Core Viewpoint - Shandong Xinchao Energy Co., Ltd. will continue to engage in oil and gas hedging activities through its wholly-owned subsidiary Moss Creek Resources, LLC, to mitigate the adverse effects of international oil and gas price fluctuations on its operations [1][2]. Summary by Sections Transaction Overview - The purpose of the hedging activities is to avoid negative impacts from price fluctuations in international oil and gas markets, with a focus on hedging rather than speculation or arbitrage [2]. - The hedging instruments will include futures and derivatives related to oil and gas [2]. - The hedging business will be valid for 24 months from the board's approval, with annual reviews [3]. - The total hedging scale will not exceed 90% of Moss Creek's proven developed producing (PDP) oil reserves within the specified timeframe [3]. - The maximum contract value held on any trading day will not exceed 50% of the audited net assets attributable to the parent company for the year 2024 [3]. - The funding for the hedging activities will come entirely from the company's own funds, without involving raised capital [3]. Approval Process - The proposal for the hedging activities was approved by the company's 12th Board of Directors on July 4, 2025, and does not require submission to the shareholders' meeting for approval [2][4]. Risk Analysis and Control Measures - The company aims to mitigate risks associated with commodity price fluctuations and exchange rate volatility through its hedging activities, avoiding exposure and risks [4]. - Identified risks include market risk, operational risk, credit risk, regulatory risk, and force majeure [4]. - To manage these risks, the company will strictly monitor the hedging scale, ensuring alignment with Moss Creek's proven oil reserves and production capacity [5]. - Moss Creek will utilize the diversity of the U.S. oil and gas futures market, employing swaps, collars, and options to lock in actual settlement price ranges [5]. - Compliance with local laws and regulations will be strictly adhered to, with regular supervision of the hedging activities' compliance and internal control mechanisms [5]. Impact on the Company - The hedging activities are intended to reasonably mitigate risks associated with price fluctuations in oil and gas markets, without affecting the company's normal cash flow and main business operations [5]. - The company will apply relevant accounting treatments in accordance with the Ministry of Finance's accounting standards for hedging activities [5].