On behalf of the board of directors (the “Board”) of Sino Oil and Gas Holdings Limited (the “Company”, and together with its subsidiaries, collectively the “Group”), I hereby present the annual results of the Group for the year ended 31 December 2019.
Looking back on 2019, the world’s political and economic situation is becoming more and more complicated coupled with the emergence of new coronavirus, China and the global economy are facing unprecedented challenges. Nevertheless, the prevention and control of air pollution and the promotion of the universal use of natural gas are still the main direction of national policy. According to “China Natural Gas Development Report (2019)”, China’s natural gas consumption will continue to increase until 2050. The Group remains cautiously optimistic about the long-term development prospects of the industry.
In accordance with the “Opinions on the Pilot Project of Comprehensive Reform for the Energy Revolution in Shanxi”, Shanxi was identified by the state to start a pilot project for the comprehensive reform of the energy revolution and build a nationwide unconventional natural gas base in last year. Currently, the comprehensive development of two coalbed methane industrialization bases in the Qinshui Basin and the eastern edge of Ordos Basin has been undergoing, and that is where Sanjiao CBM Project is located. With the support of national policies and local government measures as well as the efforts of our team, the project is growing steadily. During the year, both production and sales volume exceeded 100 million cubic meters, the sales to production ratio reached 97.7% and the earnings before tax, interest, depreciation and amortization of the project increased substantially by approximately 54%. The level of large-scale development of the coalbed methane industry in Shanxi will keep increasing in 2020. The Group believes that the project has laid a solid foundation for development and revenue generating. It will bring long-term stable income.
The overdue unredeemed convertible note in the second half of 2019 has imposed quite some financial pressure to the Group and the management has explored various plans during the year in order to reduce the financial burden of the Group. The Company and the note holder, after some discussions, have reached a conditional agreement to extend the maturity date to 29 September 2020. The extension would ease the immediate financial position of the Group and enable the management of the Company to have more time to discuss with the note holder on certain proposed settlement arrangements for the convertible note as well as to negotiate with other potential investors who may be interested in acquiring the convertible note. In addition, the Group has pragmatically formulated a series of measures and plans. Apart from raising funds, it also has effectively implemented rigorous cost management and prudent financial policies, and did achieve certain results in 2019. During the year, the group’s administrative expenses and financial costs have been reduced by approximately 20% respectively as compared with 2018.
The coronavirus pandemic has re-escalated the tension of China-US trade war and also has put even greater downward pressure on the mainland and the global economy. In light of this, the Group will maintain a prudent financial management strategy and conduct debt management with a proactive attitude. At the same time, the Group will further improve operating effectiveness and efficiency, monitor costs, and strengthen risk management to quickly respond to the unforeseeable market changes. Due to the uncertain market prospects, the Group currently does not have any plans for major investments or acquisitions of assets, but will continue to carefully explore opportunities to expand its oil and gas business portfolio. In the face of various difficulties, the Group will be cautious in tackling different issues that causing market uncertainties whilst we shall always be prepared for upcoming development and strengthen the foundation of our business.
Lastly, I, on behalf of the Group, would like to express my heartfelt gratitude to our shareholders, business partners and investors for their trust and support over the years. I would also like to extend my deepest appreciation to all our staff members. The Group will dedicate to achieve and exceed our goals and will bring fruitful returns to our shareholders as always.
Hong Kong, 31 March 2020