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China North East Petroleum Holdings Ltd. (NEP) Expands Oilfield Production Footprint in Jilin, Moves to Acquire Qian 122

Today, China North East Petroleum, already well positioned in the Chinese oil production market via agreements with PetroChina for the extraction of crude oil at five oilfields in Jilin, reported entry into a share transfer agreement to purchase exclusive exploration and drilling rights to the Qian 122 oilfield in Jilin Province, with China Kinwa High Technology Co., Ltd., and its wholly-owned subsidiary Beijing Shixin Taide Investment Consultancy Co., Ltd.

This strategic acquisition expands an already solid footing in Jilin for private oilfield production and services industry adept NEP. This pioneering independent oil company is the first non-state-owned Chinese firm of its kind and has rapidly accrued the momentum and architecture to secure this acquisition effectively.

CEO of NEP, Jingfu Li, spoke confidently of the capacity for 250 more wells at Q122, in addition to the existing and producing 50 wells. The logistically beneficial location of Q122, in close proximity to NEP’s largest existing field in Jilin, Q112, in addition to the exceptional production from Q122 (compared to any other fields in Jilin thus far), creates powerful operational synergies for the Company.

The 3,756-acre Qian122 oilfield’s 42 oil producing wells and 8 water injection wells scratch the surface of, according to PetroChina’s geological reserve report, some 47.6MM barrels.

Jingfu Li pointed to the closing of the acquisition, at which time Q122 is expected to “immediately contribute to revenue, profitability and cash flow” and underscored the Company’s strong cash position, enough to develop both Q122 and the recently acquired exploration and drilling rights at the Durimu oilfield simultaneously. NEP anticipates paying for the acquisition with cash on hand and closing in 1Q 2012.

Details of the agreement are as follows:

• NEP to pay cash consideration totaling $26.7M
• NEP will acquire 100% equity interest in Kinwa’s subsidiary which holds the exploration and drilling rights to Q122
• Three tranche payment structure for the purchase price consisting of an initial $5.3M deposit (payable upon execution of the share transfer agreement), with subsequent payments of approximately $18.2M (due in five business days from transaction approval by Kinwa’s shareholders and satisfaction of certain conditions) and $3.1M (due 180 days thereafter)

Like other oilfields operated by NEP in Jilin, Q122 is owned by PetroChina, to whom the output is also sold. The 20-year oil lease agreement signed in 2004 by Kinwa’s subsidiary with PetroChina entitles the operator to 80% of production until the start of 4Q 2014 and 60% thereafter for the term of the agreement. With some 110k barrels output by Q122 in 2010 and projected 2011 production exceeding this figure by 10%, NEP is gearing up to hit Q122 hard, drilling 25-335 wells annually.

For more information on the Company, or on developing news regarding the acquisition, please visit the China North East Petroleum Holdings Ltd. website at: www.CNEPetroleum.com

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