Nawar Alsaadi

China North East Petroleum Catapults to the Next Level

Vish, this customer is tied by the royalty agreement to purchase all the produced oil, and PetroChina is not just any customer, this is one of the world largest oil companies and was the largest in 2008, the quality of the customer is not an issue in my opinion, and even if they stopped buying, selling their crude to someone else should not be an issue.

In regards to their competitive advantage, the oil business is a commodity business, thus the competitive advantage of players in this industry is cost, and NEP has one of the lowest cost structures in the industry as evident by their ROE/ROA and ROC, as well as their gross and net profits margins.

As for what happen in 2022 after the current lease expires, the company is looking to expand its production through the signature of new leases, the acquisition of a competitor or the move into a related business such as oil drilling, I believe the company has enough resources to expand beyond current leases way before 2022 and probably starting this year.

The biggest risk to the company is the price of oil, if oil price dip under $30 and remain under $30 for an extended period of time, the company may not be able to fund its operations without additional debt or heavy dilution.

Regards,
Nawar


On Jun 30 03:20 PM User 3842 wrote:

> Hi Nawar,
>
> Thank you for finding such a great company. I like the company, however
> I have one burning question.
> There seems to be just one customer for this company, which to me
> is a big risk. I know that they have guaranteed their purchase for
> the next 20 years. But maybe that is one of the reason, NEP is not
> able to achieve the valuation you feel it should. Also what I fail
> to understand is, what is the inherent competitive advantage the
> company has? Is there something that this company does that other's
> cannot do, or is it something that pretty much anyone can come in
> and do. Do they really have a moat in the business they are in. Also
> what happens after the 20 year agreement is up? Hopefully by then
> they will be big and doing something different. But what is the disaster
> scenario in that case?
>
> Thanks for your help in advance.
> Vish

China North East Petroleum Catapults to the Next Level

Peach, indeed it seems you found some of the answers in regards to the proven reserves, in regards to the probable, this is based on the total amount of geological oil in leased areas, management has mentioned this number in their various presentations, here is a link to one from November 2008:

irpage.net/cneh/docume...

In regards to the recovery rate, this is based on the average recovery rate in the world as well as in China, PTR usually aims for 40% recovery for their Chinese based oil reserves, also the 35% recovery number is what NEP management expects to recover.

Here is also a more detailed study of their proven reserves:
www.cnepetroleum.com/r...

Regards,
Nawar


On Jun 24 07:46 PM peachberry_tea wrote:

> Hmm I'm going to try and answer my own question now that I've actually
> gotten a chance to look at their 10K
>
> Their proven developed reserves were determined by an independent
> party.. and that's 5.4mil barrels like you mentioned. How bout their
> probable/possible reserves? Were those management estimates or where
> did those reserve figures come from?

China North East Petroleum Catapults to the Next Level

Indeed the first day it traded on the NYSE Amex 1600 shares traded at $2000, however I believe this was an error.

Regards,
Nawar


On Jun 21 06:35 PM User 434763 wrote:

> On the day it started trading on AMEX, I see a price of $2000 P/Share!!!!!!!!!!!!!!
> Was this a glitch¡?
> Can anyone verify?

China North East Petroleum Catapults to the Next Level

The Friday filing was just a standard filing by the warrant holder Lotus Investments, since NEP is an NYSE Amex listed company, over 5% beneficial owners need to file with the SEC.

Regards,
Nawar


On Jun 20 10:14 AM jack foley wrote:

> what do you make of the SEC Filings Friday after close? Are those
> a lot of shares? Ans is it usually this long after the event? are
> they connected to the huge sell off right after the move to the NYSE
> Amex?
>
> I, too, am very long and bullish - but not sure what these 3 filings
> say about the last week or so.
>
> thanks so much for your fine work

China North East Petroleum Catapults to the Next Level

Attic, thank you for your comments, the article maybe fine, but not as good as your articles on the company, when will you update us with a masterpiece!?.

Regards,
Nawar


On Jun 19 09:15 AM Atticvs Research wrote:

> Well done Nawar. NEP is a terrific little company, very undervalued,
> has great potential and an exemplary management group. Whilst the
> stock price has fallen back this past couple of days I have no doubt
> it will be well into double digits early 2010. Keep up the good work.

China North East Petroleum Catapults to the Next Level

Rich, if we assume that the business will remain as is in 2012, the effect of the change in the royalty will mean lower production growth or stagnant production growth, margins should not be effected much (more on this later), it is worth noting that NEP reports its numbers net of the PTR royalty, meaning the company actual production numbers are actually higher then what is reported, since NEP pays the royalty in crude and not in cash.

Based on the company business plan of having 675 wells on the fields, a target that should be achieved by the end of 2012, the company production will be much higher then where it stands today by 2012, after that date expansion drilling is likely going to stop in those fields, with drilling kept at a rate just enough to maintain production as long as physically possible, the effect of stopping expansion drilling will counter the increase in the PTR royalty as the company biggest expense is drilling the new wells, the current fields after 2012 will probably be used as a cash cow to finance new leases or expand into related oil extraction fields such as drilling.

Regards,
Nawar