May 5th, Blood on the Streets

On April 16th China North East Petroleum announced FY09 revenue increased 10% to a record $64.7 million. They also announced their output increased by 41% TO 908,126 barrels. 
..however the company has been plagued by an ugly overhang as they had to restate earnings for non-cash warrant issues and how they accounted for depreciation on their properties.
NEP was $9 just a few days ago, then yesterday the market tanked – and today on CNBC they showed the Greek “siren” over and over again.
The market took a hit, and is in the process of correcting. Oil took a wicked dump, and NEP sold off. In my opinion NEP sold off because of oil, panic & fear, and stops getting hit by retail investors, not to mention margin calls – and most notably the UNCERTAINTY of NEP’s earnings since they have not released a 10K.
At the same time it looks like one of the major shareholders of NEP took some shares off the table (that’s an understatement, the stock traded 2m+ shares today on a wicked selloff).
I spoke with Investor Relations in detail. They said to expect a material release sometime this month. This means we will see the 10K which is what everyone is waiting on for NEP.
In the meantime the stock will flounder, and as panic sets in like it did today we’ll see the ugliness that mother market can bring.
So why did I buy more NEP yesterday and today? Well, first off I made over 4X what I’m currently down on the stock last year. I would never dump this kind of cash into the company unless I did the research and actually made money on them up until now.
I am a big believer in this company. I believe the stock will eventually go up as a result of the following (quoted from their press release directly);
Preliminary revenues for 2009 increased 10% to $64.7 million from $58.6 million in 2008 due to increased oil production and revenue generated by the Company’s newly acquired contract oil drilling entity, Tiancheng.
In 2009, forty two new oil wells were drilled in the Company’s oilfields, bringing the total number of producing wells to 289.
Total oil production in 2009 was 908,126 barrels, a 41% increase from 645,856 barrels in 2008.
Oil prices in 2009 averaged RMB 2,824 per ton (USD$55.97 per barrel), a 41% decrease from 2008 levels of RMB 4,845 per ton (US$94.29 per barrel). Yet oil prices this year are much higher – and in the last quarter much much higher.
Tiancheng contributed $13.6 million of the revenue in 2009, all of which was booked in the fourth quarter, as the acquisition of Tiancheng was completed on September 27, 2009.
“Global oil prices have rebounded from the low levels experienced in late 2008 and early 2009, and we anticipate that oil prices will remain relatively stable or trend higher in the rest of 2010. Consequently, we will continue to drill new wells and expect that cash flow from operations will be sufficient to allow us to meet all of our growth targets this year.” – in other words, their growth plans allow them to continue through 2010 without visiting the capital markets again. Read: no dilution in 2010.
“We are on plan to drill approximately 60 wells in 2010, excluding acquisitions, and believe we have the ability to drill more than 320 new wells within our existing fields over the next 3-5 years, excluding any potential benefit we could receive from new oilfield leases which we continue to actively pursue.”
I remain convinced that NEP is a great long term buy. Though the volume on the selloff today was a little disconcerting, I am still bullish on the company. Good luck to all longs, shorts, whatever, wish you all well.



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