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MIE Announces the Acquisition of Pan-China Resources

21/11/2012

[21 November 2012, Hong Kong] MIE Holdings Corporation (“MIE” or the “Company”, together with the subsidiaries, the “Group”; Stock Code: 1555), an independent upstream oil company engaged in the exploration, development and production of oil and gas in China, Kazakhstan and USA, is pleased to announce its acquisition of the entire issued share capital of Pan-China Resources Ltd (“PCR”).
On 21 November 2012, MIE and Sunwing Energy Limited (“Sunwing”) entered into a share purchase and sale agreement (“Agreement”), pursuant to which MIE agreed to purchase and Sunwing agreed to sell all of the issued and outstanding PCR shares for a total purchase price of US$45,000,000, subject to adjustments ("Adjusted Purchase Price").
Under Agreement, the Adjusted Purchase Price shall be payable by the Company on closing , save that an amount of US$5,000,000 will be held back for 180 days after the closing to secure Sunwing’s obligations under the Agreement.
The Adjusted Purchase Price was determined after arm's length negotiations between the parties with reference to numerous considerations, including without limitation, the current production rate, cash flow, historical financial information of PCR and the potential to improve oil recovery factor by multi zone analysis, water flooding optimization and implementing infill drilling, horizontal well drilling and hydraulic-fracturing technologies.
Subject to all customary conditions precedent being fulfilled, closing shall take place 30 days after the signing of the Agreement. Upon closing, PCR will become a wholly-owned subsidiary of MIE.
If closing does not occur within 180 days after the signing of the Agreement as a result of MIE's default, MIE shall pay Sunwing a break fee of US$1,250,000 as liquidated damages to compensate Sunwing for its losses, damages, costs and expenses incurred in connection with the Agreement, and vice versa.
Information on PCR
PCR is a corporation formed under the laws of the British Virgin Islands and a wholly-owned subsidiary of Sunwing. The principal business activity of PCR is oil and gas development and production operations in the PRC. Pursuant to a production sharing contract with PetroChina, PCR holds 100% participating interest in the foreign contractor’s entitlement and obligations.
The production sharing contract, originally signed in 1997 with a maximum term of 30 years, has been in the commercial production phase since 2009, currently covering an area of 31.29 square kilometres named Kongnan block within Dagang oil field in Hebei province. PCR can conduct oil development and production operations in the contracted area and share in the production of crude oil with PetroChina after the successful development of oil reserves. Depending on whether the foreign contractor has fully recovered its development costs, the revenue and operating costs may be allocated to the foreign contractor in the range of 49% to 82%.
Based on data provided in Ivanhoe Energy Inc.’s annual report, PCR has proved reserves and probable reserves of 1,642 mbbls and 822 mbbls, respectively, as at 31 December 2011. For the nine months ended 30 September 2012, PCR produced 243,399 bbls (net) of oil or an average of 888 bbls/day (net).
The unaudited earnings before interest, taxes, depreciation and amortization of PCR for the year ended 31 December 2011 and the nine months ended 30 September 2012 were US$18,865,530 and US$15,539,081, respectively, based on International Financial Reporting Standards.
Reasons for and Benefits of Entering Into the PCR Acquisition
The Group is the largest independent upstream oil companies operating onshore in the PRC as measured by gross production under production sharing contracts. The Group pursues exploration, development and production opportunities in the PRC and internationally, both independently and in partnership with other major and independent oil companies. The Acquisition allows the Company to leverage its position in the PRC to better develop and more efficiently produce under another production sharing contract with PetroChina.
The production sharing contract held by PCR is a low risk asset which is already in the cost recovery / profit share mode and generating good cash flow, with which any new investment can be quickly recovered with low risk. Through the Acquisition, the Company obtains cash flow directly from a producing asset. Synergies can be realized since the Company can use its same high calibre management and technical teams which manages the Group’s oil and gas production sharing contracts in China to manage PCR’s production sharing contract. The Company believes that it can provide more efficient reservoir management to mitigate production decline and improve recovery factor.
The purchase of PCR is the second acquisition by the Group this year in China as the Company continues to strengthen its presence and ongoing commitment to onshore China. While this acquisition is relatively small, it is an opportunity for the Company to add value to an existing proved asset base with low risk while expanding into another Chinese oilfield. With its international management team, advanced technology, and techniques and skills used in its other Chinese projects, the Company is confident that it can increase oil production, lower operation expenses on unit barrel basis and improve the performance of Kongnan block.
About MIE Holdings Corporation
MIE is an independent oil and gas company engaged in the exploration and production of oil and gas in China, Kazakhstan and USA. The Group operates the Daan, Moliqing and Miao 3 oilfields in the Songliao Basin under three separate production sharing contracts with PetroChina, the largest oil company in China and holds a 51% stake in a joint venture that operates Linxing and Sanjiaobei gas assets in the Ordos Basin under two separate production sharing contracts. The Group also holds an exploration contract and three production contracts that allow the Group to conduct exploration and production activities in the Mangistau province in the southwestern region of Kazakhstan. In addition, the Group pursues other development and production opportunities in China, and exploration, development and production opportunities internationally, both independently and in partnership with other major and independent oil companies.
MIE is listed on the main board of Hong Kong Stock Exchange with stock code 1555.
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Issued by Trinity Communications Group Limited for and on behalf of MIE Holdings Corporation.
For further information, please contact:
Trinity Communications Group Limited
Mr. Terence Wong  +852 3758 2168  terence.wong@tri-hk.com
Mr. Henry Ho  +852 3758 2213  henry.ho@tri-hk.com