HARBIN, China, and NEW YORK, Aug. 14 /PRNewswire-Asia-FirstCall/ -- China North East Petroleum Holdings Limited (the "Company") , an oil producing company in Northern China, today announced financial results for the second quarter ended June 30, 2009.

Second Quarter 2009 Results

Revenues for the three months ended June 30, 2009 (the Current Quarter) were $11,351,405 compared to $14,167,538 for the three months ended June 30, 2008 (the Comparable Quarter), a decrease of $2,816,133, or 20%. This decrease was due to a decrease in the average price we received for our crude oil. The average oil price for the Current Quarter was $50.27, a 52% decrease from $105.08 for the Comparable Quarter. Our output of crude oil for the Current Quarter was 225,043 barrels compared to 135,194 barrels for the Comparable Quarter, an increase of 65.5%, which substantially offset the impact of lower oil prices. This increase in production was mainly due to: (i) an increase in the number of producing wells from 188 in the Comparable Quarter to 254 in the Current Quarter; (ii) refracturing and other technical improvements made to the existing wells; and (iii) implementation of a water injection network, which helped maintain production levels at certain existing wells.

Cost of sales decreased by 29%, from $6,465,580 for the three months ended June 30, 2008 to $4,569,551 for the three months ended June 30, 2009. The decrease in cost of sales resulted primarily from a decrease in the oil surcharge paid to the PRC government due to the decline in oil prices generally. For the Current Quarter, the Company paid an oil surcharge of $580,375 to the PRC government as compared to $3,173,380 for the Comparable Quarter. Under a regulation introduced in June 2006, a surcharge of 20% is imposed on the portion of the selling price of crude oil that exceeds $40 per barrel and a surcharge of 40% is imposed on the portion of the selling price of crude oil that exceeds $60 per barrel. This government oil surcharge tax is paid by the Company on a quarterly basis following the end of each quarter.

Operating expenses totaled $1,516,882 for the Current Quarter, compared to $1,093,552 for the Comparable Quarter, an increase of 39%. This increase is primarily the result of an increase of approximately $322,423 in selling, general and administrative costs ("SG&A"). SG&A costs increased largely due to non-cash charges associated with stock and option grants made to Directors and certain key employees in the second and third quarters of 2008, as well as an increase in professional fees from $39,818 in the Comparable Quarter to $153,032 in the Current Quarter as a result of recent business development activities.

Other expenses decreased from $322,716 for the Comparable Quarter to $294,673 for the Current Quarter. This decrease is primarily the result of a decrease in other expenses, which decreased from $105,601 in the Comparable Quarter to $1,008 in the current quarter.

Net income decreased by 27%, from $3,872,049 for the Comparable Quarter to $2,817,577 for the Current Quarter, primarily as a result of the decrease in average selling price and increased non-cash expenses as described above.

Mr. Hongjun Wang, President of China North East Petroleum, commented, "We are pleased with our second quarter financial results, especially in light of recent high market volatility. Although the global decline in oil prices caused the average three-month oil price to drop by 52% from $105.08 per barrel a year ago to $50.27 in the second quarter, we were able to achieve a 65.5% growth in oil production, which significantly offset the impact of the much lower oil price. This reflects our strong execution capabilities, even during this challenging economic time. More importantly, the Company achieved a profit margin of 25% with a strong EBITDA result of 77% in the second quarter. This further demonstrates NEP's versatility in this volatile market, considering the higher level of efficiency of our operations and significantly lower costs of production in comparison to those of major multinational oil companies."

Mr. Wang continued, "During this quarter, we successfully fulfilled our pledge to list China North East Petroleum's stock on the NYSE Amex, a major milestone in our Company's history. We believe this achievement both opens new doors for the Company to a much broader investor base and highlights our dedication to not only raise our visibility among the investment community but also to increase the liquidity and trading efficiencies of our common stock. We would like to thank our investors for their ongoing support and confidence in our team, and in our opportunities in the marketplace for continued growth in the years to come.

Mr. Wang concluded, "Looking forward as we head into the third quarter, despite minor delays caused by the rainy season in the second quarter, our management and the drilling teams are working at full throttle to speed up the well drilling. We remain confident in our ability to accomplish the original drilling program and to continue to increase our production levels. Furthermore, the Company's strong cash position provides us with a heavily favored position when applying for new oilfield leases in order to further expand our business presence and market position in the domestic private oil industry in China. The application has been submitted to PetroChina headquarters, and we will update the shareholders on our progress when we have additional information that can be disclosed. We continue to be optimistic about the Company's future and believe that the fundamental features of the Company will grow faster and stronger. We remain confident in our outlook for the remainder of 2009,"

Oil Pricing

Please note that CNEH's sole customer, PTR, pays the Company a price per barrel that is calculated on a monthly basis based on a lagged, daily price per barrel average for a relatively heavy, sour grade of crude oil that trades in Singapore. This daily price index is one of a large number of crude oil price indices maintained by Platts. Platts, a division of The McGraw-Hill Companies, is a leading global energy and metals information provider. The grade of oil for which the company is paid typically trades at a discount to West Texas or London Brent crude.

Government Oil Surcharge

Under a regulation introduced in June 2006 by the Chinese government, a surcharge of 20% has been imposed on Chinese oil producers on the portion of the selling price of crude oil which exceeds $40 per barrel and a surcharge of 40% is imposed on the portion of the selling price of crude oil which exceeds $60 per barrel.

ABOUT CHINA NORTH EAST PETROLEUM

China North East Petroleum Holdings Limited is an independent oil company that engages in the production of crude oil in Northern China. The Company is a pioneer in China's private oil exploration and production industry, and the first Chinese non-state-owned oil company trading on the NYSE Amex.

The Company has a guaranteed arrangement with the PetroChina to sell its produced crude oil for use in the China marketplace. The Company currently operates four oilfields in Northern China. For more information about the Company, please visit http://www.cnepetroleum.com .

Statements in this press release which are not historical data are forward-looking statements which involve known and unknown risks, uncertainties or other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, but are not limited to, those detailed in the company's periodic filings with the Securities and Exchange Commission.

CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) (Unaudited) Three months ended June 30 Six months ended June 30 2009 2008 2009 2008 NET SALES $11,351,405 $14,167,538 $20,250,628 $24,991,512 COST OF SALES Production costs 1,152,199 782,972 1,666,599 1,495,277 Depreciation of oil and gas properties 2,833,995 2,506,302 5,458,249 4,380,994 Amortization of land use rights 2,982 2,926 5,961 5,768 Government oil surcharge 580,375 3,173,380 618,167 5,384,700 Total Cost of Sales 4,569,551 6,465,580 7,748,976 11,266,739 GROSS PROFIT 6,781,854 7,701,958 12,501,652 13,724,773 OPERATING EXPENSES Selling, general and administrative expenses 610,754 288,331 1,183,337 545,925 Professional fees 153,032 39,818 225,048 97,330 Consulting fees 98,615 146,208 156,295 227,838 Amortization of deferred financing costs 74,140 74,139 148,279 98,852 Amortization of discount on debenture 509,355 486,803 1,002,058 649,071 Depreciation of fixed assets 70,986 58,253 139,801 110,485 Total Operating Expenses 1,516,882 1,093,552 2,854,818 1,729,501 INCOME FROM OPERATIONS 5,264,972 6,608,406 9,646,834 11,995,272 OTHER INCOME (EXPENSE) Other income -- 68,153 -- 65,842 Other expense (1,008) (105,601) (1,801) (105,601) Interest expense (260,664) (305,347) (540,664) (425,044) Imputed interest expense (37,669) (5,845) (49,917) (32,741) Interest income 4,668 25,924 19,764 29,966 Total Other Expense, net (294,673) (322,716) (572,618) (467,578) NET INCOME BEFORE INCOME TAXES 4,970,299 6,285,690 9,074,216 11,527,694 Income tax expense (1,667,848) (1,865,268) (3,087,667) (3,304,537) NET INCOME 3,302,451 4,420,422 5,986,549 8,223,157 Less: net income attributable to noncontrolling interests (484,874) (548,373) (897,619) (976,093) NET INCOME ATTRIBUTABLE TO NEP COMMON STOCKHOLDERS 2,817,577 3,872,049 5,088,930 7,247,064 OTHER COMPREHENSIVE INCOME Total other comprehensive income 4,456 930,422 83,395 1,867,981 Less: foreign currency translation gain attributable to noncontrolling interests (446) (93,042) (8,340) (186,798) Foreign currency translation gain attributable to NEP common stockholders 4,010 837,380 75,055 1,681,183 COMPREHENSIVE INCOME ATTRIBUTABLE TO NEP COMMON STOCKHOLDERS $2,821,587 $4,709,429 $5,163,985 $8,928,247 Net income per share - basic $0.14 $0.20 $0.24 $0.38 - diluted $0.13 $0.18 $0.24 $0.35 Weighted average number of shares outstanding during the period - basic 20,855,289 19,224,080 20,819,881 19,224,080 - diluted 21,898,245 21,435,012 20,864,326 20,542,229 CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES (NEP) Condensed Consolidated Balance Sheets June 30, December 31, 2009 2008 (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash and cash equivalents $22,675,024 $13,239,213 Accounts receivable, net 5,083,803 4,230,080 Prepaid expenses and other current assets 510,008 781,121 Value added tax recoverable -- 311,240 Total Current Assets 28,268,835 18,561,654 PROPERTY AND EQUIPMENT Oil and gas properties, net 66,338,774 70,193,852 Fixed assets, net 1,705,301 1,684,377 Oil and gas properties under construction -- 714,629 Total Property and Equipment 68,044,075 72,592,858 LAND USE RIGHTS, NET 30,288 36,198 DEFERRED FINANCING COSTS, NET 790,819 939,098 TOTAL ASSETS $97,134,017 $92,129,808 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $12,098,584 $10,985,894 Current portion of secured debenture, net of discount 2,864,844 1,489,126 Other payables and accrued liabilities 880,945 742,264 Due to related parties 14,610 66,262 Income tax and other taxes payable 3,264,378 3,710,870 Due to a stockholder 2,998,932 738 Total Current Liabilities 22,122,293 16,995,154 LONG-TERM LIABILITIES Accounts payable 9,295,090 13,944,903 Secured debenture, net of discount 4,138,732 6,594,700 Deferred tax payable 359,901 762,405 Total Long-term Liabilities 13,793,723 21,302,008 TOTAL LIABILITIES 35,916,016 38,297,162 COMMITMENTS AND CONTINGENCIES -- -- EQUITY NEP Stockholders' Equity Common stock ($0.001 par value, 150,000,000 shares authorized, 20,904,080 shares issued and outstanding as of June 30, 2009; 20,784,080 shares issued and outstanding as of December 31, 2008) 20,904 20,784 Additional paid-in capital 22,295,107 21,384,816 Deferred stock compensation (843,750) (1,248,750) Retained earnings Unappropriated 29,625,009 24,536,079 Appropriated 1,372,999 1,372,999 Accumulated other comprehensive income 3,328,123 3,253,068 Total NEP Stockholders' Equity 55,798,392 49,318,996 Noncontrolling interests 5,419,609 4,513,650 TOTAL EQUITY 61,218,001 53,832,646 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $97,134,017 $92,129,808 CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2009 and 2008 (Unaudited) 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES Net income $5,088,930 $7,247,064 Adjusted to reconcile net income to cash provided by operating activities: Depreciation of oil and gas properties 5,458,249 4,380,994 Depreciation of fixed assets 139,801 110,485 Amortization of land use rights 5,961 5,768 Amortization of deferred financing costs 148,279 98,852 Amortization of discount on debenture 1,002,058 649,071 Amortization of stock option compensation 340,384 12,504 Warrants issued for services 206,602 91,963 Noncontrolling interests 897,619 976,093 Stocks issued for services -- 27,125 Stock-based compensation for service 405,000 -- Imputed interest expense 49,917 32,741 Changes in operating assets and liabilities (Increase) decrease in: Accounts receivable (853,723) (3,362,131) Prepaid expenses and other current assets 271,113 (2,099,397) Value added tax recoverable 311,240 111,227 Increase (decrease) in: Accounts payable (3,537,123) (9,735,812) Other payables and accrued liabilities 138,681 (127,249) Income tax and other taxes payable (446,492) 2,687,453 Deferred tax payable (402,504) (247,727) Net cash provided by operating activities 9,223,992 859,024 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of oil and gas properties (790,110) (8,338,953) Purchase of fixed assets (158,416) (596,055) Additions to oil and gas properties under construction -- (563,024) Net cash used in investing activities (948,526) (9,498,032) CASH FLOWS FROM FINANCING ACTIVITIES Payment of deferred financing costs -- (1,186,229) Proceeds from issuance of secured debenture -- 15,000,000 Repayment of secured debenture (1,770,000) -- Proceeds from exercise of stock warrants 1,200 -- Increase in amount due to a stockholder 2,998,194 265,076 Decrease in amounts due to related parties (51,652) (1,715,330) Net cash provided by financing activities 1,177,742 12,363,517 EFFECT OF EXCHANGE RATE ON CASH (17,397) (1,371,559) NET INCREASE IN CASH AND CASH EQUIVALENTS 9,435,811 2,352,950 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,239,213 74,638 CASH AND CASH EQUIVALENTS AT END OF PERIOD $22,675,024 $2,427,588 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income tax expense $4,077,609 $2,851,704 Interest expense $280,839 $425,044 For more information, please contact: United States: Chao Jiang Executive Vice President of Finance Tel: +1-212-307-3568 Email: chao.jiang@cnepetroleum.com China: Yang Dio Zhang Chief Financial Officer Tel: +86-451-5558-0253 Email: dio.zhang@cnepetroleum.com

SOURCE China North East Petroleum Holdings Limited