AAG Energy 2020 Interim Gross Production Rises to 468 MMCM
Gross Sales Volume Up to 453 MMCM
Daily Production Increases to 2.57 MMCM

(Hong Kong, August 27, 2020) – AAG Energy Holdings Limited (“AAG Energy” or the “Company”; HKEX stock code: 2686), a leading international energy company in the field of Coalbed Methane (CBM) exploration and production in China, together with its subsidiaries, collectively the (“Group”), has announced its interim results for the six months ended 30 June 2020 (“1H 2020” or “the period”). During the period, the Group’s gross production increased by 3.15% year-on-year (YoY) to 468 million cubic meters (“MMCM”) (being 16.5 billion cubic feet (“bcf”)), comprising Panzhuang concession’s gross production of 437 MMCM, representing an increase of 5.13% YoY. The Group’s daily production increased by 2.80% YoY to 2.57 MMCM. Gross sales volume increased by 2.45% YoY to 453 MMCM.  
 
In 1H 2020, the Group’s revenue and other income (including government subsidy and VAT refund) amounted to RMB630 million (1H 2019: RMB764 million). EBITDA was RMB513 million. Net profit was RMB312 million. Earnings per share was RMB0.092. 
 
During the period, the realized average selling price (“ASP”) per cubic meter of Panzhuang concession was RMB1.47 (1H 2019: RMB1.80 per cubic meter); while the realized ASP per cubic meter of Mabi concession was RMB1.39, which remained steady as compared to that of the corresponding period of last year. 
 
AAG Energy has achieved progress towards its key operational objectives during the period:

Panzhuang concession - Continuous increase in output and production capacity of facilities 

• The gross production recorded an increase of 5.13% YoY to 437 million cubic meters (“MMCM”) (being15.4 bcf)
• Daily average production recorded an increase of 4.55% YoY to 2.401 MMCM (being 84.79 million cubic feet (“mmcf”))
• As of 30 June 2020, 346 wells were in production, including 49 multilateral drilling wells (“MLD”), 92 pad drilling wells (“PDW”) and 205 single lateral horizontal wells (“SLH”) 
• Drilled a total of 44 wells, of which 26 were SLHs and 18 were PDWs, representing an increase of 100.00% YoY
• Average drilling time for each SLH, being the main type of well, was 18.95 days with average drilling cost maintained at RMB2.83 million, which basically remained steady as compare to that of the corresponding period of last year 
• Fractured 17 PDWs and put 41 wells into production   
• As for the production capacity of surface facilities, primary compression has reached 3.56 MMCM per day, and secondary compression has reached 0.8 MMCM per day, including 6 gas gathering stations, 30 wellhead compressors, 65.2 km of trunk lines and 107 km of well to well pipelines
• 35 kilovolt power line and transformation project has been put into operation. It will be able to satisfy the electricity demand of the concession and further improve the gas distribution capacity, thus increasing the Group’s production and sales volumes   

Mabi concession – accelerates investment & development and strives to amp up production 

• The gross production was 30.55 MMCM (being 1.1 bcf)
• Daily average production was 0.1679 MMCM (being 5.93 mmcf)
• As of 30 June 2020, 212 wells were in production, including 3 MLDs, 15 SLHs and 194 PDWs
• In 2019, the 27 newly drilled wells were located in four well sites respectively, these new wells were put into production from the end of 2019 to the first quarter of 2020, and are currently under pressure reduction and pumping, they are expected to start producing gas and contribute to production in the second half of this year
• In addition to maintaining the investment in 65 wells and ancillary surface equipment and facilities as planned at the beginning of the year, the Group has further increased the number of fracturing plans from 68 wells at the beginning of the year to 87 wells 
• As of the end of June 2020, 20 new wells have been drilled and 24 new wells have been fractured 

 
In 1H 2020, due to the COVID-19 Pandemic, the collective decline in international energy prices, the NDRC’s policy to implement offseason pricing in advance, and the overall pattern of oversupply of natural gas, both the global and China’s economies were exposed to the risk of economic downturn, which brought challenges to the development of oil and gas exploitation industry. Nevertheless, AAG Energy addressed and mitigated the complex environment and pressure of the market through production stimulation, sales stimulation and efficiency stimulation. The Group will achieve more effective cost management in 2H 2020, take sales stimulation as its primary task, and formulate a targeted and highly operable sales stimulation plan. The Group will also utilize diversified sales channels to increase market sales, and use sales volume to make up price differences and production reduction. The Group will continue to fully coordinate with its partners to jointly improve their ability to address market changes, which will lay a solid foundation to maintain continuous growth of production and net profit, as well as to expand its medium and long-term resource holdings. 
 
In terms of policy, the Ministry of Finance of the PRC promulgated the Interim Measures for the Administration of Special Funds for the Development of Clean Energy (《清潔能源發展專項 資金管理暫行辦法》) on 12 June 2020, pursuant to which compensation will be granted for exploration and utilization of unconventional natural gas, such as CBM (coal mine gas), shale gas and tight gas through the use of special funds, which will be available from 2020 to 2024. Progressive compensation will be granted for those exceeded the exploration and utilization volume of previous year based on the principle of “compensating for the increased volume”; and compensation of excess coefficient will be granted for the increased volume produced during the heating season based on the principle of “compensating for the increased volume in winter”. As compared with the Supplementary Notice on the Interim Administrative Measures for Special Funds for the Development of Renewable Energy (《關於〈可再生能源發展專項資 金管理暫行辦法〉的補充通知》) promulgated by the Ministry of Finance on 11 June 2019, the extended one year of compensation as confirmed will have a positive impacts to the Group. In addition, The People’s Government of Shanxi Province issued the “Three-Year Action Plan for Increasing Reserves and Production of Coal-Formed Gas in Shanxi Province (2020-2022)”(《 山西省煤成氣增儲上產三年行動計劃(2020-2022年)》) on 27 February 2020, requiring the province’s CBM production to reach 20 billion cubic meters in 2022. The key tasks clearly demonstrated that the government will promote the development of concessions jointly explored with the foreign parties, and focus on ensuring the stable increase in production of developed concessions, such as Panzhuang. On 23 June 2020, the NDRC and the Ministry of Commerce issued the Special Administrative Measures (Negative List) for the Access of Foreign Investment (2020) (《外商投資准入特別管理措施(負面清單)(2020年版)》) and the Special Administrative Measures (Negative List) for Foreign Investment Access to Pilot Free Trade Zones (2020) (《 自由貿易試驗區外商投資准入特別管理措施(負面清單)(2020年版)》), which further limited the negative list for the access of foreign investment. The promulgation of such list and supporting measures will further provide policy-related support for the Group’s development in the PRC. 
 

For 2H 2020, the Group is pleased to report the following updated objectives: 

Panzhuang concession

The Group will continue to promote the drilling work of remaining 44 wells in accordance with the adjusted annual work plan, the purchase of pumping equipment, the production of new wells and the construction of related ancillary surface facilities as scheduled. The completed wells in 2H 2020 will begin to contribute to the production in 2021.

Mabi concession

The Group will continue to promote the drilling work of remaining 45 wells, the production of new wells, the construction of related ancillary surface facilities and the fracturing work of 63 wells in accordance with the adjusted annual work plan. The Group will facilitate the completion of drilling work, fracturing and production for the year with high-quality investment management and control. In order to materialize the simultaneous sales of newly added production volume of Mabi concession, the construction of valve group stations and export pipelines in the region will be completed in the second half of the year. New wells drilled and fractured in 2020 will contribute to the production in 2021. 

 
Looking ahead, as a leading upstream CBM producer in the field of CBM exploration and development in the PRC, the Group is confident in increasing the output while lowering the production costs on an ongoing basis to deliver promising operating results. Meanwhile, the Group will continue to enhance the innovation in respect of technologies and management, thereby laying a solid foundation for the stable production and development of existing wells in Panzhuang concession and the advancement of development technologies in Mabi concession. Besides, AAG Energy will identify new development opportunities in China and other regions as planned to expand business, so as to provide more clients and relevant communities with clean energy and bring higher return to shareholders.