China Oil & Gas Group Ltd

Good morning, ladies and gentlemen. Welcome to the conference call. Ruby, please begin your call and I'll be standing by for the Q&A. Thank you. Thank you.

Good morning, ladies and gentlemen. On behalf of China Oil & Gas Group, it is with pleasure for me to welcome you all to our 2026 Interim Resource Conference Call. Today, our Chief Financial Officer, Ms. Jenny Law, will present the group's 2026 Interim Resource Conference And she will answer any questions you may have after that presentation. Our presentation material for today has been uploaded to our official website at www.hk603.com under Inventor Relations and then Roll Show Presentations. Or you can also access it through the link attached in our announcement email. We will first talk about the financial highlights and performance of the group. followed by the operating performance of our core business, natural gas distribution business, and then our upstream oil and gas production business in Canada. The presentation will take around 10 minutes. Then we will have a Q&A session at the end.

Okay. Thank you, Ruby. Good morning, everyone. Let's start with the PBT. Let's look at the group's core financial highlights. In the first half of 2026, the group gross profit reached HK$1,093 million, up 11% year-on-year. Benefiting from improved purchase sales margins, the overall gross profit margin rose from 12% in the same period last year to 14%. EBITDA stood at HK$1,093. , representing a three-year, one-year increase. As of June 30, 2026, net assets amounted to HK$8,000 million, a 3% rise compared with HK$7,755 million at the end of 2025. The shareholders' equity base remained solid. Slide 4. In terms of turnover, revenue total HK$7,854 million in the first half. A slight 1% year-on-year decline. Profit before taxation was HK$705 million. Profit for the period was HK$501 million. Profit attributable to owners of the company was HK$196 million, down 22% year-on-year. Slide 5 This slide shows adjusted profit after stripping out one of items. Reported profit attributable to shareholders fell 22% year-on-year, largely dragged down by non-operating factors, including the fair value changes of financial liabilities and foreign exchange losses. After excluding this one of items, The group's underlying operating profit was HK$228.5 million, down 10%. These are just the figures that reflect the true operating performance of the group core businesses. Slide 6 and 7 The group's consolidated gross profit margin rose to 14%. Profitability varies across business segments. Sales and transmission of natural gas, gross profit margin maintained at 12%. Gas pipeline construction and connection, standard performance, margin increased from 37% to 41%. Canadian oil and gas production segment, gross profit margin remained stable at 35%. Coal-derived clean energy segment, gross profit margin stood at negative 4%. We will continue to optimize the operating model for this segment going onward. Slide 8. The total sales and distribution plus administrative expenses reached $304 million in the period, rising 31% year-on-year. The increase was mainly driven by higher R&D spending within the coal-utilized clean energy segment. Faced with a rising expense ratio, the group will implement cost reduction initiatives, strictly control various operating expenses and improve profit efficiency. Line 9 EBITDA amounted to HK$1,160 million, up 3% year-on-year. As debt scale expands, net interest expenses increase. Going forward, we will keep optimizing the debt structure and managing financing costs. Slide 10. Other financial data, statement of financial position and cash flow information. At the end of June, total assets was HK$22,130 million. Net assets, HK$8,000 million. Total debt, HK$9,791 million. Cash & Cash Equivalent HK$5,046,000,HK$7,745,000, up 12% compared with year-end of CO2-5. In February CO2-6, the Group issued USD$300,007,000,000 of maturity in CO2-9. In first half of CO2-6, the Group fully resumed the $400,000,000 Bill 2026. Via market buyback, cash tender offers, and existing on-hand cash resources. On August 5, 2026, the group secured a new U.S. dollar $150 million syndicate loan, which was fully applied to repay the existing U.S. dollar $350 million syndicate loan, with a will to reduce future finance costs. The group's greater average cost of all indebtedness, including bank borrowing, other borrowings, and senior notes, stood at 4.5% for first half of GO26. First half of GO25 was 4.7%. On cash flow, that cash flow from operating activities totaled HK$470 million, down 6% year-on-year. Capital expenditure was HK$222 million, a 20% year-on-year decrease. The group maintained a prudent capital expenditure strategy, prioritizing the safety of operating cash flows. Part 2, natural gas distribution business, slide 12. We now turn to the domestic city gas segment. Total gas sales per transmission volume reached 3,763 million cubic meters. in first half of 2026, representing 6% decrease compared to year-on-year. Affected by macroeconomics conditions, gas demand softened and overall volume declined. Nevertheless, through gas resources management and implementation of price pass-through mechanisms, purchase sales margin expanded materially. Delivering the operating profile of low volume but higher profit. July 15. This shows the volume breakdown. Total gas sales volume down 9% year-on-year. Residential user down 12% year-on-year. D&I down 8% year-on-year. Gas station. down 5% year-on-year. Transmission volume down 3% year-on-year. On slide 14, CNI customer accounted for 67% of gas cell volume and remained the core foundation of the group's revenue and profit. Going forward, the group will continue to prioritize the development of CNI customers in market expansion. Slide 15, by region analysis, Qinghai remains our largest volume province. Shandong, Jiangsu, and Jiangxi post-nocturnal gas sales growth, demonstrating solid progress in our key region expansion. Servio Island Province records volume decline due to local industrial cycle fluctuations. We will flexibly adjust market tactics according to local reality. Slide 16. The key profitable metrics. The branded average selling price, RMB 2.66 per cubic meter. Branded purchase and sales margin, RMB 0.55 per cubic meter. A massive improvement from RMB 0.45 per cubic meter in first half of 2025. Average transmission price remains flat at RMB 0.062 per cubic meter. July 17, the end user base expands steadily as at June 30 of 2026, the group had accumulated 221,560 residential users and 21,089 CNI users. During first half 2026, we add 25,014 new residential households and 394 new CNI customers. Slide 18. Our key business development priorities. Beyond traditional gas sales, the group is actively nurturing second growth curves. First, further deepen value-added service businesses. Push channel penetration for priority brands. Roll out the five unified customer system management systems. and enlarge the project pipeline for gas and integrated energy initiatives. Second, reinforce safe operations in integrated digital information systems and continuously enhance internal institutional frameworks and risk control systems across the group. Slide 19 and 20, our national operation map. The group holds 64 city gas concession rights across 13 provinces, manipulative cities, and autonomous regions in China, with more than 27,235 kilometers of natural gas pipeline invested and built. Let's go to part three, oil and gas production business. Slide 21. Canadian oil and gas optimization. Average production in South Africa 26, 5,209 BOE per day, down 4% year-on-year. Crude oil output, 1,905 barrel per day, down 17% year-on-year. NGL output, plus 4% year-to-year. Natural gas output, plus 5% year-on-year. International crude oil prices rose sharply. WTI averaged U.S. dollar 82.67 barrel in first half of Q26, up 23% year-on-year. The Groups realized crude oil selling price reached Canadian dollar 107.79 barrel per year, per barrel, plus 25% year-on-year. However, rising operating costs and loyalty fees pulled the operating net back down to CAD$30.31 per BOE, down 6% year-on-year. Resource position at the end of 2025. Proofed resource $36.02 million MM-BOE. Proofed plus probable resource $57 MM-BOE. Both reserve categories increased by 13% year-on-year, further solidifying our resource base. Slide 22. The group adopts a prudent development program. We complete six net wells in the first half with a 100% drilling success rate. Unit operating costs were controlled at $10 million, 14.46 per BOE. In future, we will keep balancing production volume Cost and Investment Returns While studying the feasibility of supplying Canadian oil and gas resources back to the domestic Chinese market. Conclusion Looking back on first half of CO2-6, against a challenging macro backdrop and subdued domestic industrial gas demand, overall sales transmission volume declined. Nevertheless, By optimizing gas source procurement and implementing price pass-through mechanisms, the group delivers higher gross profit margin and higher absolute gross profit. For the second half of the year, the group will continue executing its strategy, consolidate the core foundation, thrive with four growth engines, empower through digital intelligence, different customer-centric operations, We will strengthen and optimize our City Gas core business, foster full-growth engines, advance digital intelligence transformation, strictly control expense, reinforce risk management, and strive to deliver full-year operating targets. This concludes our presentation for first half CO26 results. This presentation is for reference only and does not constitute investment advice. Please refer to the published interim announcement for food stickers. We will now open the floor for questions. Thank you. Thank you, operator.

Thank you, Jenny. Ladies and gentlemen, we will now pull for questions. If you would like to register for a question, please press star 1 on your telephone. Thank you. Once again, press star 1 to register for a question. Our first question comes from Don with Bandit Alpha. Please go ahead. Thank you.

Hey Jenny, thanks so much for the call as usual. Just two questions basically. One is on the operational side of things. Can you just, I know you touched briefly on it that you've controlled calls quite well, but can you perhaps expand a little bit on why The input cost has gone down to 2.11 per cubic meter from 2.2. Because obviously, I think natural gas prices domestically has gone up, right? So I guess, you know, can you perhaps share why for some of you guys it's come down on the cost side? And then a second part to this would be, can you provide guidance on the Gas sales volume and dollar margin for the full year. Any guidance would be helpful. I'll stop there for now.

Okay. When you mentioned about the input cost, you mean the dollar margin?

I think on the slide you have it as 2.11. Basically, the purchasing price, the blended average purchasing price.

Oh, the blended average purchase price? Why was that done? Okay. The main reason is because you can look at our slide with all our provinces. The Qinghai province has dropped their styles of natural gas dramatically. The reason is that we have a very warm winter. So in Qinghai, the volume down quite a bit. And this part is the one that is not making much margin. So the margin is very low on the heating So without that part, the other province has grown their sales of natural gas, so the branded purchase price is down. Does this make sense to you?

Oh, okay. So it's basically just a favorable revenue mixture.

Yes.

Exchange. Okay. And then can you provide guidance on For full year, what's the gas distribution, sales volume, and blended dollar margin?

Okay, the blended dollar margin, we will expect it will stay stable, plus or minus 0.01 or 0.02, due to the weather that will affect the dollar margin. For the sales volume, we expect we'll do better. Hopefully, we can have a colder winter and our gas sales volume will be up. Since the economy in Mainland China is still quite slow, we are doing our best to sustain our cash flow and operating profit. Thank you.

Okay. So, for the first half, the gas sales volume was down 9% year-on-year, right? So, if you're expecting full year to be up, year-on-year, so they're expecting quite a significant rebound in the second half?

Well, for now, we expect sales volume will be down in single digits. We'll not be over to double digits. But it's hard to tell for now. So it's around 6% to 10%.

Okay. Also, for full year, the sales volume will be down single digits? Yes. Okay, okay, got it. And then the second question I have is, if I look at, for the S of June balance sheet, right, the gross amount of bank loans, I think it's gone up about $860 million, Hong Kong dollar. Although here I know you've got the syndicate loan, you drew that in August, so that wouldn't have been reflected on the balance sheet for S of June, right? So can you just explain what additional loans you got in the first half that led to the loans going up about $860 million in the first half?

Yeah, mainly due to increase of bank loans on our Mainland China operating business.

These are short-term loans or long-term kind of loans?

over family short-term loans because we try to let our PRC subsidiaries to get their loans onshore where the loan is more cheaper in mainland China. The average borrowing cost in mainland China for bank loans is around 2% to 3% per annum. So we were just trying to maintain our Most of our debt in Hong Kong market company remain the same. So we repay our U.S. dollar bond with our on-hand cash, right? And then we issue the syndicate loan during August, June 26th. It's fully repay the existing syndicate loan that we have now. So the total debt of our Hong Kong market company will be lower by the end of the year.

Okay, okay. So just to clarify, right? Yes. Basically, obviously, you got the syndicate loan that is due next June is US$315 million, right? So out of that US$315 million, you have obviously gotten the new US$115 million syndicate loan to partly refi that. And then the remaining amount of about close to US$200 million, you basically gotten some onshore loans to pre-fund the syndicate loan.

The remaining outstanding 2027 of the syndicate loan deal will be, because we have did the repayment, so the outstanding is around 165 million US dollars. And for that 165 million, have you gotten any financing? Oh yes, we have a few banks that have contacted me and we will probably throw down a RMD syndicate loan to repay the GEO 2000 syndicate loan. And we are still under discussion.

Okay, so the RMD syndicate loan will be about $165. We are discussing about $165 million.

Yes, less than $200 million. And what's the 10-year for debt? We usually get our syndicate on 3 years.

So the question I had was because obviously at the end of June the amount of loans had gone up about $860 million so you are saying you got some on trial loans but I guess the question is given that you are not really expending any capacity What is this additional $860 million of loans that you got in the first half for?

Well, it's easy. We use our on-hand cash to repay the U.S. dollar bond. So we repay $100 million U.S. dollar with our on-hand cash. So we use the channel of the... So, I'll make Lanchina lower financing cost to help the mother company to repay after that.

Okay, okay. So, basically, you use the cash on hand to help to repay the dollar bond and then you replenish that cash by getting onshore.

Yes.

Okay. Okay. I'll jump back to the queue that other people have the chance to ask some questions. Okay. Thank you. Thank you, Don.

Thank you. Once again, ladies and gentlemen, I just want to register for questions. Thank you. Our next question comes from with Alliance . Please go ahead. Thank you.

Oh, hi. Good morning, Jenny. Thank you for your time. So just some follow-up questions on the operating side to follow the questions. So on the volume, right, I assume the volume dropped mostly due to the warm winter, the first quarter. The impact is still there. Getting into the second quarter, I just want you to understand the trend because we previously discussed that when the competing energy source price is becoming more expensive, it's actually benefiting us. Our gas distribution, do you see that in the second quarter when energy price started to raise? That's the first question. I will go one by one.

Okay, thank you. Actually, we didn't see the price go up extremely for the second half. As we know that the three big oil companies will maintain the procurement price for natural gas. for the natural gas distributor. As we know that the mainland China economy is not doing very good, so the government intends to maintain a lower cost for energy price so all the residential CNI can benefit from that. So we didn't see a big jump of the purchasing price.

Got it. Understand. Then the second question is on the procurement price, procurement cost, the $2.11 number that we have here, right? Just to try to understand better on the contract that we have with PetroChina, my understanding is other distributors, they have a price or formula procurement price linked to some kind of index that's further linked to LNG oil or coal oil price. Do we have that similar like a formula for our gas from PetroChina?

As I know, we don't have that. We may have a very small portion that has this kind of mechanism. What we did is we usually secure our natural gas volume by the end of the year for the upcoming year. So with that volume, we will secure our natural gas, right? And then for the pricing, it really depends on the PetroChina. They will give us a notice before the end of the year. So we will know the full year, the price. So whenever PetroChina or... The other big oil companies, they want to increase the price, which means our cost. They need to go to NDRC. So this is not just linked to a market index.

Got it. So it's not floating. It's like a fixed annual reset depending on NDRC's approval of a price change.

Yes.

Okay, cool, cool, cool. That's very comforting. And so, since you mentioned that we locked the volume, right, if we are going to see a continued single-digit decline in the total volume this year, are we exposed on the PetroChina front? Meaning, if we promise to offtake, like, a billion square meters of gas from PetroChina, but at the end of the day, This is a very good question.

Yes, this is in the contract. This is one take, take or pay, right? This is what is paid in the contract. But what we did with PetroChina is that we will negotiate, and sometimes we will transfer this part of natural gas to other provinces. Some of the problems they may have, like lack of natural gas, because it's also pipeline, right? So we use the pipeline to transfer it to other provinces or other cities that needed the natural gas. And then if you still have unpaid one, we will negotiate with PetroChina. It won't be a big penalty. No worries, yeah.

Oh, okay, okay. Okay, good to know. And then the third question, I have this on the pass-through. I know that you just gave us the guidance that the dollar margin is going to be stable. Just to get a sense on the ground, how fast, if we have to, how fast we can pass through any volatility to the REFI and to the CNI customers.

Okay. For the CNI customer, it's actually pass-through directly. It's all written in the contract. For residential, we can do it like less than one month because we still need the regional government, the local government, NDRC to approve the price plus food. So it usually takes around one month for residential.

I see. You don't feel that because of the weak economy that the local governments are reluctant to increase the resi gas price. Did you feel that?

Not for now, because we don't have an increase yet. But we will discuss with the local government. Because in the past, when we go through the pass-through of residential, the local government, of course, they're concerned about the increased expense of the residential user. But as our company, we are the one who's paying tax for the local government. So if they make a lot of money, they won't have any income at all. So this is one of the parts that we will negotiate with the local government.

Got it. Got it. Oh, thank you. Thank you. And last question from my side is on Shanli. I don't know if it is appropriate for me to get Shanli's information from you or not, but I would just try. May I ask, Shanli's volume performance and margin trends, first half, based on number, it doesn't look as beautiful as ours, but just to get a sense of what is behind those volume decline and margin decline.

Okay, actually, Shengli, I don't have the exact numbers on hand right now. It's all on the announcement. I can get back to you for more exact, but as you mentioned about Shengli, we are still under the process to restructuring our company with Shengli. We have injected a few projects into Shengli, and hopefully we can deal with that by the end of this year. is still under question by the stock exchange of Shenzhen. So, Shenzhen is still our associated company for now. And if we consolidate it, we think it's a very good synergy for China Oil & Gas and Shenzhen. We will have cover more areas and we can share our resources. It will improve both of our sales volume and margins.

Got it. Thank you. Oh, just I don't know, still ask, but feel free to say the non-available information. So Shanli's procurement price exposure, is it going to be the same pattern as ours, or it's going to have a floating index linked pricing on the procurement side?

Okay. As I know, it's Okay, that's very cool.

Thank you. That's it from me. We'll get back to the queue. Thank you, Jenny.

Thank you. And our next question comes from with Bank of America Securities. Thank you.

Hi, Jenny. Thanks for the call. I have one follow-up on the new syndicated loans. Can you share the cost of the new syndicated loans? What is the borrowing entity for the loan? Is it the whole code level or is it now become the onshore level? Also, if you can share more about the expected RMB facility in terms of the cost and borrowing entity, that would be helpful. Thank you.

Okay. The new syndicated loan finance expense will be sold for first 1.3. The original existing syndicate loan is sold over $1.75, so we save around 0.45% on our interest, and the lending entity is from Onshore Bank. Ping An Bank and Bank of East Asia is the lead manager. PLC, you mentioned about what's the cost if we land this loan on PRC onshore. We haven't set up a platform to do syndicate loan for our onshore subsidiaries yet. So we are still landing on the whole code level with the main entity.

Sorry, just to confirm, The lending entity is onshore banks of Ping An and Bank of East Asia, but the borrowing entity is still the offshore POCO, right? Yes. And this will also apply to the RMB syndicated loan as well?

Oh, you mean for the future one that we are still under discussion? Yes, yes. Oh, yes. Well, we still haven't figured out, like, which bank we are going to use as our lead manager. Ping An wants to get in, and we have our existing Singapore City Bank, and we have Bank of East China. They are all sending me proposals already, but I haven't really sat down and discussed with them yet. So this is something that we will see in the next two or three months. Thank you. Okay.

Thank you. Thank you. And the next question comes from William with Aeon Analytics. Thank you.

Hi. Thanks for taking my question. So my question is also on Shengli. So can management share more about the vision going forward about how we are going to deal with the asset restructuring for Shengli and also Channel & Gas? after like if we successfully in China four companies into shengli are we going to do this uh more and more going forward or it's just like uh like we are just doing this for for the four companies and maybe we are just stop here and see only we are going to do so do more if uh like we see other companies that visit out like suitable candidates for this exit injection

Okay, I guess we will figure about are we going to inject more assets into Xiangli after we have done the existing transaction successfully first. As our vision for the future, we think that the Asia company has a better platform for the platform on the Hong Kong Stock Exchange. You can see our stock price, share price, and our is really, really low. And no equity investors are really focused on our shares, on 603 shares. So we have a point that we want to use the platform of Shengli. Since the PE and everything is on the market side, the PE is 23 times and the trading is good. And we can use the to do some placement. And placement is one way to get a lower cost bet, right? This way we can lower our debt on the whole, for the whole group. This is what we want to do for now. So for the next step, we will wait for the transaction for now to complete first, and then we will figure out next step.

I also want to understand like for syndicated loans especially on offshore do they have like any confidence that limiting asset injection to insured company because once the assets that are injecting to the insured company the cash flow from those companies are quite difficult relatively more difficult to get out from those companies because like I'm not sure if I get your question correct but if you mention about the cash from Mainland China back to the mother company

is one way we can do, we can always pay dividends. And this is one way the cash flow can up back to Hong Kong. And for the bank, for the syndicator, we didn't see any confidence on asset injection. The confidence actually is the same with the existing syndrome that we have.

Okay, okay, great, great. That's good. Thank you. That's all for me.

Thank you. We do have a follow-up question from Don with Standard Traverse. Please go ahead.

Thank you. Hey, Jen. Just a follow-up to what you mentioned on the longer-term strategy for Shenmue, right? I guess, you know, looking way ahead, like, is there a chance that, you know, you guys could potentially try to raise, I mean, if eventually down the road you don't get more assets, into Shengli, would you try to issue an offshore bond out of Shengli and then maybe replace the current bond that you issued out of China Oil & Gas with the bond that you issued out of Shengli? Given that, that actually will be the up-goal, right? So that's my first question. And the second question is just More housekeeping, can you just provide, you know, at a whole goal level, what's the current cash balance and then, you know, the usual, like the dividends received from CCNG, the Canadian subsidiary for this year?

Okay, for the offshore bond by Shengli, yes, we can do that. That's why I said the first step is that we have to complete this transaction first. And then with our Shanghai platform on our Asia company, they can raise more debt with cheaper finance costs, and they can do placement to issue shares to some core investors in later future. This is one thing that we will definitely look into. And for the cash on hand, Hong Kong around 10%. CCNG around 74% and other than CCNG, our mainland company will have around 17% of the cash provision. And for the debt, Hong Kong has like 48% on our mother company level and CCNG around 20% debt. The other mainland company will be 30% and our Canadian company will have 2%. and we received around HK$500 million of dividend from CDMG by the end of June this year. And the Canadian company, they will remain their dividend around HK$14.3 million by early November this year.

Okay, and just one follow-up, if I may. On the loans received from the General Director, I think there's about I think at the end of December, you had about HK$1.2 billion outstanding. What's the repayment plan for this year on that loan?

Yes, they have repaid around HK$36 million to the mother company during end of May, GOT6. They've paid already.

Okay, any further repayment for the second half of the year?

We are still... under negotiation with them. Hopefully, they will free up some cash flow, but we will let you know later.

Okay, great. Thanks.

Thank you. Once again, ladies and gentlemen, there is no one to register for questions. Thank you. Once again, that is all. I want to register for questions. Thank you. Thank you.

As we have no further questions for now, I would like to bring our meeting to an end. If you have any follow-up questions, please feel free to contact us at info at hk603.com or call us at 2200. Thank you very much for joining us today and our group appreciates your continued support. We wish you all a great day ahead. Thank you and goodbye.

Thank you for your participation. This concludes the conference. Thank you.