Corporate Information [Directors](index=2&type=section&id=Directors) The Board of Directors saw the appointment of Ms. Cai Yanling and Mr. Zeng Qingyun as non-executive directors, while Mr. Chen Hua and Ms. Chai Lin resigned. - Non-executive Director Ms. Cai Yanling was appointed on **June 26, 2020**[2](index=2&type=chunk) - Non-executive Director Mr. Zeng Qingyun was appointed on **August 28, 2020**[2](index=2&type=chunk) - Non-executive Director Mr. Chen Hua resigned on **August 28, 2020**[2](index=2&type=chunk) - Non-executive Director Ms. Chai Lin resigned on **June 26, 2020**[2](index=2&type=chunk) [Company Secretary](index=2&type=section&id=Company%20Secretary) Ms. Yan Xiaohong serves as the Company Secretary. - Ms. Yan Xiaohong serves as the Company Secretary[2](index=2&type=chunk) [Head Office and Principal Place of Business](index=2&type=section&id=Head%20Office%20and%20Principal%20Place%20of%20Business) The company's head office and principal place of business are located on the 44th floor of Convention Plaza Office Tower, 1 Harbour Road, Wanchai, Hong Kong. - The company's head office and principal place of business are located on the 44th floor of Convention Plaza Office Tower, 1 Harbour Road, Wanchai, Hong Kong[2](index=2&type=chunk) [Registered Office](index=2&type=section&id=Registered%20Office) The company's registered office is situated at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. - The company's registered office is situated at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda[2](index=2&type=chunk) [Hong Kong Branch Share Registrar and Transfer Office](index=2&type=section&id=Hong%20Kong%20Branch%20Share%20Registrar%20and%20Transfer%20Office) The Hong Kong Branch Share Registrar and Transfer Office is Computershare Hong Kong Investor Services Limited. - The Hong Kong Branch Share Registrar and Transfer Office is Computershare Hong Kong Investor Services Limited[2](index=2&type=chunk) [Principal Share Registrar and Transfer Office](index=3&type=section&id=Principal%20Share%20Registrar%20and%20Transfer%20Office) The Principal Share Registrar and Transfer Office is MUFG Fund Services (Bermuda) Limited. - The Principal Share Registrar and Transfer Office is MUFG Fund Services (Bermuda) Limited[4](index=4&type=chunk) [Hong Kong Legal Advisor](index=3&type=section&id=Hong%20Kong%20Legal%20Advisor) The Hong Kong legal advisor is Li & Partners. - The Hong Kong legal advisor is Li & Partners[4](index=4&type=chunk) [Bermuda Legal Advisor](index=3&type=section&id=Bermuda%20Legal%20Advisor) The Bermuda legal advisor is Conyers Dill & Pearman. - The Bermuda legal advisor is Conyers Dill & Pearman[4](index=4&type=chunk) [Auditor](index=3&type=section&id=Auditor) The auditor is BDO Limited, Hong Kong. - The auditor is BDO Limited, Hong Kong[4](index=4&type=chunk) [Stock Code](index=3&type=section&id=Stock%20Code) The company's stock code is 702. - The company's stock code is **702**[4](index=4&type=chunk) [Website](index=3&type=section&id=Website) The company's website is www.sino-oilgas.hk. - The company's website is **www.sino-oilgas.hk**[4](index=4&type=chunk) Interim Results [Condensed Consolidated Statement of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statement%20of%20Comprehensive%20Income) For the six months ended June 30, 2020, the Group reported total revenue of **HK$118,884 thousand**, a **24.7% year-on-year decrease**, with a net loss of **HK$67,072 thousand** and basic and diluted loss per share of **HK$2.02 cents**. | Metric | 2020 (HK$ Thousand) | 2019 (HK$ Thousand) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Turnover | 118,884 | 157,807 | -24.7% | | Gross Profit | 21,905 | 24,055 | -8.9% | | Other Income | 39,513 | 39,821 | -0.8% | | Operating Profit | 33,251 | 27,154 | +22.4% | | Finance Costs | (100,982) | (92,146) | +9.6% | | Loss Before Income Tax Expense | (67,721) | (65,093) | +4.0% | | Loss for the Period | (67,072) | (67,057) | +0.02% | | Loss Attributable to Owners of the Company | (67,577) | (69,462) | -2.7% | | Basic and Diluted Loss Per Share (HK Cents) | (2.02) | (2.08) | -2.9% | - Total comprehensive income for the period was **(HK$128,362 thousand)**, a narrowing from **(HK$132,974 thousand)** in the prior year[10](index=10&type=chunk) [Condensed Consolidated Statement of Financial Position](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Financial%20Position) As of June 30, 2020, total assets slightly increased to **HK$4,993,105 thousand**, but net current liabilities remained high at **HK$975,598 thousand**, indicating significant going concern uncertainty, with a notable increase in non-current borrowings. | Metric | June 30, 2020 (HK$ Thousand) | December 31, 2019 (HK$ Thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Total Non-current Assets | 4,269,955 | 4,404,156 | -3.0% | | Total Current Assets | 723,150 | 572,406 | +26.3% | | Total Assets | 4,993,105 | 4,976,562 | +0.3% | | Total Current Liabilities | (1,698,748) | (1,754,872) | -3.2% | | Net Current Liabilities | (975,598) | (1,182,466) | -17.5% | | Total Non-current Liabilities | (775,702) | (574,673) | +35.0% | | Net Assets | 2,518,655 | 2,647,017 | -4.9% | | Borrowings (Non-current Portion) | (605,013) | (417,136) | +45.0% | - As of June 30, 2020, the Group's net current liabilities amounted to **HK$975,598 thousand**, raising significant doubts about its ability to continue as a going concern[17](index=17&type=chunk)[34](index=34&type=chunk) [Condensed Consolidated Statement of Changes in Equity](index=8&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Equity) For the six months ended June 30, 2020, total equity attributable to owners decreased from **HK$2,638,185 thousand** to **HK$2,509,492 thousand**, primarily due to the period's loss and negative impact from other comprehensive income. | Metric | June 30, 2020 (HK$ Thousand) | January 1, 2020 (HK$ Thousand) | Change (HK$ Thousand) | | :--- | :--- | :--- | :--- | | Equity Attributable to Owners of the Company | 2,509,492 | 2,638,185 | (128,693) | | Non-controlling Interests | 9,163 | 8,832 | 331 | | Total Equity | 2,518,655 | 2,647,017 | (128,362) | - The loss for the period was **HK$67,577 thousand**, and other comprehensive income was **(HK$61,116 thousand)**, resulting in a total comprehensive income attributable to owners of the company of **(HK$128,693 thousand)**[21](index=21&type=chunk) [Condensed Consolidated Statement of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) For the six months ended June 30, 2020, net cash from operating activities increased, but net cash outflow from investing activities significantly rose, while financing activities saw a substantial reversal to net inflow, resulting in a net increase of **HK$115,831 thousand** in cash and cash equivalents. | Metric | 2020 (HK$ Thousand) | 2019 (HK$ Thousand) | Change (HK$ Thousand) | | :--- | :--- | :--- | :--- | | Net Cash Generated from Operating Activities | 56,963 | 37,913 | +19,050 | | Net Cash (Used in) / Generated from Investing Activities | (119,323) | 9,470 | (128,793) | | Net Cash Generated from / (Used in) Financing Activities | 178,191 | (62,955) | +241,146 | | Net Increase / (Decrease) in Cash and Cash Equivalents | 115,831 | (15,572) | +131,403 | | Cash and Cash Equivalents at June 30 | 119,207 | 16,287 | +102,920 | Notes to the Condensed Consolidated Financial Statements [1. General Information](index=10&type=section&id=Note%201%20General) The company was incorporated in Bermuda on **November 2, 1999**, and listed on the Main Board of the Hong Kong Stock Exchange on **February 9, 2000**. - The company was incorporated in Bermuda on **November 2, 1999**[26](index=26&type=chunk)[29](index=29&type=chunk) - The company's shares were listed on the Main Board of the Hong Kong Stock Exchange on **February 9, 2000**[26](index=26&type=chunk)[29](index=29&type=chunk) [2. Basis of Preparation and Going Concern Assumption](index=10&type=section&id=Note%202%20Basis%20of%20Preparation%20and%20Going%20Concern%20Assumption) The interim financial report is prepared under HKFRS 34 and HKEX Listing Rules; the Group's **HK$975,598 thousand** net current liabilities and **HK$1,014 million** convertible notes due in September 2020 raise significant going concern doubts, but management is negotiating and has secured financial support from major shareholders. - The interim financial report is prepared in accordance with the Listing Rules of the Hong Kong Stock Exchange and Hong Kong Accounting Standard 34 issued by the Hong Kong Institute of Certified Public Accountants[27](index=27&type=chunk)[30](index=30&type=chunk) - As of June 30, 2020, the Group had net current liabilities of **HK$975,598 thousand**, which raises significant doubts about its ability to continue as a going concern[34](index=34&type=chunk)[38](index=38&type=chunk) - Convertible notes with a principal amount of **HK$1,014 million** are due at the end of September 2020, posing significant financial pressure[35](index=35&type=chunk)[38](index=38&type=chunk) - Management is actively negotiating with noteholders to extend the maturity date or assist potential investors in acquiring the convertible notes[35](index=35&type=chunk)[38](index=38&type=chunk) - Three major shareholders and directors of the company have confirmed their commitment to provide continuous and adequate financial support[36](index=36&type=chunk)[38](index=38&type=chunk) [3. Significant Accounting Policies](index=12&type=section&id=Note%203%20Significant%20Accounting%20Policies) This interim financial report adopts the same accounting policies as the 2019 annual financial statements, incorporating new and revised HKFRSs effective for the current period. - This interim financial report adopts the same accounting policies as the 2019 annual financial statements[42](index=42&type=chunk) - New and revised Hong Kong Financial Reporting Standards effective for the current period have been adopted[42](index=42&type=chunk) [4. Adoption of New and Revised HKFRSs](index=12&type=section&id=Note%204%20Adoption%20of%20New%20and%20Revised%20HKFRSs) The Group adopted several new and revised HKFRSs, including amendments to HKFRS 3, HKFRS 7, 9, HKAS 39, HKAS 1, and 8, which had no material impact on financial performance or position. - The Group first adopted amendments to **HKFRS 3** (Definition of a Business)[42](index=42&type=chunk) - The Group first adopted amendments to **HKFRS 7, 9, and HKAS 39** (Interest Rate Benchmark Reform)[42](index=42&type=chunk) - The Group first adopted amendments to **HKAS 1 and 8** (Definition of Material)[42](index=42&type=chunk) - The adoption of new standards had no material impact on the financial performance and position for the current and prior periods[42](index=42&type=chunk) [5. Revenue and Segment Reporting](index=13&type=section&id=Note%205%20Revenue%20and%20Segment%20Reporting) The Group operates four reportable segments: CBM, raw and washed coal, oil and gas exploitation, and financial services; for the six months ended June 30, 2020, CBM and coal revenues decreased, while financial services revenue grew, with CBM segment results including **HK$24,193 thousand** in government grants. - The Group has four reportable segments: Coal Bed Methane (CBM), Raw Coal and Washed Coal, Oil and Natural Gas Exploitation, and Financial Services[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) Revenue by Segment | Segment | 2020 Turnover (HK$ Thousand) | 2019 Turnover (HK$ Thousand) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Coal Bed Methane | 52,500 | 58,185 | -9.8% | | Raw Coal and Washed Coal | 61,930 | 73,980 | -16.3% | | Oil and Natural Gas Exploitation | – | – | N/A | | Financial Services | 4,454 | 25,642 | -82.6% | | Total | 118,884 | 157,807 | -24.7% | Segment Results | Segment | 2020 Segment Results (HK$ Thousand) | 2019 Segment Results (HK$ Thousand) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Coal Bed Methane | 28,469 | 18,858 | +51.0% | | Raw Coal and Washed Coal | 1,841 | 12,326 | -85.1% | | Oil and Natural Gas Exploitation | 9,681 | 9,816 | -1.4% | | Financial Services | 2,127 | 590 | +260.5% | | Unallocated | (8,904) | (14,682) | -39.4% | | Total | 33,214 | 26,908 | +23.4% | - The CBM segment results include government grants and subsidies of **HK$24,193 thousand** (2019: HK$24,454 thousand)[60](index=60&type=chunk)[62](index=62&type=chunk) [6. Other Income](index=16&type=section&id=Note%206%20Other%20Income) For the six months ended June 30, 2020, total other income was **HK$39,513 thousand**, primarily comprising interest income from financial assets at amortized cost and government grants. Other Income Breakdown | Category | 2020 (HK$ Thousand) | 2019 (HK$ Thousand) | | :--- | :--- | :--- | | Interest income from bank deposits | 10 | 8 | | Interest income from short-term investments | 4,589 | 4,792 | | Other interest income | 9,688 | 10,287 | | **Total interest income from financial assets at amortized cost** | **14,287** | **15,087** | | Government grants and subsidies | 24,193 | 24,454 | | Others | 1,033 | 280 | | **Total** | **39,513** | **39,821** | - Other interest income primarily arises from interest on refundable deposits for the acquisition of a Canadian oilfield project[66](index=66&type=chunk)[67](index=67&type=chunk) - Government grants and subsidies mainly consist of recurring subsidies for CBM sales and VAT refunds[66](index=66&type=chunk)[67](index=67&type=chunk) [7. Other Losses, Net](index=17&type=section&id=Note%207%20Other%20Losses,%20Net) For the six months ended June 30, 2020, the Group recorded a net other loss of **HK$4 thousand**, mainly due to net exchange losses, partially offset by fair value changes in financial liabilities at fair value through profit or loss. Other Losses, Net Breakdown | Category | 2020 (HK$ Thousand) | 2019 (HK$ Thousand) | | :--- | :--- | :--- | | Fair value changes of financial liabilities at fair value through profit or loss | 37 | 246 | | Net exchange losses | (41) | (301) | | **Total** | **(4)** | **(55)** | [8. Loss Before Income Tax Expense](index=17&type=section&id=Note%208%20Loss%20Before%20Income%20Tax%20Expense) For the six months ended June 30, 2020, loss before income tax expense was **HK$67,721 thousand**, primarily influenced by finance costs, particularly accrued interest on convertible notes, and operating expenses like staff costs and depreciation. Components of Loss Before Income Tax Expense | Category | 2020 (HK$ Thousand) | 2019 (HK$ Thousand) | | :--- | :--- | :--- | | **a) Finance Costs** | | | | Interest on corporate bonds | 16,317 | 17,058 | | Interest on borrowings | 8,648 | 3,538 | | Accrued interest on convertible notes | 71,969 | 62,319 | | Interest on lease liabilities | 400 | 954 | | Others | 462 | 13 | | Less: Interest capitalized into qualifying assets | (2,500) | (2,250) | | Amortization of corporate bond transaction costs | 5,686 | 6,097 | | **Total Finance Costs** | **100,982** | **92,146** | | **b) Staff Costs** | | | | Salaries, wages and other benefits | 11,955 | 15,001 | | Contributions to defined contribution retirement plans | 355 | 371 | | **Total Staff Costs** | **12,310** | **15,372** | | **c) Other Items** | | | | Cost of inventories sold recognized as expense | 56,254 | 57,489 | | Depreciation of property, plant and equipment | 16,627 | 17,409 | | Depreciation of right-of-use assets | 2,919 | 3,045 | | Amortization of intangible assets | 8,255 | 9,279 | - Accrued interest on convertible notes was the largest component of finance costs, amounting to **HK$71,969 thousand** in 2020, an increase of **15.5%** from 2019[71](index=71&type=chunk) - Staff costs, including directors' emoluments, decreased by **19.9%** from **HK$15,372 thousand** in 2019 to **HK$12,310 thousand** in 2020[74](index=74&type=chunk) [9. Income Tax Expense](index=19&type=section&id=Note%209%20Income%20Tax%20Expense) For the six months ended June 30, 2020, the Group recorded an income tax expense of **(HK$649 thousand)**, mainly due to deferred tax income offsetting PRC enterprise income tax, with no Hong Kong profits tax provision due to estimated tax losses. Income Tax Expense Breakdown | Category | 2020 (HK$ Thousand) | 2019 (HK$ Thousand) | | :--- | :--- | :--- | | Current income tax - PRC Enterprise Income Tax | 169 | 1,964 | | Deferred tax for the period | (818) | – | | **Income Tax Expense** | **(649)** | **1,964** | - No provision for Hong Kong profits tax was made due to estimated tax losses available to offset assessable profits[76](index=76&type=chunk)[77](index=77&type=chunk) - PRC subsidiaries are subject to a statutory tax rate of **25%**[76](index=76&type=chunk)[77](index=77&type=chunk) [10. Dividend](index=19&type=section&id=Note%2010%20Dividend) For the six months ended June 30, 2020, the Directors did not declare or propose any dividends. - For the six months ended June 30, 2020, the Directors did not declare or propose any dividends[80](index=80&type=chunk)[81](index=81&type=chunk) [11. Loss Per Share](index=20&type=section&id=Note%2011%20Loss%20Per%20Share) For the six months ended June 30, 2020, basic and diluted loss per share were both **HK$2.02 cents**, a slight improvement from **HK$2.08 cents** in the prior year, with diluted loss per share being the same due to anti-dilutive effects of share options and convertible notes. Loss Per Share | Metric | 2020 (HK Cents) | 2019 (HK Cents) | | :--- | :--- | :--- | | Basic and Diluted Loss Per Share | (2.02) | (2.08) | - Basic loss per share is calculated based on the loss attributable to owners of the company of **HK$67,577 thousand** and the weighted average number of ordinary shares in issue of **3,345,439 thousand** shares[84](index=84&type=chunk)[88](index=88&type=chunk) - Diluted loss per share is the same as basic loss per share due to the anti-dilutive effect of share options and convertible notes[85](index=85&type=chunk)[89](index=89&type=chunk) [12. Property, Plant and Equipment](index=20&type=section&id=Note%2012%20Property,%20Plant%20and%20Equipment) For the six months ended June 30, 2020, the Group's capital expenditure on property, plant, and equipment was **HK$2,897 thousand**, with capitalized interest costs of **HK$2,046 thousand**, both lower than the prior year. Capital Expenditure on Property, Plant and Equipment | Metric | 2020 (HK$ Thousand) | 2019 (HK$ Thousand) | | :--- | :--- | :--- | | Cost of capital expenditure | 2,897 | 11,786 | | Capitalized interest costs | 2,046 | 1,726 | [13. Intangible Assets](index=20&type=section&id=Note%2013%20Intangible%20Assets) Intangible assets primarily include operating rights for China's CBM projects and preferential supplier agreements for raw and washed coal projects, with the latter fully impaired in 2018. - Intangible assets primarily consist of operating rights for China's CBM projects and preferential supplier agreements for raw and washed coal projects[87](index=87&type=chunk)[91](index=91&type=chunk) - The preferential supplier agreement was fully impaired in **2018**[87](index=87&type=chunk)[91](index=91&type=chunk) [14. Trade, Notes and Other Receivables, Deposits and Prepayments](index=21&type=section&id=Note%2014%20Trade,%20Notes%20and%20Other%20Receivables,%20Deposits%20and%20Prepayments) As of June 30, 2020, the Group's total current trade, notes, and other receivables, deposits, and prepayments were **HK$446,004 thousand**, a slight decrease from year-end 2019, with other deposits mainly related to the potential acquisition of a Canadian oilfield project. Trade, Notes and Other Receivables, Deposits and Prepayments | Category | June 30, 2020 (HK$ Thousand) | December 31, 2019 (HK$ Thousand) | | :--- | :--- | :--- | | Non-current deposits and prepayments | 29,477 | 44,152 | | Current trade receivables (net of impairment) | 22,039 | 28,996 | | Notes receivable | 13,213 | 5,761 | | Other receivables (net of impairment) | 62,815 | 60,976 | | Other deposits (net of impairment) | 302,271 | 309,018 | | Prepayments | 45,494 | 51,648 | | **Total Current Assets** | **446,004** | **456,571** | - Other deposits primarily include a deposit of **HK$227,668 thousand** for the potential acquisition of a Canadian oilfield project and related interest receivable of **HK$86,614 thousand**, with an annual interest rate of **8.5%**[97](index=97&type=chunk) - There was no change in expected credit loss allowance for trade receivables, other receivables, and other deposits for the six months ended June 30, 2020[97](index=97&type=chunk) [15. Trade and Other Payables and Accruals](index=23&type=section&id=Note%2015%20Trade%20and%20Other%20Payables%20and%20Accruals) As of June 30, 2020, the Group's total trade and other payables and accruals significantly decreased to **HK$303,583 thousand** from **HK$445,918 thousand** at year-end 2019, primarily due to a reduction in other payables and accruals. Trade and Other Payables and Accruals | Category | June 30, 2020 (HK$ Thousand) | December 31, 2019 (HK$ Thousand) | | :--- | :--- | :--- | | Trade payables | 17,937 | 11,385 | | Other payables and accruals | 235,193 | 403,515 | | Receipts in advance | 36,083 | 16,648 | | Amounts due to shareholders | 14,370 | 14,370 | | **Total** | **303,583** | **445,918** | - Other payables primarily include exploration costs payable for oil and gas assets and related interest of approximately **HK$109,506 thousand**[102](index=102&type=chunk)[103](index=103&type=chunk) - Amounts due to shareholders are unsecured, interest-free, and repayable on demand[102](index=102&type=chunk)[104](index=104&type=chunk) [16. Borrowings](index=24&type=section&id=Note%2016%20Borrowings) As of June 30, 2020, total Group borrowings significantly increased to **HK$715,249 thousand** from **HK$511,610 thousand** at year-end 2019, driven by a notable rise in secured bank borrowings and the non-current portion of borrowings. Borrowings Breakdown | Category | June 30, 2020 (HK$ Thousand) | December 31, 2019 (HK$ Thousand) | | :--- | :--- | :--- | | Secured bank borrowings | 229,756 | 2,797 | | Other unsecured borrowings | 20,970 | 44,677 | | Unsecured corporate bonds | 464,523 | 464,136 | | **Total Borrowings** | **715,249** | **511,610** | | Due within one year | 110,236 | 94,474 | | Non-current portion | 605,013 | 417,136 | - Secured borrowings are collateralized by the Group's oil and gas assets with a carrying amount of **HK$496,977 thousand** and receivables generated from the CBM segment[109](index=109&type=chunk) - Other unsecured borrowings include advances from directors and shareholders of **HK$10,000 thousand**, bearing interest at an annual rate of **12%**[109](index=109&type=chunk) Effective Interest Rate Range for Borrowings | Borrowing Type | Effective Interest Rate Range as of June 30, 2020 | | :--- | :--- | | Secured bank borrowings | 6.53% – 11% | | Other unsecured borrowings | 12% – 30% | | Unsecured corporate bonds | 5% – 8% | [17. Convertible Note](index=25&type=section&id=Note%2017%20Convertible%20Note) As of June 30, 2020, the total convertible note amounted to **HK$1,270,782 thousand**, with the liability component at **HK$1,270,773 thousand**; its maturity date was conditionally extended to **September 29, 2020**, and secured by shares in certain subsidiaries. Convertible Note Breakdown | Category | June 30, 2020 (HK$ Thousand) | December 31, 2019 (HK$ Thousand) | | :--- | :--- | :--- | | Liability component | 1,270,773 | 1,198,804 | | Derivative component | 9 | 46 | | **Total** | **1,270,782** | **1,198,850** | - The maturity date of the convertible note was conditionally agreed to be extended to **September 29, 2020**, in March 2020, and approved by shareholders on **June 11, 2020**[114](index=114&type=chunk) - The convertible note is secured by issued shares of certain subsidiaries of the company, which hold the CBM operations and financial services segments[114](index=114&type=chunk)[115](index=115&type=chunk) [18. Commitments](index=25&type=section&id=Note%2018%20Commitments) As of June 30, 2020, the Group's capital commitments for the Sanjiao CBM project were **HK$18,056 thousand**, remaining largely consistent with year-end 2019. Commitments | Category | June 30, 2020 (HK$ Thousand) | December 31, 2019 (HK$ Thousand) | | :--- | :--- | :--- | | Commitments for Sanjiao CBM project | 18,056 | 18,412 | [19. Contingent Liabilities](index=26&type=section&id=Note%2019%20Contingent%20Liabilities) The Group operates oil exploitation and CBM exploration, development, and production in China, facing potential liabilities related to environmental regulations and mine land restoration and rehabilitation, with a provision of **HK$11,911 thousand** made as of June 30, 2020. - The Group operates oil exploitation and CBM resource exploration, development, and production businesses in China[119](index=119&type=chunk)[121](index=121&type=chunk) - The Group faces potential liabilities related to environmental laws and regulations, and mine land restoration and rehabilitation[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) - As of June 30, 2020, a provision of **HK$11,911 thousand** has been made for mine land restoration and rehabilitation[120](index=120&type=chunk)[121](index=121&type=chunk) [20. Material Related Party Transactions](index=26&type=section&id=Note%2020%20Material%20Related%20Party%20Transactions) For the six months ended June 30, 2020, key management personnel remuneration was **HK$7,579 thousand**; the Group paid **HK$842 thousand** in rent and utilities to a related company with common major shareholders, with **HK$1,313 thousand** payable to this company, unsecured, interest-free, and repayable on demand. Key Management Personnel Remuneration | Category | 2020 (HK$ Thousand) | 2019 (HK$ Thousand) | | :--- | :--- | :--- | | Short-term employee benefits (key management personnel remuneration) | 7,579 | 7,417 | - The Group paid rent and related utility expenses of **HK$842 thousand** to a related company with the same major shareholders[122](index=122&type=chunk)[124](index=124&type=chunk) - As of June 30, 2020, approximately **HK$1,313 thousand** was payable to this related company, which is unsecured, interest-free, and repayable on demand[122](index=122&type=chunk)[124](index=124&type=chunk) Management Discussion and Analysis [Business Review](index=27&type=section&id=Business%20Review) For the six months ended June 30, 2020, total Group revenue decreased by **24.7%** to **HK$118,884 thousand** due to the COVID-19 pandemic, yet EBITDA increased by **2%** to **HK$58,143 thousand** due to effective cost control, with net loss remaining stable, and the Sanjiao CBM project showing stable development and **15.3% EBITDA growth**. Key Financial Metrics | Metric | 2020 (HK$ Thousand) | 2019 (HK$ Thousand) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Total Turnover | 118,884 | 157,807 | -24.7% | | Administrative Expenses | (23,654) | (32,642) | -27.5% | | EBITDA | 58,143 | 56,786 | +2.4% | | Net Loss | (67,072) | (67,057) | +0.02% | - The Sanjiao CBM project's EBITDA grew by **15.3%** to **HK$53,234 thousand**, maintaining a production-to-sales ratio of **97%**[128](index=128&type=chunk)[130](index=130&type=chunk) - Raw coal washing business revenue decreased to **HK$61,930 thousand**, but is expected to rebound in the second half[126](index=126&type=chunk)[145](index=145&type=chunk)[150](index=150&type=chunk) - Financial services business revenue increased to **HK$4,454 thousand**[126](index=126&type=chunk)[147](index=147&type=chunk)[151](index=151&type=chunk) - Interest income within other income primarily derived from refundable deposits for the proposed acquisition of a Canadian oilfield project[132](index=132&type=chunk)[135](index=135&type=chunk) [Natural Gas and Oil Exploitation](index=28&type=section&id=Natural%20Gas%20and%20Oil%20Exploitation) The Group holds a **70% interest** in the Sanjiao CBM field in the Ordos Basin, in partnership with PetroChina, with **123 wells completed** and a CBM booster dehydration station capacity of **500 thousand cubic meters/day**, planned for expansion to **750 thousand cubic meters/day**. - The Group holds a **70% interest** in the Sanjiao CBM field and has obtained all necessary administrative permits[133](index=133&type=chunk)[134](index=134&type=chunk)[136](index=136&type=chunk) - As of June 30, 2020, the Sanjiao CBM project completed **123 wells**, with **95** in normal dewatering and production, and **101** connected to the gas gathering pipeline network[138](index=138&type=chunk)[141](index=141&type=chunk) - The CBM booster dehydration station has a daily processing capacity of **500 thousand cubic meters**, with plans to expand to **750 thousand cubic meters**[139](index=139&type=chunk)[142](index=142&type=chunk) Sanjiao CBM Project Performance | Metric | H1 2020 | H1 2019 | YoY Change (%) | | :--- | :--- | :--- | :--- | | CBM Sales (HK$ Thousand) | 52,500 | 58,185 | -9.8% | | CBM Production (Million cubic meters) | 47.78 | 51.29 | -6.8% | | CBM Sales Volume (Million cubic meters) | 46.34 | 49.76 | -6.9% | | Production-to-Sales Ratio | 97% | 97% | 0% | | Industrial Sales Proportion | 79.9% | 82.6% | -2.7% | | Residential Sales Proportion | 20.1% | 17.4% | +2.7% | - The Sanjiao CBM project's EBITDA was **HK$53,234 thousand**, representing a **15.3%** year-on-year increase[140](index=140&type=chunk)[143](index=143&type=chunk) [Raw Coal Washing Project Located in Shanxi Province](index=30&type=section&id=Raw%20Coal%20Washing%20Project%20Located%20in%20Shanxi%20Province) The Group holds a **75% interest** in the Shanxi Qinshui Basin raw coal washing project, which saw revenue decline to **HK$61,930 thousand** due to the pandemic but is expected to recover in the second half, with partial profit guarantee differences for 2019 already received. - The Group holds a **75% interest** in the raw coal washing project in the Qinshui Basin, Shanxi Province[145](index=145&type=chunk)[150](index=150&type=chunk) - Revenue for the period decreased to **HK$61,930 thousand** due to the pandemic, but turnover is expected to rebound in the second half[145](index=145&type=chunk)[150](index=150&type=chunk) - Approximately **RMB1.2 million** of the 2019 profit guarantee difference has been received, with the remaining portion expected by the end of 2020[146](index=146&type=chunk)[150](index=150&type=chunk) [Others (Financial Services)](index=30&type=section&id=Others) The Group established Shaanxi Zhaoyin Financial Leasing Co., Ltd. at the end of 2016 to enhance banking relationships, seek financing, and provide short-term investment opportunities for Group funds, generating **HK$4,454 thousand** in revenue during the period. - The Group established Shaanxi Zhaoyin Financial Leasing Co., Ltd., a wholly-owned subsidiary, at the end of **2016**[147](index=147&type=chunk)[151](index=151&type=chunk) - The company aims to strengthen banking relationships, seek financing channels, and provide short-term investment opportunities for the Group's funds[147](index=147&type=chunk)[151](index=151&type=chunk) - This business generated revenue of **HK$4,454 thousand** during the period[147](index=147&type=chunk)[151](index=151&type=chunk) [Financial Review](index=30&type=section&id=Financial%20Review) As of June 30, 2020, the Group's net assets were **HK$2,519 million**, total assets **HK$4,993 million**, total borrowings (including convertible note liability) **HK$1,986 million**, with a debt-to-asset ratio of **39.78%** and current ratio of **0.43**; the Group secured a **RMB300 million** loan facility, and management is actively addressing the **HK$1,014 million** convertible note due in September. Key Financial Position Metrics | Metric | June 30, 2020 | December 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Net Assets | HK$2,519 million | HK$2,647 million | -4.8% | | Total Assets | HK$4,993 million | HK$4,977 million | +0.3% | | Total Borrowings (incl. convertible note liability) | HK$1,986 million | HK$1,710 million | +16.1% | | Debt-to-Asset Ratio | 39.78% | 34.36% | +5.42% | | Current Ratio | 0.43 | 0.33 | +0.10 | - In April 2020, the Group secured a **RMB300 million** five-year loan facility from Kunlun Trust, with **RMB200 million** already drawn at an annual interest rate of **11%** for the Sanjiao CBM project development[155](index=155&type=chunk)[160](index=160&type=chunk) - Facing **HK$1,014 million** convertible notes due at the end of September, management is actively negotiating with noteholders for maturity extension or introducing potential investors[156](index=156&type=chunk)[160](index=160&type=chunk) - Major shareholders and directors have pledged continuous financial support, expecting a gradual easing of financial pressure[157](index=157&type=chunk)[161](index=161&type=chunk) - The Group does not hedge against foreign exchange fluctuations, managing short-term imbalances through spot foreign exchange transactions[158](index=158&type=chunk)[162](index=162&type=chunk) - As of June 30, 2020, the Group employed approximately **300** staff, with remuneration policies based on market levels and employee performance[159](index=159&type=chunk)[163](index=163&type=chunk) [Prospects](index=32&type=section&id=Prospects) Despite global economic challenges, China's economic recovery and robust natural gas demand offer promising prospects; the Group will focus on stable revenue growth, strict cost control, and prudent financial management, including active debt management, to enhance operational efficiency and ensure shareholder returns. - China's economy is recovering ahead of others, with natural gas apparent consumption growing by **5.74%** year-on-year, indicating broad industry prospects[165](index=165&type=chunk)[168](index=168&type=chunk) - The Group will focus on stable revenue growth and strict cost control to maintain stable profits and consolidate its business foundation[166](index=166&type=chunk)[169](index=169&type=chunk) - The Sanjiao CBM project is expected to continue stable development, enhancing core competitiveness and profitability[166](index=166&type=chunk)[169](index=169&type=chunk) - The Group will maintain a prudent financial management strategy, actively manage debt, improve operational effectiveness and efficiency, and strengthen risk management[167](index=167&type=chunk)[170](index=170&type=chunk) Other Information [Directors' Interests in Shares and Underlying Shares](index=33&type=section&id=Directors'%20Interests%20in%20Shares%20and%20Underlying%20Shares) As of June 30, 2020, Directors and the Chief Executive held interests in the company's shares and underlying shares, with Dr. Dai Xiaobing holding **4.74% long position** and **4.11% short position** in shares, and **179.72% long position** in underlying shares. Directors' Interests in Shares and Underlying Shares | Director Name | Type of Interest | Nature of Interest | Number of Shares/Underlying Shares | % of Issued Shares | | :--- | :--- | :--- | :--- | :--- | | Dai Xiaobing | Long Position in Shares | Beneficial Owner/Controlled Corporation | 158,504,000 | 4.74% | | Dai Xiaobing | Short Position in Shares | Beneficial Owner/Controlled Corporation | 137,524,500 | 4.11% | | Dai Xiaobing | Long Position in Underlying Shares | Controlled Corporation | 6,012,500,000 | 179.72% | | Dai Xiaobing | Long Position in Share Options | Beneficial Owner | 3,600,000 | 0.11% | | Jing Hali | Long Position in Shares | Beneficial Owner | 1,400,000 | 0.04% | | Jing Hali | Long Position in Share Options | Beneficial Owner | 3,600,000 | 0.11% | | Wen Zixun | Long Position in Shares | Beneficial Owner | 3,366,000 | 0.10% | | Wen Zixun | Long Position in Share Options | Beneficial Owner | 3,600,000 | 0.11% | | Chen Hua | Long Position in Underlying Shares | Controlled Corporation | 76,897,179 | 2.30% | | Wong Lung Tak | Long Position in Share Options | Beneficial Owner | 300,000 | 0.01% | | Wang Yanbin | Long Position in Share Options | Beneficial Owner | 300,000 | 0.01% | - Dr. Dai Xiaobing holds interests in shares and underlying shares through SOGRI, which is wholly owned by him[180](index=180&type=chunk) - Mr. Chen Hua holds interests in underlying shares through a wholly-owned subsidiary of Kingkey Group Company Limited, in which he holds a **90% interest**[183](index=183&type=chunk) [Share Option Scheme](index=36&type=section&id=Share%20Option%20Scheme) The company's share option scheme, adopted in 2010, expired on **May 28, 2020**; as of June 30, 2020, Directors and employees held **41,200,000 outstanding options** with an exercise price of **HK$2.76** per share, exercisable until **December 5, 2021**, with no options lapsed, granted, or exercised during the period. - The company's share option scheme was adopted in **2010** and had a ten-year validity period until **May 28, 2020**[190](index=190&type=chunk)[191](index=191&type=chunk) Outstanding Share Options as of June 30, 2020 | Holder | Number of Outstanding Share Options as of June 30, 2020 | Date of Grant | Exercise Period | Exercise Price Per Share (HK$) | | :--- | :--- | :--- | :--- | :--- | | Dai Xiaobing | 3,600,000 | December 6, 2011 | December 6, 2011 – December 5, 2021 | 2.76 | | Jing Hali | 3,600,000 | December 6, 2011 | December 6, 2011 – December 5, 2021 | 2.76 | | Wen Zixun | 3,600,000 | December 6, 2011 | December 6, 2011 – December 5, 2021 | 2.76 | | Wong Lung Tak | 300,000 | December 6, 2011 | December 6, 2011 – December 5, 2021 | 2.76 | | Wang Yanbin | 300,000 | December 6, 2011 | December 6, 2011 – December 5, 2021 | 2.76 | | Employees | 29,800,000 | December 6, 2011 | December 6, 2011 – December 5, 2021 | 2.76 | | **Total** | **41,200,000** | | | | - No share options lapsed, were granted, or exercised during the period[195](index=195&type=chunk) [Substantial Shareholders' and Other Persons' Interests](index=37&type=section&id=Substantial%20Shareholders'%20and%20Other%20Persons'%20Interests) As of June 30, 2020, Bright Victory Investments Limited held **21.51% long** and **20.98% short positions** in shares; Lai Junlin and Zhang Richun each held **11.90% long positions**; Crescent Spring Investment Holdings Limited held **179.72% long** and **short positions** in underlying shares via convertible bonds. Substantial Shareholders' and Other Persons' Interests | Name | Type of Interest | Nature of Interest | Number of Shares/Underlying Shares | % of Issued Shares | | :--- | :--- | :--- | :--- | :--- | | Bright Victory Investments Limited | Long Position in Shares | Beneficial Owner | 719,763,500 | 21.51% | | Bright Victory Investments Limited | Short Position in Shares | Beneficial Owner | 702,000,000 | 20.98% | | Lai Junlin | Long Position in Shares | Beneficial Owner | 398,000,000 | 11.90% | | Zhang Richun | Long Position in Shares | Beneficial Owner | 398,000,000 | 11.90% | | Zhuo Kun | Long Position in Shares | Beneficial Owner | 259,280,000 | 7.75% | | Crescent Spring Investment Holdings Limited | Long Position in Underlying Shares | Beneficial Owner | 6,012,500,000 | 179.72% | | Crescent Spring Investment Holdings Limited | Long Position in Shares | Guaranteed Interest | 137,932,000 | 4.12% | | Crescent Spring Investment Holdings Limited | Short Position in Underlying Shares | Beneficial Owner | 6,012,500,000 | 179.72% | | China Oil and Gas Resources Limited | Long Position in Underlying Shares | Beneficial Owner | 6,012,500,000 | 179.72% | | Cathay Rong IV Limited | Long Position in Shares | Guaranteed Interest | 702,000,000 | 20.98% | - Bright Victory Investments Limited is wholly owned by Mr. Chen Jiajun, son of non-executive Director Mr. Chen Hua[205](index=205&type=chunk)[208](index=208&type=chunk) - Crescent Spring Investment Holdings Limited holds convertible bonds with a total principal amount of **US$130,000,000**, convertible into a maximum of **6,012,500,000 shares** at a conversion price of **HK$0.168** per share[206](index=206&type=chunk)[208](index=208&type=chunk) - Crescent Spring Investment Holdings Limited and China Oil and Gas Resources Limited (wholly owned by Dr. Dai Xiaobing) entered into put and call option deeds, resulting in both parties holding interests and short positions in the underlying shares[207](index=207&type=chunk)[209](index=209&type=chunk) - Crescent Spring Investment Holdings Limited is wholly owned by China Huarong Overseas Investment Holdings Co., Ltd., which is ultimately controlled by China Huarong Asset Management Co., Ltd[212](index=212&type=chunk) - Cathay Rong IV Limited is wholly owned by China Huarong Macau (Hong Kong) Investment Holdings Co., Ltd., which is ultimately controlled by China Huarong Asset Management Co., Ltd[212](index=212&type=chunk) [Purchase, Redemption or Sale of Listed Securities](index=40&type=section&id=Purchase,%20Redemption%20or%20Sale%20of%20Listed%20Securities) For the six months ended June 30, 2020, neither the company nor its subsidiaries purchased, sold, or redeemed any of the company's listed securities. - For the six months ended June 30, 2020, neither the company nor its subsidiaries purchased, sold, or redeemed any of the company's listed securities[212](index=212&type=chunk) [Audit Committee](index=41&type=section&id=Audit%20Committee) The Audit Committee, comprising Professor Wong Lung Tak, Dr. Wang Yanbin, and Dr. Dang Weihua, reviewed the Group's accounting principles, practices, and discussed audit, internal control, and financial reporting matters, including this interim report. - The Audit Committee comprises Professor Wong Lung Tak, Dr. Wang Yanbin, and Dr. Dang Weihua[217](index=217&type=chunk)[220](index=220&type=chunk) - The Committee reviewed the Group's accounting principles and practices, and discussed audit, internal control, and financial reporting matters, including this interim report[217](index=217&type=chunk)[220](index=220&type=chunk) [Corporate Governance](index=41&type=section&id=Corporate%20Governance) For the six months ended June 30, 2020, the company fully complied with all code provisions of the Corporate Governance Code set out in Appendix 14 of the Listing Rules. - The company complied with all code provisions of the Corporate Governance Code set out in Appendix 14 of the Listing Rules for the six months ended June 30, 2020[218](index=218&type=chunk)[221](index=221&type=chunk) [Code for Securities Transactions by Directors](index=41&type=section&id=Code%20for%20Securities%20Transactions%20by%20Directors) The company adopted the Model Code for Securities Transactions by Directors of Listed Issuers, as set out in Appendix 10 of the Listing Rules, and all Directors complied with it for the six months ended June 30, 2020. - The company adopted the Model Code for Securities Transactions by Directors of Listed Issuers, as set out in Appendix 10 of the Listing Rules, as its code of conduct for directors' securities transactions[219](index=219&type=chunk)[222](index=222&type=chunk) - All Directors complied with the Model Code for the six months ended June 30, 2020[219](index=219&type=chunk)[222](index=222&type=chunk) [By Order of the Board](index=41&type=section&id=By%20Order%20of%20the%20Board) This interim report was issued by the Board of Directors, represented by Chairman Dr. Dai Xiaobing, on **August 28, 2020**. - This interim report was issued by the Board of Directors, represented by Chairman Dr. Dai Xiaobing, on **August 28, 2020**[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk)[223](index=223&type=chunk)

(Incorporated in Bermuda with limited liability) (於百慕達註冊成立之有限公司) Stock Code 股份代號: 702 Annual Report 2019 年報 Contents CORPORATE INFORMATION FIVE YEAR FINANCIAL SUMMARY BUSINESS STRUCTURE CORPORATE STATEMENT CHAIRMAN'S STATEMENT MANAGEMENT DISCUSSION AND ANALYSIS DIRECTORS AND SENIOR MANAGEMENT PROFILES CORPORATE GOVERNANCE REPORT REPORT OF THE DIRECTORS INDEPENDENT AUDITOR'S REPORT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN ...

Revenue and Profitability - Revenue for the six months ended June 30, 2019, was HK$157,807,000, a decrease of 50.2% compared to HK$314,790,000 in the same period of 2018[9] - Gross profit increased to HK$24,055,000, up 57.3% from HK$15,302,000 in the previous year[9] - Loss for the period was HK$67,057,000, a significant improvement from a loss of HK$164,603,000 in the same period of 2018, representing a reduction of 59.3%[9] - Total comprehensive income for the period was HK$132,974,000, compared to HK$267,576,000 in 2018, indicating a decrease of 50.3%[12] - Basic and diluted loss per share was HK$2.08, compared to HK$8.87 in the previous year, showing an improvement[12] - The total comprehensive income for the period ended June 30, 2019, was a loss of HK$135,115,000, compared to a loss of HK$269,503,000 in the same period of 2018[26] - The company reported a significant increase in inventories, which rose to HK$35,210 from HK$11,950, marking a growth of approximately 194%[16] - The company reported a loss of HK$102,404,000 attributed to unallocated expenses for the period[77] - The Group recorded a net loss of approximately HK$67,057,000, a significant reduction of about 59% from the net loss of HK$164,603,000 in the same period last year[168] Expenses and Costs - Other income for the period was HK$39,821,000, slightly down from HK$42,796,000 in 2018, a decrease of 6.9%[9] - Administrative expenses decreased to HK$32,642,000 from HK$39,728,000, reflecting a reduction of 17.8%[9] - Finance costs were HK$92,146,000, down 41.7% from HK$158,261,000 in the previous year[9] - Employee costs increased to HK$15,001,000 for the six months ended June 30, 2019, compared to HK$13,320,000 for the same period in 2018, reflecting a growth of 12.6%[98] - Total capital expenditure on property, plant, and equipment was HK$11,786,000 for the six months ended June 30, 2019, down from HK$13,190,000 in the same period of 2018, indicating a decrease of 10.7%[111] Assets and Liabilities - Total assets as of June 30, 2019, amounted to HK$4,974,132, an increase from HK$4,962,872 as of December 31, 2018[16] - Non-current assets totaled HK$4,425,634, slightly down from HK$4,441,642 at the end of 2018[16] - Current assets increased to HK$548,498 from HK$521,230, reflecting a growth of approximately 5.2%[16] - Total current liabilities rose to HK$1,610,514, compared to HK$1,473,224 at the end of 2018, indicating an increase of about 9.3%[20] - Net current liabilities stood at HK$1,062,016, up from HK$951,994, showing a deterioration in liquidity[20] - Total non-current liabilities were HK$487,986, slightly higher than HK$481,042 reported at the end of 2018[20] - Net assets decreased to HK$2,875,632 from HK$3,008,606, reflecting a decline of approximately 4.4%[20] - As of June 30, 2019, total equity stood at HK$2,875,632,000, reflecting a decrease from HK$3,066,315,000 as of June 30, 2018[26] - The Group's total receivables, including trade and other receivables, amounted to HK$411,894,000 as of June 30, 2019, compared to HK$365,106,000 as of December 31, 2018, an increase of 12.9%[119] Cash Flow and Financing - For the six months ended June 30, 2019, the net cash generated from operating activities was HK$42,705,000, compared to HK$2,577,000 in the same period of 2018, representing a significant increase[27] - The net cash generated before financing activities for the same period was HK$47,383,000, up from HK$1,312,000 in 2018[27] - The net cash used in financing activities for the six months ended June 30, 2019, was HK$62,955,000, compared to a net cash generated of HK$37,381,000 in the same period of 2018[27] - The company experienced a foreign exchange rate change impact of HK$5,090,000 on cash and cash equivalents during the first half of 2019[27] - Total borrowings as of June 30, 2019, were HK$484,387,000, compared to HK$477,123,000 as of December 31, 2018[133] - The effective interest rates on secured borrowings ranged from 5% to 12%, while unsecured borrowings ranged from 18% to 24% as of June 30, 2019[136] Segment Performance - For the six months ended June 30, 2019, total revenue was HK$157,807,000, with contributions from coalbed methane (HK$58,185,000), raw and cleaned coal (HK$73,980,000), and financial services (HK$25,642,000) [77] - Segment profit before income tax expense was HK$15,485,000 for coalbed methane, HK$11,584,000 for raw and cleaned coal, and HK$9,816,000 for oil and gas exploitation, resulting in a total profit before tax of HK$65,093,000 [77] - The financial services segment did not report any sales or trading transactions with other segments, indicating a focus on external revenue generation [73] - The company operates four reportable segments: coalbed methane, raw and cleaned coal, oil and gas exploitation, and financial services, each requiring distinct business strategies [72] Regulatory and Accounting Changes - The company has applied HKFRS 16 from January 1, 2019, using the modified retrospective approach, which does not restate comparative information[12] - The company has adopted HKFRS 16 starting January 1, 2019, impacting the financial reporting of lease liabilities[18] - The adoption of HKFRS 16 resulted in the recognition of right-of-use assets amounting to HK$18,227,000 as of January 1, 2019[52] - Lease liabilities recognized under HKFRS 16 totaled HK$14,312,000 as of January 1, 2019, reflecting the present value of future lease payments[59] - The transition to HKFRS 16 led to a reclassification of lease expenses from operating lease expenses to depreciation and finance costs[65] Future Outlook and Strategic Initiatives - The board is focused on improving operational efficiency and reducing costs to enhance profitability in future periods[8] - The Group faces financial pressure from convertible notes amounting to HK$1,014,000,000 due in September 2019, with management actively discussing options to amend terms or negotiate with potential investors[36] - Major shareholders and directors have confirmed their commitment to provide ongoing financial support to the Group during financial difficulties, ensuring sufficient working capital for the next twelve months[41] - The company is actively seeking quality investment opportunities in overseas upstream businesses, specifically targeting oil and gas fields in Alberta, Canada[200] - A possible acquisition of 51% equity interests in urban gas pipeline infrastructure companies in Guizhou is under due diligence[198]

Financial Performance - Revenue from continuing operations for the year ended December 31, 2018, was HK$427,867,000, a decrease from HK$497,935,000 in 2017, representing a decline of approximately 14%[13] - The loss before income tax expense for continuing operations was HK$382,926,000 for 2018, compared to a loss of HK$158,026,000 in 2017, indicating a significant increase in losses[13] - The total loss for the year attributable to owners of the company was HK$385,885,000, compared to a loss of HK$159,561,000 in the previous year, reflecting a year-over-year increase of approximately 142%[13] - Basic and diluted loss per share for the year was HK$15.64, worsening from HK$9.55 in 2017[13] - The company reported a profit from discontinued operations of HK$5,509,000, which contributed positively amidst the overall losses[13] - The income tax expense for the year was HK$2,959,000, which is a reduction from HK$6,112,000 in 2017, indicating a decrease in tax liabilities[13] - The Group recorded a net loss of approximately HK$385,885,000 for the financial year 2018, compared to a net loss of HK$159,561,000 in 2017, mainly due to high finance costs and impairment losses[45] - Finance costs incurred during the year were approximately HK$324,547,000, with cash flow-affecting finance costs at approximately HK$110,084,000[46] Operational Highlights - In 2018, total gas production was approximately 97.42 million cubic meters, while gas sales reached 78.10 million cubic meters[16] - Pipeline gas sales accounted for 100% of total gas sales in 2018[16] - The sales mix for coalbed methane in 2018 was 14.7% for residential piped sales and 85.3% for industrial piped sales[18] - The Group holds a 70% interest in the Sanjiao CBM Block through a production sharing contract with PetroChina as a partner[21] - The Group aims to enhance production capacity and maintain steady growth through the Sanjiao CBM Project[31] - The operational phase of the Sanjiao CBM Project has commenced, contributing to improved cash flow and enhancing the company's asset-liability position[92] - The production and sales of CBM were approximately 97.42 million cubic meters and 78.10 million cubic meters respectively, resulting in a gas sale-to-production rate of nearly 80%[60][62] Strategic Initiatives - The company has been focusing on restructuring its operations to improve financial performance and reduce losses in the upcoming fiscal year[12] - Future outlook includes potential market expansion strategies and the introduction of new technologies to enhance operational efficiency[12] - The management is exploring opportunities for mergers and acquisitions to strengthen its market position and diversify its portfolio[12] - The Group is actively seeking merger and acquisition opportunities in the oil and gas sector in North America and China[21] - The Group is exploring investment opportunities in overseas upstream businesses, specifically oil and gas fields in Alberta, Canada[71] - The Group aims to assess the feasibility of diversified business development to enhance sustainability and stability of returns for shareholders[112] Market Conditions - The natural gas market in China is projected to see rapid growth until 2040, driven by government initiatives for environmental protection[25] - The Shanxi Government's policies, such as "Gasification for Shanxi," are expected to significantly boost the coalbed methane industry[25] - In 2018, China's natural gas consumption increased by 17.7%, indicating a flourishing market and a favorable environment for the Group's operations[106] - The International Energy Agency projects that China will become the largest importer of LNG in 2019, with net imports expected to approach European Union levels by 2040[106] Financial Position - As of December 31, 2018, the company's external borrowings, including convertible notes, amounted to approximately HK$1,595 million as of December 31, 2018, down from HK$1,772 million in 2017[83] - The gearing ratio based on total assets was approximately 32.14% as of December 31, 2018, compared to 32.75% in the previous year[83] - The Group's net current liabilities included a convertible note with a principal amount of HK$1,014 million due in September 2019, creating significant financial pressure[96] - The Company is exploring various options to settle the convertible note, including full or partial conversion, amending terms to extend maturity, and seeking medium to long-term financing from financial institutions[96] Corporate Governance - The Board of Directors is committed to high standards of corporate governance, ensuring transparency and accountability to enhance shareholder value[155] - The Company complied with all provisions of the Corporate Governance Code throughout the year ended December 31, 2018[156] - The Audit Committee is responsible for monitoring financial matters and approving major capital expenditures[169] - The Company has established clear guidelines for divisional management regarding their authority and responsibilities[169] - The roles of Chairman and Chief Executive Officer are separated, with Dr. Dai Xiaobing as Chairman and Mr. King Hap Lee as CEO, ensuring a balance of power[189] Management and Personnel - The Group employed approximately 332 employees as of December 31, 2018, with remuneration policies based on market levels and individual performance[104] - The management team has extensive experience in government relations and financial management, contributing to the Group's operational efficiency[120] - The Company encourages continuous professional development for all Directors and senior management to enhance their knowledge and skills[177] - The Company provides monthly updates to all Directors to keep them informed of the Company's circumstances, enabling informed decision-making[183]