HE Hanwei Energy Services Corp

Hanwei Energy Services Corp. (TSX: HE) (“Hanwei” or the “Company”) today reported its financial results for the three and nine months ended December 31, 2020. All amounts are in Canadian Dollars unless otherwise noted.

Update on COVID-19 Impact

With the recent announcements of various COVID-19 vaccine approvals in Canada and around the world, oil prices have recently increased. Commodity prices and the economic environment remains volatile and challenging which has adversely affected the Company's operational results and financial position. The COVID-19 situation is dynamic and the ultimate duration and magnitude of the impact on the economy and the financial effect on the Company is not known at this time.

Financial and Operating Update

The Company has two reportable segments for its continuing operations: its FRP pipe manufacturing and its oil and gas production. The pipe segment produces and sells fiberglass reinforced plastic (“FRP”) pipe for the oil and gas industry and other infrastructure applications. The oil and gas segment is engaged in the exploration and production of oil and natural gas in Western Canada.

For the three months ended December 31, 2020:

• Total Company revenues were approximately $2.5 million as compared to $4.0 million for the same period of the prior year. The $1.5 million or 38% decrease in revenue was due to a $1.4 million decrease in FRP pipe revenue and a $0.1 million decrease in the oil and gas business.
  • FRP pipe sales totalled $2.2 million, as compared to $3.6 million for the same period of the prior year. Sales in both periods were entirely contributed by the Company’s China market with no sales contributed from international markets. The $1.4 million or 39% decrease in sales resulted from the general downturn in the oil and gas industry due to the impact of COVID-19 (with sales orders deferred until the economic outlook improves) and specifically the postponement of certain projects of a major customer.
  • The Company produced approximately 77 barrels of oil equivalent per day (boed) with gross revenue of $43.84 per boe and a netback of $7.44 per boe, generating revenues net of royalties of $0.3 million as compared to 81 barrels of oil equivalent per day (boed) with gross revenue of $57.69 per boe and a netback of negative $0.05 per boe, generating revenues net of royalties of $0.4 million for the same period of the prior year. The decrease in production was due to the shut-in of oil wells at the Nevis Lands and natural production decline at the Leduc Lands. The increase in netback primarily resulted from reduced operating expenses compared to the same period of the prior year that included certain expenses for the repair of a horizontal well at the Leduc Lands. The decrease in revenue was primarily due to lower commodity prices.
• Total Company Adjusted EBITDA from continuing operations totalled negative $0.1 million as compared to Adjusted EBITDA of $0.1 million for the same period of the prior year. The $0.2 million reduction in Adjusted EBITDA was primarily due to decreased operating income as a result of the slow down in the oil and gas industry particularly due to COVID-19 and the aforementioned decreased revenue in the FRP pipe business as well as the oil and gas business.
• The Company had a loss from continuing operations of $6.1 million, which included a write-down of oil and gas assets at the Company’s Entice Lands in the amount of $5.6 million, as compared to a loss from continuing operations of $0.4 million for the same period of the prior year.

For the nine months ended December 31, 2020:

• Total Company revenues were $5.3 million as compared to $9.3 million for same period of the prior year. The 43% decrease in revenues was driven by a $3.0 million or 40% decrease in FRP pipe sales in the China market and a $0.9 million or 55% decrease in oil and gas revenues due to lower commodity prices and lower production volume.
  • FRP pipe sales were $4.6 million as compared to $7.6 million for the same period of the prior year. The $3.0 million or 40% decrease was mainly due to weather related issues in China delaying pipe installations of a major customer in the second quarter of the fiscal year together with the general industry slow down due to COVID-19.
  • The Company produced approximately 73 barrels of oil equivalent per day (boed) with gross revenue of $37.75 per boe and a netback of negative $4.44 per boe, generating revenues net of royalties of $0.7 million as compared to 99 boed with gross revenue of $61.62 per boe and a netback of $7.19 per boe, generating revenues net of royalties of $1.4 million for the same period of the prior year. The reduction in production volume during the period was due to: certain low production Wabamun wells being shut in at the Leduc Lands since mid-April 2020; repairs and maintenance on a main Nisku well at the Leduc Lands (shut in for the majority of the three months ended June 30, 2020); and the Nevis Lands being shut in from April to December 2020 as production was uneconomic at low crude oil prices. The decrease in netback was mainly due to the lower realized prices for crude oil as compared to the same period of the prior year.
• Adjusted EBITDA from continuing operations was negative $1.2 million as compared to $0.1 million for the same period of the prior year. The significant $1.3 million decrease in Adjusted EBITDA was due to decreased revenue and operating income in the FRP pipe business as a result of weather related pipe installation issues in China, together with the general industry slow down due to COVID-19, which also impacted the oil and gas business in terms of commodity prices. Additionally, the oil and gas business was also impacted by well shut-ins, natural production declines, and repairs and maintenance.
• The Company had a loss from continuing operations of $8.0 million, which included as noted above the write-down of oil and gas assets at the Company’s Entice Lands in the amount of $5.6 million, as compared to a loss from continuing operations of $1.6 million for the same period of the prior year.

Update on Discontinued Wind Power Business

As previously disclosed, the Company completed the sale of its 100% equity interest in its wholly owned Chinese subsidiary Hanwei Wind Power in November 2020. Hanwei Wind Power was under the Company’s discontinued wind power business unit. A cumulative translation exchange loss of $6.9 million and a gain of $13.2 million on the sale of Hanwei Wind Power were recorded under income (loss) from discontinued operations on the consolidated statement of comprehensive income (loss) for the three and nine months ended December 31, 2020.

About Hanwei Energy Services Corp.

Hanwei Energy Services Corp.’s principal business operations are in two complementary key segments of the oil and gas industry as both an equipment supplier to the industry (as a leading manufacturer of high pressure, fiberglass reinforced plastic (“FRP”) pipe products and associated technologies serving major energy customers in the global energy market) and as an oil and gas producer with properties in Alberta and joint venture interests in Manitoba.

www.hanweienergy.com

For more information, please contact:

Graham KwanExecutive Vice President, Strategic Development and Corporate Affairs604-685-2239gkwan@hanweienergy.com

Mary MaChief Financial Officer604-685-2239mma@hanweienergy.com

Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.

FORWARD-LOOKING INFORMATION AND NON-GAAP MEASURES

Certain information in this press release is forward-looking within the meaning of certain securities laws, and is subject to important risks, uncertainties and assumptions a description of which is set out in the risk factors section of the Company’s Annual Information Form dated June 25, 2020 and Management Discussion and Analysis for the year ended March 31, 2020 both of which are filed with Canadian securities regulators and available on SEDAR at www.sedar.com. The forward-looking information in this press release describes the Company’s expectations as of the date of this press release.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS PRESS RELEASE PRESENTS THE EXPECTATIONS OF THE COMPANY AS OF THE DATE OF THIS PRESS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE. WHILE THE COMPANY MAY ELECT TO, THE COMPANY DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME, EXCEPT AS REQUIRED BY APPLICABLE SECURITIES LEGISLATION.