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My Discussion with Bill Zima of NEP

|Includes: China North East Petroleum Holdings Ltd. (CNEP)
I spoke with Bill Zima last night, I posted this blog over at BullsOnWallStreet.com and I wanted to share it with other NEP longs. I am posting this to share ideas and generate future questions with other long term investors on NEP.

I received a call from Bill Zima last night, he’s in China.  First let me start by talking about Bill and his job.  I know many of us are frustrated by their lack of communication, lack of updates, lack of a conference call, etc.   The bottom line is NEP is completely aware of the frustration amongst retail investors.  Their communications team is in touch with all their institutional investors on a regular basis.  He’s basically in regular communication with people who hold 95% of the stock.

If you read the press releases, especially as of late, you’ll notice a level of detail that you normally would not see from a China company. I imagine his job isn’t an easy one.  

For example, imagine if you were Bill, and you were given updates every now and then from a foreign company and you had to craft such updates into press releases and communication.  Imagine getting emails from people he’s never spoken to, who might own 500 shares, asking “when is the next press release coming...?” or asking  “where’s the news??”     Let’s face is, most of these retail investors are not long term, they don’t give a shit about the company, they just want a pump so they can dump.  

It’s probably not as easy as some of us think, so I can understand his challenge especially when the company halted --- he could not really say anything during that quiet period as they restructured and reorganized.

I’m certainly not defending their lack of communication --- but I can’t point the finger at one person, especially someone who is NOT an officer of the company.   I will say that I did appreciate the call, he spent a good hour with me going over every detail of my questions. In fairness to him he has been responding to my emails -- although some of them he doesn’t respond to since they are more comments rather than questions.  

While I’d love for Bill to put out a blog on behalf of NEP they aren’t prepared to do that, especially since there are still some outstanding lawsuits from the halt.  There are many people watching the stock, he would much rather get on the phone and discuss what they can while using the regular new channels to distribute news on NEP.

My suggestion to any of you long term investors:  If you’re looking for answers from NEP, rather than sending comments/suggestions/bitching, ask specific questions, think about them, draft them in advance, and send them over to Bill Zima.  It might also be cool to post all your questions in the comments here so we can share and make sure no one is asking duplicate questions..    As I am a long term investor I always prefer collaborating with others, and I will continue to do the same as long as I’m a shareholder of the company.

So here are the questions I asked him and the answers I received --- keep in mind I worded these answers in MY words, these are NOT exact quotes, but this is representative of the spirit of the discussion.

1) Is the 800k deposit for land use rights on the balance sheet for another lease or acquisition?  

The $800,000 is not for a new lease or acquisition.  It has to do with Tiacheng and their current office location and lease arrangement. At some put this will be moved over to a long term asset classification.  

2) What about new acquisitions and why didn’t they have a conference call this quarter?

As far as new acquisitions though, if you read the 10Q you will see references to a potential new deal or acquisition that the company has been working on.  They are not ready to discuss it.  They certainly did not want to have a conference call yet since there would be many questions around future growth prospects, what they’re doing with their cash reserve, etc, and they simply aren’t ready to talk about it.

3) In the past NEP would release it's production numbers ahead of the quarter.  This time they didn't do that, is that because of the major drop in production?  

This quarter they decided to roll it all into one press release and create a unified communication.  

4) Does management feel production will be at "normal" levels in the coming quarter?

The drop in production is mostly tied to weather issues.  The rains were incredibly heavy, causing the fields to be boggy and muddy, they could not get trucks in or out.  They DO NOT expect this situation going forward. This coming quarter they fully expect to go back to “normalized” production numbers.  As in the past, they will likely release their normalized production numbers in January.

5) Why didn’t they drill more on their existing property as expected?

The simple answer is the company is building a cash warchest for a new growth opportunity.  They feel it’s best to invest in new growth opportunities while continuing to maintain their current property which still has plenty of reserves for the future.  Take a look at the 10Q and the are details pertaining to this in it.

6) As I read it, the 10Q stated the company need not raise money to support the existing oilfield.  The problem is, this oilfield seems to be depleting, not to mention the royalty will increase soon.   So with that said, the company clearly needs to raise money in order to close on new oilfields or pending acquisitions - does the company feel raising money at these deflated levels is ideal?

The company feels comfortable with its current business and using existing cash to support it.  I was reading the standard risk factors. There is still no way they will commit to anything on this question since they cannot discuss future acquisitions or deals, or how they will be structured.  

I personally think they will raise money at some point, but I believe it will be accretive, similar to the Tiacheng deal.

7) Does the company plan to do any road shows this quarter?

It’s already December.  They don’t want to go out and start telling the same story.  Everyone wants to hear about new leases or a new acquisition, or new growth.   The bottom line is the company will go out when there’s something new to be talked about, otherwise why waste cash on a road show telling everyone what they already know?

8) Any chance of getting some coverage from analysts?

Well they already have one analyst covering them, Rodman … (this is me laughing hahahaha).  

I personally believe there will be more coverage in the future, we just need to be patient.

9) Are things started to feel stable at the company?  Are they comfortable with the accounting as it was and going forward?  Any chance of getting some permanent staff soon rather than 'acting' staff?


As the CFO is fairly new, the goal is to make him permanent.  The company is evaluating his capabilities, and if they and the auditors feel he is capable to take on this huge task then they will formalize things.   They are treating their accounting procedures very carefully.  

Disclosure: Long NEP, very long!