries, the Group) reported Tuesday an update on the development of the Kyrgyzstan project (the Project). Representing a great opportunity for us to enter into the energy sector, the Project has been developing smoothly and achieved good progress in increasing the oil production. In order to diversify its operations and broaden its sources of revenue, the Company will continue its efforts in seeking potential business opportunities in the energy sector in all aspects, and promote our transformation to a comprehensive heavy industry player in the energy industry.

As at Oct. 13, the drilling works of five new oil wells in the Kyrgyzstan project have been completed. Two of them, including one which has been conducting fracturing operations and recorded an average daily production volume of approximately 174 barrels of oil, have already commenced production. The rest of the new wells are undergoing the process of perforating, testing and fracturing. In order to further increase the oil production, the Group will continue to take greater efforts in the exploitation of new wells, speeding up the repair on the old wells, and enlarging the scale of fracturing.

According to the feasibility assessment conducted by the Research Institute of Petroleum Exploration & Development of Sinopec Henan Oilfield Company, the exploration zones of the Kyrgyzstan project is located in the Fergana Valley, where is a well-established oil and gas area in Central Asia with abundant resources and relatively favorable geological background. As indicated by the review results of the reserves, the exploitable reserve of crude oil in such oilfields amounted to 97.13 million tons and the remaining exploitable reserve amounted to 88.34 million tons. In addition, two of the five oilfield zones contain large areas of oil reserves where development has not commenced, representing significant potential in development and increase in production.

The directors of the Company believe that the completion of the acquisition of the Project in September represented a great opportunity for the Group to enter into the energy sector. Given the relatively adverse market conditions of the shipbuilding industry for the time being, appropriate business opportunities in the energy sector can assist the Group in diversifying its operations and broadening its sources of revenue, and promoting the Group’s transformation to a comprehensive heavy industry player in the energy industry, so as to generate a greater contribution to the overall interests of our shareholders.

With the rapidly growing oil consumption in China and the huge global demand for oil, China has been proactively constructing the “Silk Road Economic Belt” in the recent years, as well as strengthening their strategic cooperation with Central Asian countries, which in return giving huge support to oil and gas exploitation and sales industry in Central Asia region. During the past few months, we have been working to identify suitable investment opportunities in the energy resources exploitation sector in regions outside the PRC, including Central Asia. With an objective to enhance the shareholders’ value, the Group will continue its efforts in seeking potential business opportunities in the energy sector in all aspects, and will consider the possibility of signing a memorandum of understanding or letter of intent relating to the energy sector in the future should the opportunities arise.