During the review year, the Group's gross gas production increased by 16% YoY to 629.9 million cubic meters ("MMCM") (22.2 billion cubic feet ("bcf")) (comprising Panzhuang's gross production of 571.6 MMCM (20.2) bcf and Mabi's gross production of 58.3 MMCM (2.0 bcf)). By December 2017, daily production reached 1.9 MMCM per day, an 18% YoY increase. The combination of rapid drilling and continuous optimization of well design, as well as more new wells that ramped up production in Panzhuang and Mabi led to increased production output in 2017.
The Board recommends a final full year dividend of HK$0.0248/share for the year ended 31 December 2017 in view of the strong operational and financial performance combined with stringent cost control. The Company's continuing strong cash position, increased cash flow from operations and unused borrowing facilities enable the payment of the Company's first dividends. The outlook for the Company's business remains strong and supports its ability to sustain this dividend in the future.
During 2017, AAG Energy realized a higher average selling price ("ASP") of RMB1.30/cubic meter ("cm"), comprising an ASP of RMB1.31/cm and RMB1.14/cm at Panzhuang and Mabi respectively (compared with RMB1.20/cm at Panzhuang for 2016). The increase in ASP at Panzhuang was driven by the government's "coal-to-gas conversion" policy and increased demand for gas during the winter months.
In July 2017, the Group entered into an exploration phase sales contract with PetroChina Company Limited (PetroChina) enabling Mabi to recognize revenue in the second half of 2017. 2017 revenue (including subsidy and VAT refund) increased by 31.2% YoY to RMB735.5 million. Profit from operations increased by 63.4% to RMB322.1 million in 2017. Profit for the year increased by 71.9% to RMB183.2 million while EBITDA increased by 59.1% to RMB432.5 million.
In 2017, the total annual incurred Capex was RMB487.3 million, compared to the budget of RMB602.0 million. The average drilling cost for 1 single lateral horizontal ("SLH") well in Panzhuang was reduced by approximately RMB0.9 million per well from 2016. For Mabi, the average drilling cost for 1 pad drill well ("PDW") was about RMB0.8 million by the end of 2017, representing only 75% of similar type well's historical average cost. Looking forward, AAG Energy remains committed to driving costs down and keeping a healthy margin.
AAG Energy has achieved considerable progress towards key operational objectives during 2017:
Panzhuang's annual production exceeded targets- Total annual production from Panzhuang reached 571.6 MMCM, surpassing the 2017 production target of 557.2 MMCM with a 13% YoY increase. - Panzhuang's average daily production in 2017 was 1.57 MMCM per day ("MMCMD"), 13.4% YoY increase. - The sales utilization rate in Panzhuang has remained very high at 98% during 2017. Panzhuang's gross sales volume in 2017 increased by 13% to 559.7 MMCM (19.8 bcf), compared with the full year 2016 gross sales volume of 495.5MMCM (17.5 bcf).- In 2017, AAG Energy drilled and completed 55 wells (comprising 45 SLHs and 10 PDWs), surpassing the original plan of only 29 wells.- Costs per well fell by RMB 0.9 million since 2016.
Mabi concession achieved good progress and started recording revenue- Mabi signed an exploration phase gas sales agreement with PetroChina Company Limited on July 1, 2017.- Mabi's 2017 gross pilot production increased to 58.3 MMCM (2.1 bcf) compared with 35.0 MMCM (1.2 bcf) in 2016. - The 2017 average daily production for Mabi was 160.0 MCMD, a 68% increase compared to 95.5 MCMD in 2016.- ODP I filing expects to be in place in the first half of 2018.- The Group drilled 67 wells and hydraulic fractured 56 wells in 2017.
During the review year, AAG Energy continued focusing on the performance of Health, Safety and Environment (HSE), which has included expanding operation activities. By December 25, 2017, HSE had achieved 5 million man-hours (3 years and 111 days) without Lost Time Injury.
Looking ahead, the Group will continue to invest in Panzhuang and Mabi as follows:
PanzhuangThe full year plan for 2018 includes drilling 49 SLH production wells, minor workovers on existing wells and minor refracture works. The Group's full-year gross production expectation for Panzhuang is 626.0 MMCM (22.1 bcf) subject to anticipated project execution and related government approvals.
MabiIn Mabi, the Group will focus on execution of the ODP I implementation plan once the plan receives approval. The Group's full-year gross production expectation for Mabi is 97.3 MMCM or (3.4 bcf) subject to anticipated project execution and related government approvals.
New OpportunitiesThe Group has been actively pursuing new oil & gas opportunities for future growth, mainly covering attractive oil and gas assets inside and outside China. In 2017, AAG Energy's Merger and Acquisition team screened numerous deals and progressed several deals to advanced stage of negotiations. The Group is well positioned for further expansion in the near term, and is very excited about prospects in 2018.
Going forward, as published in the 13th Five Year Plan, the PRC government is committed to establishing the right incentives and market drivers for increasing gas demand by 2020, and CBM is an important part of this plan. The National Energy Administration (NEA) will take further steps in 2018 to incentivize gas production and market reform. These measures will support the Group's growth aspirations beyond being the leading independent producer of CBM in China.
Dr. Stephen Zou, Chairman and Executive Director of AAG Energy, said, "As a high-productivity and low-cost upstream gas producer with a strong balance sheet, we are well positioned to further expand our production in Panzhuang and commence commercial development in Mabi to satisfy China's growing energy demand. At the same time, the Group will continue to pursue new oil and gas business opportunities within China and in other regional markets to expand its business, serve adjacent communities with clean energy, and realize further returns for shareholders."
A copy of the report can be found HERE or visit the website: http://www.aagenergy.com/file/files/2018-03-23/22524260648.pdf
About AAG Energy Holdings Limited (HKEX stock code: 2686)AAG Energy Holdings Limited is an international energy company and the leader in China's CBM exploration and development sector. It focuses on developing and optimizing the value of unconventional gas resources to supply clean energy to the Chinese economy. AAG Energy's key operating assets, Panzhuang and Mabi concessions, are located in the Southwestern part of Qinshui Basin, which boasts the largest proved CBM geological reserves of any basin in China. AAG Energy's Panzhuang concession in partnership with China United Coalbed Methane Corporation Ltd., is the most commercially advanced Sino-foreign CBM asset in China and the first Sino-foreign CBM cooperative project to have entered full-scale commercial development and production. The Project has a designed annual production capacity of 500 million m3. AAG Energy's Mabi CBM Project in partnership with PetroChina received preliminary ODP Phase I approval from NDRC in November 2013. The designed production capacity of Mabi Phase I is 1 billion m3 per year. With proven ability to commercialize CBM and a highly-respected management team, the Group has attracted support from leading international and Chinese investors including Warburg Pincus, Baring Private Equity Asia, Chinastone and Ping An. For further details, please visit www.aagenergy.com.
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