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, 2019 (the “2019 Fiscal Year”). 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, 2019, a summary of the Company’s annual financial results are as follows:

Summary of the 2019 Fiscal Year Financial Results from Continuing Operations
in thousands of CDN$ except percentages and per share data
	FY2019						FY2018
	Pipe	Oil & Gas	Corporate		Total		Pipe	Oil & Gas	Corporate		Total
Revenue	7,746	2,964	-		10,710		9,109	1,454	-		10,563
Adjusted EBITDA	807	(533)	(808)		(534)		1,875	(667)	(883)		325
Adjusted EBITDA Margin	10%	-18%	n/a		-5%		21%	-46%	n/a		3%
Adjusted EBITDA per share	0.00	(0.00)	(0.00)		(0.00)		0.01	(0.00)	(0.00)		0.00
Net Income (loss)	31	(16,083)	(1,285)		(17,337)		176	(2,811)	(383)		(3,018)
Diluted EPS (Basic and diluted)	0.00	(0.08)	(0.01)		(0.09)		0.00	(0.02)	(0.00)		(0.02)
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 of approximately $10.7 million as compared to $10.6 million for the prior year. The increase was due to the oil and gas business unit’s Leduc Lands being back on production but offset by a decrease in the FRP business unit with sales reducing by 15% to $7.7 million (from $9.1 million for the prior year) mainly affected by the slow down in the Company’s Canadian FRP pipe market.  
  • Revenues from the Company’s China FRP pipe market decreased by 8% to $6.1 million (as compared to $6.6 million for the prior year) with a slight decline in projects awarded in this market.
  • Revenues from the Canadian FRP pipe market decreased by 28% to approximately $1.3 million (as compared to $1.8 million in the prior year) with the reduction due to timing of projects by end users and the general slow down of the industry in Western Canada.  
• Notwithstanding the decrease in FRP pipe revenues the Company maintained positive EBITDA in its FRP pipe business unit of $31,000. 
• At its Leduc Lands the Company completed the conversion of a previously shut in vertical well to a water disposal well, conversion of a previously shut in vertical well to a gas injection well, and re-entry of four existing vertical Wabamun wells with production re-instated in May 2018. The workover program on the Wabamun wells did not meet expectations and only provided a nominal increase in oil production.  
  • The Company produced approximately 148 barrels of oil equivalent per day (boe/d), including 138 bbl/d of oil, 59 mcf/d of gas and 1 boe/d of liquids as compared to 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 in the prior year.  
  • Operating expenses on a per boe basis also increased at the Leduc Lands due to system commissioning and optimization costs during the year, as well as higher equipment rental costs, maintenance costs and utility costs for gas injection facilities as no other gas handling option is currently available at the Leduc Lands. Due to these cost increases per boe the oil and gas business unit recorded a negative EBITDA of $533,000. 
  • The Company’s Oil and Gas business unit generated revenues net of royalties of $2.7 million and net back of $0.5 million, equivalent to gross revenue per boe of $54.60 with a netback of $9.05 per boe (or a netback margin of 17%) as compared to 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%) in the prior year. 
• Adjusted EBITDA from continuing operations for the year ended March 31, 2019 was approximately negative $0.5 million as compared to $0.3 million for the prior year.  
• The Company had a loss from continuing operations of $17.3 million which included a write-down of oil and gas assets in the amount of $14.3 million. The write-down was due to the carrying value of Leduc Lands and Nevis Lands were less than their fair value less costs of disposal. The fair value less costs to sell was determined on a discounted cash flow basis, based on reserves and commodity prices in an independent reserve report as of March 31, 2019. For comparison, the Company had a loss from continuing operations of $3.0 million for the prior year, which included a write-down of oil and gas assets in the amount of $1.5 million.

Oil and Gas Reserves

• The oil and natural gas reserves of the Company attributable to the Leduc Lands, Nevis Lands and Entice Lands as at March 31, 2019 (the “2019 Reserves Report”) were evaluated by Sproule Associates Limited (“Sproule”), an independent qualified reserves evaluator.  
• The following chart provides a comparison of the 2019 Reserves Report to the 2018 Reserves Report and the “Proved” and “Proved Plus Probable” remaining reserves of the Company’s PNG Properties. The decrease in both reserves and Net Present Value of the remaining reserves was mainly from the Leduc Lands (due to the workover program on the Wabamun wells not meeting expectations, reduced revenue from gas sales since gas is now being injected at the property, and reduced production from the Nisku wells), and restrained capital spending across the other PNG Properties that did not substantiate any additional oil production or reserves.  It should be noted that the Nevis Lands were not included in the 2018 Reserves Report and no material value was ascribed to the Nevis Lands in the 2019 Reserves Report.

           

	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$
2019 Reserves Report
Total Proved	680.9	680.9	584.9				15,552	11,931	9,322	7,419	6,001
Total Proved + Probable	1,110.1	1,110.1	955.6				24,418	17,655	13,087	9,913	7,636
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
Variance
Total Proved	(388)	(382)	(301)				(9,475)	(8,269)	(7,440)	(6,847)	(6,397)
YoY Variance %	-36.3%	-35.9%	-34.0%				-37.9%	-40.9%	-44.4%	-48.0%	-51.6%
Total Proved + Probable	(644)	(628)	(506)				(17,405)	(14,209)	(12,127)	(10,701)	(9,664)
YoY Variance %	-36.7%	-36.1%	-34.6%				-41.6%	-44.6%	-48.1%	-51.9%	-55.9%

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

Irene MaiChief Financial Officer604-685-2239imai@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 18, 2019 and Management Discussion and Analysis for the year ended March 31, 2019 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.