HE Hanwei Energy Services Corp

Hanwei Energy Services Corp. (TSX:HE) (“Hanwei” or the “Company”), today reported its financial results for the year ended March 31, 2018 (the “2018 Fiscal Year”) and provided an operational update. All amounts are in Canadian Dollars unless otherwise noted.  

Hanwei's principal business operations are in two complementary segments of the oil and gas industry as an operator and developer of its own producing and exploratory oil and gas assets in Alberta and Manitoba and as a specialized pipe supplier to the industry, both in Canada and internationally. For the financial year ended March 31, 2018, a summary of the Company’s annual financial results are as follows:

Summary of the 2018 Fiscal Year Financial Results from Continuing Operations
in thousands of CDN$ except percentages and per share data
	FY2018					FY2017
	Pipe	Oil & Gas	Corporate	Total		Pipe	Oil & Gas	Corporate	Total
Revenue	9,109	1,454	-	10,563		4,947	2,528	-	7,475
Adjusted EBITDA	1,875	(667)	(883)	325		108	34	(942)	(800)
Adjusted EBITDA Margin	21%	-46%	n/a	3%		2%	1%	n/a	-11%
Adjusted EBITDA per share	0.01	0.00	0.00	0.00		(0.00)	0.00	(0.00)	(0.00)
Net Income (loss)	176	(2,811)	(383)	(3,018)		(2,427)	(1,345)	(1,512)	(5,284)
Diluted EPS (Basic and diluted)	0.00	(0.02)	(0.00)	(0.02)		(0.01)	(0.01)	(0.01)	(0.03)
Weighted average number of outstanding shares			Basic	194,201,234				Basic	194,201,234
			Diluted	194,201,234				Diluted	194,201,234

• The Company had revenues for the year ended March 31, 2018 of approximately $10.6 million as compared to $7.5 million for the prior year, representing a 41% increase driven by growth in FRP pipe sales, primarily in the Company’s China market, offset by a decrease in oil and gas revenues due to drilling and work-over programs at the Company’s Leduc Lands that shut-in production for the six months ended March 31, 2018.  
• Revenues from the Company’s China FRP pipe market increased by 281% to $6.6 million for the year ended March 31, 2018 (driven primarily by new flow line projects and representing 73% of total Company FRP pipe revenues) as compared to $1.7 million (representing 35% of total Company FRP pipe revenues) in the prior year.  
• Revenues from the Canadian FRP pipe market decreased by 42% to approximately $1.8 million for the year ended March 31, 2018 due to timing of projects by end users (representing 20% of total Company FRP pipe revenues) as compared to $3.1 million (representing 63% of total Company FRP pipe revenues) in the prior year. 
• During the year ended March 31, 2018, the Company produced approximately 107 barrels of oil equivalent per day (boe/d), including 58 bbl/d of oil, 224 mcf/d of gas and 12 boe/d of liquids. For the year ended March 31, 2017, the Company produced approximately 218 barrels of oil equivalent per day (boe/d), including 81 bbl/d of oil, 611 mcf/d of gas and 35 boe/d of liquids.  
• The Company’s Oil and Gas business unit generated revenues net of royalties of $1.4 million and net back of $0.3 million, equivalent to gross revenue per boe of $36.92 with a netback of $10.51 per boe (or a netback margin of 28%) for the year ended March 31, 2018. For the year ended March 31, 2017, the company generated revenues net of royalties of $2.2 million and net back of $0.8 million, equivalent to gross revenue per boe of $31.99 with a netback of $10.05 per boe (or a netback margin of 31%).

As before noted the Company’s production wells on its Leduc Lands were shut-in during the six months ended March 31, 2018 so as to accommodate capital expenditures upgrading the Company’s battery facility, conversion of a previously shut in vertical well to a water disposal well to reduce operating expenses, conversion of a previously shut in vertical well to a gas injection well, drilling of a new Nisku horizontal well and re-entry of four existing vertical Wabamun wells to increase both production and operating netback. The Company brought its Leduc Lands back on test production on May 19, 2018.  Test production oil volume is currently at approximately 250 bbl/d.  

• Adjusted EBITDA from continuing operations for the year ended March 31, 2018 totalled approximately $0.3 million as compared to negative Adjusted EBITDA of $0.8 million for the prior year.  The $1.1 million improvement was due to increased FRP pipe sales in the Company’s China market and continued cost management in the FRP pipe business.

Oil and Gas Reserves

• The oil and natural gas reserves of the Company attributable to the Leduc Lands and Entice Lands as at March 31, 2018 and March 31, 2017 were evaluated by Sproule Associates Limited (“Sproule”), an independent qualified reserves evaluator. The chart below provides a comparison of the “Proved” and “Proved Plus Probable” remaining reserves of the Company therein. The decrease in both reserves and Net Present Value of the remaining reserves is due to expiration of certain mineral rights of the Company at Leduc as well as a decrease in expected gas sales due to the Company’s intention for gas injection at the Leduc Lands.

	Remaining Reserves				Net Present Values After Tax
Mboe; After Tax (M$)	Gross	Company	Company		@ 0%	@ 5.0%	@ 10.0%	@ 15.0%	@ 20.0%
	100%	Gross	Net		M$	M$	M$	M$	M$
2018 Reserves Report
Total Proved	1,069.3	1,062.4	885.9		25,027	20,200	16,762	14,266	12,398
Total Proved + Probable	1,753.7	1,737.7	1,461.5		41,823	31,864	25,214	20,614	17,300
2017 Reserves Report
Total Proved	1,420.1	1,366.1	1,124.7		26,544	21,083	17,381	14,773	12,865
Total Proved + Probable	2,242.7	2,161.0	1,814.4		42,892	32,621	25,934	21,341	18,042
Variance
Total Proved	(351)	(304)	(239)		(1,517)	(883)	(619)	(507)	(467)
YoY Variance %	-24.7%	-22.2%	-21.2%		-5.7%	-4.2%	-3.6%	-3.4%	-3.6%
Total Proved + Probable	(489)	(423)	(353)		(1,069)	(757)	(720)	(727)	(742)
YoY Variance %	-21.8%	-19.6%	-19.4%		-2.5%	-2.3%	-2.8%	-3.4%	-4.1%

Short-term loan

The total principal amount of all short-term loans was $5.1 million as at March 31, 2018 representing a 38% debt to equity ratio (total debt divided by total shareholders' equity).  Management believes that the Company has sufficient debt facilities to support its current operations and will continue to assess its debt structure based on the requirements of the business.

Other

• General and administrative (“G&A”) expenses for the year ended March 31, 2018 were $2.4 million as compared to $4.1 million for the prior year.  G&A for the year ended March 31, 2018 included a one-time property tax refund received by the Company’s FRP pipe business unit in the amount of $0.4 million.
• As of March 31, 2018, the Company’s cash and cash equivalent balance was approx. $1.0 million.
• As of March 31, 2018, the Company had a Net Asset Value per share for its continuing operations of $0.13.

The Company also today announced that Mr. Yucai (Rick) Huang, CPA, CGA, the Company's Chief Financial Officer, has resigned to pursue other business opportunities, and will leave the Company on June 21, 2018. The Company wishes to thank Mr. Huang for his decade of service and wishes him success in his next endeavour. Mr. Huang’s resignation is not the result of any dispute or disagreement with the Company including any matters relating to the Company’s accounting practices, internal controls, or financial reporting.

Ms. Xinran (Irene) Mai, CPA, CGA will assume the role of Chief Financial Officer. Ms. Mai is currently Financial Controller for the Company and has been with the Company in various finance and accounting roles since January 2007.  She has extensive hands-on experience with the Company in financial management, financial reporting, internal controls, corporate finance and regulatory reporting. She is bilingual in both English and Chinese languages and holds a detailed understanding of the Company’s business and financial affairs in Canada and China. Ms. Mai holds a Bachelor of Engineering degree specializing in industrial management, and is member of the Chartered Professional Accountants in British Columbia (“CPA”).

About Hanwei Energy Services Corp.

Hanwei Energy Services Corp.’s principal business operations are in two complementary key segments of the oil and gas industry as both an equipment supplier to the industry (as a leading manufacturer of high pressure, fiberglass reinforced plastic (“FRP”) pipe products and associated technologies serving major energy customers in the global energy market) and as oil and gas producer with properties in Alberta and joint venture interests in Manitoba.

For more information, please contact:

Graham KwanExecutive Vice President, Strategic Development and Corporate Affairs604-685-2239gkwan@hanweienergy.com

Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.

FORWARD-LOOKING INFORMATION

Certain information in this press release is forward-looking within the meaning of certain securities laws, and is subject to important risks, uncertainties and assumptions a description of which is set out in the risk factors section of the Company’s Annual Information Form dated June 19, 2018 and Management Discussion and Analysis for the year ended March 31, 2018 both of which are filed with Canadian securities regulators and available on SEDAR at www.sedar.com.  The forward-looking information in this press release describes the Company’s expectations as of the date of this press release.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS PRESS RELEASE PRESENTS THE EXPECTATIONS OF THE COMPANY AS OF THE DATE OF THIS PRESS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE. WHILE THE COMPANY MAY ELECT TO, THE COMPANY DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME, EXCEPT AS REQUIRED BY APPLICABLE SECURITIES LEGISLATION.