HE Hanwei Energy Services Corp

Hanwei Energy Services Corp. (TSX: HE) (“Hanwei” or the “Company”), today reported its financial results for the year ended March 31, 2021 (the “2021 Fiscal Year”). All amounts are in Canadian Dollars unless otherwise noted.

Update on COVID-19 Impact

As COVID-19 vaccination programs continue to be implemented in Canada and around the world oil prices have continued to increase. To the extent that the COVID-19 pandemic negatively impacts demand, and OPEC members and other oil exporting nations fail to implement production cuts or other actions that are sufficient to stabilize commodity prices, there may be volatility in crude oil prices despite the recent increase in prices over the last nine months. The COVID-19 situation remains dynamic due in part to new variants of the virus, and the ultimate duration and magnitude of the impact on the economy and the financial effect on the Company is not known at this time.

Financial and Operating Update

Hanwei's principal business operations are in two segments of the oil and gas industry as an operator and developer of its own oil and gas assets in Canada and as a specialized pipe supplier to the industry, both in Canada and internationally. For the financial year ended March 31, 2021, a summary of the Company’s annual financial results are as follows:

Summary of the 2021 Fiscal Year Financial Results from Continuing Operations
in thousands of CDN$ except percentages and per share data
	FY2021					FY2020
	Pipe	Oil & Gas	Corporate	Total		Pipe	Oil & Gas	Corporate	Total
Revenue	8,343	1,202	-	9,545		8,310	1,986	-	10,296
Adjusted EBITDA	795	(641)	(630)	(476)		759	(967)	(696)	(904)
Adjusted EBITDA Margin	10%	-53%	n/a	-5%		9%	-49%	n/a	-9%
Adjusted EBITDA per share	0.00	(0.00)	(0.00)	(0.00)		0.00	(0.00)	(0.00)	(0.00)
Net Income (loss)	508	(4,256)	(1,150)	(4,898)		777	(3,310)	(935)	(5,022)
Diluted EPS(Basic and diluted)	0.00	(0.02)	(0.01)	(0.03)		0.00	(0.02)	(0.01)	(0.03)
Weighted average number of outstanding shares			Basic	194,201,234				Basic	194,201,234
			Diluted	194,201,234				Diluted	194,201,234

• The Company’s revenues for the year ended March 31, 2021 totalled approximately $9.55 million as compared to $10.30 million for the prior year. The $0.75 million and 8% decrease in revenues was a result of a $0.78 million decrease in oil and gas revenue in Canada primarily due to lower commodity prices, partially offset by the minor increase in FRP pipe sales driven by the Company’s China market.
  • FRP pipe sales for the year ended March 31, 2021 totalled $8.34 million as compared to $8.31 million for the prior year. All the sales in the period were contributed by the Company’s Chinese market.
  • FRP pipe sales from the Company’s Canadian market and other countries was nil for the year ended March 31, 2021 as compared to $0.3 million in the prior year. The Canadian market has experienced a significant drop in activity in the oil and gas industry due to COVID-19, and the general fall in oil pricing in 2020 significantly restricted capital programs by end users in this market. The Company is currently reviewing its Canadian market programs and potential enhancements to its distribution activities so as to improve sales once the oil and gas industry in western Canada improves.
  • The Company’s oil and gas business unit generated revenues net of royalties of $1.03 million and net back of $54,000, equivalent to gross revenue of $44.40 per boe with a netback of $2.00 per boe (or a netback margin of 5%) for the year ended March 31, 2021. For the year ended March 31, 2020, the Company generated revenues net of royalties of $1.72 million and net back of $0.2 million, equivalent to gross revenue of $58.58 per boe with a netback of $6.64 per boe (or a netback margin of 11%). The decrease in revenues resulted from both reduced production volumes and lower commodity prices. The lower production volume was primarily due to the shut-in of certain lower production wells that were uneconomic to produce at lower crude oil prices.
  • During the year ended March 31, 2021, the Company produced approximately 74 barrels of oil equivalent per day (boe/d), including 70 barrels of oil per day (bbl/d) and 22 mcf of gas per day. The majority of this production was from the Nisku wells at the Company’s Leduc Lands, with only nominal production from the Wabamun wells at this property and the Nevis Lands, and with no production from the Entice Lands. For the year ended March 31, 2020, the Company produced approximately 93 barrels of oil equivalent per day (boe/d), including 89 bbl/d of oil and 21 mcf/d of gas.
• Adjusted EBITDA from continuing operations for the year ended March 31, 2021 totalled approximately negative $0.48 million as compared to Adjusted EBITDA of negative $0.90 million for the prior year. The improvement of $$0.42 million was due to the reduction of operating expenses.
• The Company had a loss from continuing operations of $4.90 million for the year ended March 31, 2021, which included a write-down of oil and gas assets in the amount of $2.91 million, as compared to a loss from continuing operations of $5.02 million for the prior year, which included a write-down of oil and gas assets in the amount of $1.38 million. Except for effect of the write-down of oil and gas assets, the decrease of $1.65 million in loss from continuing operations was primarily driven by the decrease in operating expenses offset by the oil and gas revenue decline.

Oil and Gas Reserves

• The oil and gas reserves of the Company as of March 31, 2021 were evaluated by Trimble Engineering Associates Ltd. (“Trimble”), an independent qualified reserves evaluator, as set out in their report dated April 26, 2021 (the “2021 Reserves Report”). The Company’s prior year oil and gas reserves as of March 31, 2020 were also evaluated by Trimble as set out in their report dated May 11, 2020 (the “2020 Reserves Report”).
• The following table provides a comparison of the 2021 Reserves Report to the 2020 Reserves Report and the “Proved” and “Proved Plus Probable” remaining reserves of the Company’s PNG Properties on a gross (before royalties) and net (after royalties) basis together with the net present values at various discount rates on an after tax basis. Both the remaining reserves and the net present value of the Company’s reserves decreased for both Proved and Proved Plus Probable and it should be noted that:
  • The Entice Lands being shut-in (with no current economically viable solution for gas handling to allow for production) and the Nevis Lands (having only minor and nominal production) were each not included in the 2021 Reserves Report.
  • No gas reserves are included since all gas at the Company’s Leduc Lands is re-injected and is not for sale
  • The Company’s restrained capital spending program did not substantiate any additional oil production or reserves.

	Remaining Reserves							Net Present Values After Tax
Mboe; After Tax (M$)	Gross		Company		Company			@ 0%		@ 5.0%		@ 10.0%		@ 15.0%		@ 20.0%
	100%		Gross		Net			M$		M$		M$		M$		M$
2021 Reserves Report
Total Proved	204		204		177			3,754		3,178		2,727		2,372		2,090
Total Proved + Probable	659		659		595			9,243		7,330		5,860		4,719		3,822
2020 Reserves Report
Total Proved	702		702		591			14,221		9,410		6,734		5,078		3,968
Total Proved + Probable	1,300		1,300		1,128			24,038		14,756		10,044		7,232		5,376
Variance
Total Proved	(498	)	(498	)	(413	)		(10,467	)	(6,232	)	(4,007	)	(2,706	)	(1,878	)
YoY Variance %	-70.9	%	-70.9	%	-70.0	%		-73.6	%	-66.2	%	-59.5	%	-53.3	%	-47.3	%
Total Proved + Probable	(641	)	(641	)	(532	)		(14,796	)	(7,426	)	(4,184	)	(2,513	)	(1,555	)
YoY Variance %	-49.3	%	-49.3	%	-47.2	%		-61.5	%	-50.3	%	-41.7	%	-34.8	%	-28.9	%

• For disclosure relating to the oil and gas reserves attributable to Hanwei as of March 31, 2021, please see Hanwei's Form 51–101F1 – Statement of Reserves Data and other Oil and Gas Information of Hanwei Energy Services Corp., Hanwei's Form 51–101F2 – Report of Reserves Data by Independent Qualified Reserves Evaluator or Auditor and Hanwei's Form 51–101F3 – Report of Management and Directors on Reserves Data and Other Information, all of which can be found on SEDAR at www.sedar.com under Hanwei's profile.

Update On Management Changes

Mr Graham Kwan will step down from his management responsibilities with the Company as its Executive Vice-President, Strategic Development and Corporate Affairs, and has resigned as its Corporate Secretary and as a Director of the Company effective June 30, 2021. The Company would like to thank Mr. Kwan for his contributions to the Company and wishes him success in his future endeavours.

About Hanwei Energy Services Corp.

Hanwei Energy Services Corp.’s principal business operations are in two segments of the oil and gas industry as both an equipment supplier to the industry (as a manufacturer of high pressure, fiberglass reinforced plastic (“FRP”) pipe products serving energy customers in the global energy market) and as an oil and gas producer with properties in Alberta.

For more information, please contact:

Mary MaChief Financial Officer604-685-2239mma@hanweienergy.com

Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.

FORWARD-LOOKING INFORMATION

Certain information in this press release is forward-looking within the meaning of certain securities laws, and is subject to important risks, uncertainties and assumptions a description of which is set out in the risk factors section of the Company’s Annual Information Form dated June 18, 2020 and Management Discussion and Analysis for the year ended March 31, 2020 both of which are filed with Canadian securities regulators and available on SEDAR at www.sedar.com. The forward-looking information in this press release describes the Company’s expectations as of the date of this press release.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS PRESS RELEASE PRESENTS THE EXPECTATIONS OF THE COMPANY AS OF THE DATE OF THIS PRESS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE. WHILE THE COMPANY MAY ELECT TO, THE COMPANY DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME, EXCEPT AS REQUIRED BY APPLICABLE SECURITIES LEGISLATION.