Primeline, Loyz Extend Deadline to Reach Agreement on Merger
China-focused Primeline Energy Holdings Inc. (Primeline or the Company) reported Friday that it has agreed with Loyz Energy Limited to extend the date for entry into definitive, binding agreements with Loyz for the proposed merger between Primeline and Loyz announced June 9 from Aug. 31 to Sept. 30 in order to allow due diligence and negotiations of the binding documentation to continue.
Primeline announces that it has filed its interim unaudited financial statements for the quarter ended June 30 and related management discussion and analysis. Copies of these documents may be obtained at www.SEDAR.com under Primeline’s profile or on Primeline’s website at www.pehi.com.
Period Results Impacted by Lower Off Take
Primeline’s results for the quarter were impacted by a very significant decline in off take volumes by Zhejiang Gas versus the prior quarter. Revenues from oil and gas sales fell from $10,768,322 (CNY 68,588,041 or CAD 13,709,382) in the quarter ended March 31 to $954,279 (CNY 6,078,216 or CAD 1,214,914). The Company’s results for the period were for a loss of $4,272,104 (CNY 27,210,855 or CAD 5,438,907) compared to the loss of $267,777 (CNY 1,705,590) for the same quarter last year.
Cash Position Remains Strong
As of June 30, Primeline held cash resources of $28,898,915 (CNY 184,069,524 or CAD 36,791,830) of which $17,662,500 (CNY 112,500,000 or CAD 22,486,508) is held in a long-term bank deposit account (the Debt Service Reserve Account) classified as a non-current asset, and owed amounts. There was no debt repayment obligation during this quarter.
Short Term Market Oversupply
The substantial build out of long distance pipeline infrastructure and LNG (liquefied natural gas) terminals along the East Coast of China, coupled with the general slowdown of the Chinese economy and the dramatic drops in oil prices seen since late 2014, have led to an oversupply of gas in the region. The main suppliers to the East China gas market lowered prices and this led to reduced demand for LS36-1’s gas and pressure from Zhejiang Gas for a price adjustment to reflect such substantive market changes. Primeline does not believe there are contractual grounds for any adjustment of the base price and has resisted this request for a swift price adjustment. CNOOC China Limited (CNOOC China) and Primeline are also working hard to agree to a long-term price adjustment mechanism as stipulated in the Gas Sale Contract. Zhejiang Gas cannot unilaterally change the terms of the Gas Sale Contract.
2015 Outlook May See Take or Pay Obligation from Zhejiang Gas
CNOOC China and Primeline requested that Zhejiang Gas to ensure that the 2015 annual volume of gas for off take by Zhejiang Gas is in line with the annual “take-or-pay” volume of 6.89 million cubic feet (MMcf) or 195 million cubic meter (Mcm) for 2015 subject to and in accordance with the Gas Sale Contract. CNOOC China and Primeline anticipate full collection of amounts owing associated with sales or the ‘take or pay’ contractual arrangement.
CNOOC Gas and Power, which has the same ultimate holding company as CNOOC China, is the 30 percent shareholder of Zhejiang Gas. CNOOC China holds a 51 percent participating interest in the LS36-1 gas field and is the Operator under the Petroleum Contract for Block 25/34 and sells the LS36-1 gas on behalf of both CNOOC China and Primeline to Zhejiang Gas. Primeline has requested CNOOC China to negotiate with Zhejiang Gas on an arm’s length basis to ensure that the contract is performed in its entirety.
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