China North East Petroleum Secures $15 Million Debt Financing

China North East Petroleum Holdings Limited, an oil producing company in Northern China, has entered into a $15 million debenture agreement with Lotusbox Investments Limited, a wholly owned subsidiary of Harmony Investment Fund Limited, a Cayman Islands-based fund ("Harmony Fund") which is managed by Harmony Capital Managers Limited.

The debenture carries an 8% interest rate and is amortized over 4 years. Initial funding of US$1.75 million has closed and, once certain post closing conditions have been met within the next 30 days, the remaining US$13.25 million would be released from escrow to CNEH.

The Company intends to use approximately US$10 million of the net proceeds to finance a portion of the cost for the drilling of 100 new wells within its four Jilin-based oilfields that are under lease from PetroChina with the remaining net proceeds to be used for potential acquisitions, to implement mature technologies to increase production of existing wells and for general working capital purposes.

In addition to the debenture, Harmony Fund will receive three tranches of five year detachable warrants exercisable into 1.2 million shares of common stock in the Company at the initial exercise price of US$0.01 per share, 1.5 million shares of common stock in the Company at the initial exercise price of US$3.20 per share and 2.1 million shares of common stock in the Company at the initial exercise price of US$3.45 per share. The average price of the three tranches of warrants is US$2.51 and represents a 17% premium to the closing price on February 27, 2008. All warrant exercise prices are subject to reset and other adjustments. Upon the exercise of all warrants at their respective initial exercise prices, the Company could receive up to an additional US$12,000,000.

"This transaction marks a major corporate milestone for our company," said Wang Hong Jun, President of CNEH. "We are extremely excited to enter into this agreement with our new partners, Harmony Capital Managers. We have explored different ways of financing our expansion; we believe this structure causes minimal dilution to shareholders and puts CNEH in a strong financial position to take advantage of the compelling opportunities that lie ahead of us."

Suresh Withana, Chief Investment Officer of Harmony Capital Managers said, "CNEH represents an exciting opportunity for the Harmony Fund to invest in the domestic oil production industry in China. It has a highly experienced management team implementing a robust business model. We are confident that with our financial support, CNEH can increase its oil production much more rapidly, both by drilling new wells and through the acquisition of additional production leases."