AAG Energy’s 2022 Interim Revenue, Net Profit and
Earnings per Share Hit Record High Again
Revenue surges by 78.43% YoY to RMB 1.496 billion
Net profit surges by 94.18% YoY to RMB 739 million
Earnings per share surges by 94.64% YoY to RMB 0.218

(Hong Kong, 26 August 2022) – 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 2022 (the “Period”), with key business indicators hitting record high again, revenue up 78.43% to RMB1.496 billion, net profit up 94.18% to RMB739 million and earnings per share up 94.64% to RMB0.218.

 

During the first half of 2022 (“1H2022”), affected by changes in international situations and intensifying geopolitical conflicts, global commodity prices, including that of oil, natural gas and coal, trended high and energy prices climbed markedly. For the Group though, with resources mainly in Shanxi, and the natural gas market in the peripheral area of Henan, boasting strong sustainable development potential and market size advantage, allowing it to balance peak and slow season business difference, it achieved better than expected performance. Its revenue and other incomes (including government subsidies and VAT refunds) in 1H2022 increased by 78.43% to RMB1.496 billion, net profit increased by 94.18% to RMB739 million, while EBITDA swelled 65.84% to RMB1.133 billion, and earnings per share climbed 94.64% to RMB0.218.

 

In 1H2022, the Group has gained fuller recognition of the geology of the stock concessions, gradually optimized project engineering adaptability and steadily improved project management, and made effective investment according to plan. The Group’s total CBM production in 1H2022 increased by 15.41% to 712 million cubic meters (“MMCM”) (or 25.1 billion cubic feet (“bcf”)), which included the gross production from the Panzhuang concession and the Mabi concession of 598 MMCM (or 21.1 bcf) and 114 MMCM (or 4.0 bcf), respectively.

 

The Group’s total CBM sales volume in 1H2022 increased by 16.81% year-on-year to 688 MMCM. The realized average selling price (“ASP”) of output form the Panzhuang concession increased by 40.85% from RMB1.64 per cubic meter in 1H2021 to RMB2.31 per cubic meter in 1H2022 and the realized ASP of the Mabi concession increased by 28.78% from RMB1.39 per cubic meter in 1H2021 to RMB1.79 per cubic meter in 1H2022.

 

During the Period, AAG Energy has achieved operating results towards certain key operational objectives:

 

Panzhuang Concession — Technological innovation continued Development tests yielded promising results 

• The Panzhuang concession continued to be the CBM project with the highest output in Page2 of 4 China, and was listed as China’s key CBM project in production under the “14th Five-Year Plan” for the development and utilization of CBM (coal mine gas) prepared by the National Energy Administration (the “NEA”) and issued by the National Development and Reform Commission (“NDRC”) of the People’s Republic of China (“PRC”)
• Gross production volume reached 598 MMCM (or 21.1 bcf), representing a year-on-year increase of 5.22%
• Average daily production was 3.305 MMCM (or 0.11672 bcf)
• As at 30 June 2022, there were 542 wells in production, including 49 multi-lateral drilling wells (“MLD”), 299 single lateral horizontal wells (“SLH”) and 194 pad drilling well (“PDW”)
• A total of 44 wells were drilled, including 4 SLHs, 30 PDWs and 10 thin seam parameter wells), with average drilling cycle and drilling cost of SLH basically the same as in 2021. The drill cycle of PDW was 4.84 days, representing a decrease of 17% from 5.82 days in the same period last year. Fracturing was carried out on 33 PDWs and commissioning work was completed for 33 wells
• The 13 test wells in operation performed well in gas production, with four of them steadily producing over 10,000 cubic meters of gas per day, and the maximum daily gas production volume per well exceeded 15,000 cubic meters
• Drilling of 36 thin coal seams wells was completed during 1H2022, including 10 parameter wells and 26 production trial wells, and a total of 33 wells completed fracturing and started production. The 33 wells are currently in drainage to reduce pressure or in production enhancement stage, and collection of various data had been completed
• Surface facilities including 6 gas gathering stations, 20 valve groups, 55 compressors, 69.4 km of gathering pipelines and 135 km of single-well pipelines, afforded a primary compression capacity of 4.56 MMCM per day and a secondary compression capacity of 1.20 MMCM per day
• During 1H2022, the construction of 0.7 MMCM meters compressors is under construction. After the completion and commissioning, the production capacity of secondary compression will reach 1.90 MMCM

 

Mabi Concession — Increased investment in tests Production capacity rose quickly 

• The Mabi concession was listed as China’s key CBM project under construction under the “14th Five-Year Plan” for the development and utilization of CBM (coal mine gas) prepared by the NEA and issued by the NDRC, has also been listed as the key CBM construction project in Shanxi Province
• Through “sweet spot” zone evaluation, three-dimensional seismic, long extended horizontal drilling, large-scale fracturing and intelligent discharge, the Company has formed the current trend of rapid capacity construction and production increase
• Gross production volume was 114 MMCM (or 4.0 bcf), representing a year-on-year surge of 135.23%
• Average daily production was 628,200 cubic meters (or 22,180,000 cubic feet)
• 414 wells were in production, including one MLD, 110 SLHs and 303 PDWs
• Construction of the No. 2 gas gathering station will be a key task helping development of the southern region of the concession in 2022. Production conditions for primary compression were met by the end of June, and construction for secondary compression is under way. The 35KV power transmission project was completed and transmitting electricity in 1H2022, which has substantially improved the power supply capacity and operation safely standard of the No. 2 gas gathering station area
• In 2022, the Mabi concession plans to deploy production trial wells in selected areas in the northern region, and select 2 SLH and 2 PDW wells for large-volume innovative fracturing tests. As at 30 June 2022, drilling of 16 wells in the production area had been completed, and volume fracturing tests were conducted as planned
• A total of 101 wells were drilled (including 94 SLHs and 7 PDWs), representing an increase of approximately 15%, against 88 wells in the last corresponding period
• Average drilling cost per SLH was RMB 3.76 million, and average drilling cost per PDW was RMB 1.10million
• With construction of the No. 2 station and a 35KV substation speeded up and completed,  the Mabi concession was able to have 90 new wells fractured during 1H2022, representing an increase of 246% when compared to 26 wells in the same period of 2021

 

LNG Outsourced Processing and Trading Business — Allocated more resources to build a new business model 

• During 1H2022, Xinhe Investment’s LNG outsourced processing gas volume was 68.37 MMCM (or 2.4 bcf), averaging out to 0.5027 MMCM (or 0.01775 bcf) a day, with actual production lasting 136 days and sales volume of LNG reaching 45,600 tonnes
• Xinhe Investment traded gas of 2.05 MMCM (or 0.0724 bcf) and the sales volume of liquid trading was 13,100 tonnes

 

In face of the complex and severe international environment and the severe impact of the continuous recurrence of the domestic epidemic, the state has efficiently coordinated the epidemic prevention and control and economic and social development, and focused on stabilising the macroeconomy. The domestic epidemic prevention and control situation is generally positive, production demand is gradually recovering, and the national economy is showing a good momentum. Guided by top-level policy designs such as the “14th Five-Year Plan for National Economic and Social Development of the People’s Republic of China and the Long-Range Objectives Through the Year 2035”, the “14th Five-Year Plan for Modern Energy System” and the “dual carbon” goals, the natural gas market has kept trending positive. In view of such market opportunities, the Group will continue to make the following investments:

 

Panzhuang Concession — Continues development efforts to lay a solid foundation

In the second half of 2022, upon the guaranteed of 61 wells drilled under the annual work plan, 7 wells will be added in the Panzhuang concession, the working capacity to a total of 68 wells drilled. The concession will continue to push forward drilling of the 24 wells remaining, while at the same time move on with procuring drainage equipment, operation of new wells, expansion and transformation of No. 1 station and the work of associated ground supporting facilities according to the adjusted annual work plan. The wells with drilling completed in the second half of 2022 will start to contribute output in 2023. At the same time, the Group will continue to press forward preparation work in relation to and helpful for laying a solid foundation for the development of thin coal seams in the future.

 

Mabi Concession — Maintains the pace of construction of production capacity, achieves annual tasks

In 2H2022, the Group will aim to achieve the annual drilling task of 176 wells in accordance with the work annual plan formulated at the beginning of the year for the Mabi concession. Meanwhile, the Group will continue to evaluate the integration of construction and production in the northern area of Mabi concession. The new wells drilled and fractured in 2022 will start to gradually contribute output in 1H2023, and certain surface construction works have been moved to 2023. 

 

LNG Outsourced Processing and Trading Business — Focuses on increasing market share and reaping industrial synergies

Xinhe Investment will focus on increasing its market share and influence in the Central China market, building a more mature commercialization model and gradually establishing a sound digital management team. It will also fully mobilizing internal and external resources to speed up construction of the Group’s “full natural gas industry ecological chain”. Furthermore, it will ensure its business initiatives tie in better with upstream development businesses to reap the synergies resulted and to provide support for the Group to acquire new concessions and innovate cooperation project models. Taking into account the overall budget of the Company and LNG market situations, LNG trading volume is expected to reach approximately 20,000 tonnes in 2H2022. 

 

Outlook

Under the guidance of the Group’s clear strategic planning, AAG will increase investment to develop its existing concessions and continue to increase production to expand its market share. In order to strengthen the construction of CBM transmission and distribution capacity and construction of an industrial ecological chain, it will continue to look for valuable investment targets beneficial the Group’s business development. The Group will also promote value-based cooperation with partners, enhance each other’s ability to cope with market changes, further optimize its costs, and maintain output and net profit growth, thereby lay a good foundation for high-quality and rapid development of the Group in the medium to long run, that it may generate higher returns for shareholders.