China NE Petroleum is Poised for Strong Growth
Oil prices are on the rise and China North East Petroleum Holding Ltd. (CNEH) may be among the best OTC plays to take advantage of the trend, as it doubled its output last quarter and remains well-positioned for strong growth going forward.
China North East Petroleum [[CNEH.OB]], a crude oil exploration and production company in Northern China, moved up more than 30 percent last week after company signed a well drilling contract that includes an additional 48 wells to be drilled over the next 10 months. With 303 wells in total now, is CHEN a stock that investors want to take a look at?
Oil prices have been on the rise as the global economy begins to show signs of a recovery. Oil market analyst Paul Horsnell of Barclays for one believes that oil prices are headed to $75 a barrel, as OPEC appears to be committed to establishing a price floor. And based on last year’s quick rise to over $145, investors are all too aware of how quickly a rise can occur.
Earlier this year, China North East Petroleum reported first quarter earnings down 17.8% to $8.89 million, due to a 57.5% decrease in the price of oil last year. However, oil output nearly doubled from 114,862 to 222,091 barrels, while cost of sales decreased by 33.8% as efficiency increased and the surcharge paid to the Chinese government was reduced.
As is common with most Chinese companies, China North East Petroleum also has a strong balance sheet with over $19 million, or $0.94 per share, in cash and very little long-term debt. Currently, the company has 247 producing wells with proven reserves of 5,453,792 barrels of crude oil valued at nearly $140 million, assuming $40 per barrel and 64% gross margins.
Unfortunately, there are several disadvantages to doing business in China. For example, the government’s oil surcharge is one key factor that changes as the price of oil increases. Currently, a surcharge of 20% is imposed on the portion of the selling price exceeding $40 a barrel, but a surcharge of 40% will be charged on the portion exceeding $60 per barrel if prices increase.
In the end, oil prices appear to be headed higher and China North East Petroleum may be a big beneficiary. The company’s income has been dropping as oil prices have declined, but it has been quietly increasing its production and streamlining its operations. These efforts could pay off handsomely if oil prices continue to rebound higher in the long-term.
CONTACT: Daniel Minton, Managing Director, 406-862-5400, daniel@accelerize.com