Chairman's Message

Dear Shareholders,

On behalf of PetroAsian Energy Holdings Limited (“PetroAsian Energy” or the “Company”), I hereby present to the shareholders the audited results of the Company and its subsidiaries (“the Group”) for the year ended 31 March 2010 (“the Year”). For the Year under review, the Group recorded a consolidated turnover of approximately HK$307,982,000 (2009: HK$399,409,000), representing a decrease of 22.89% as compared with the previous year, while loss attributable to shareholders of the Company amounted to HK$262,348,000 (2009: Profit of HK$55,143,000).

During the Year, the global economy has been steadily recovering from the financial tsunami whilst investors’ confidence has also been picking up too. Most financial markets around the globe have started to regain its foothold and international crude oil prices have generally maintained above US$70/barrel during the Year and as high as over US$91/barrel, whereas in the previous financial year, crude oil price was as low as US$52/barrel. With the improving atmosphere in global economies, we are confident that PetroAsian Energy, being an international oil exploration and exploitation participant, is well positioned to benefit from the market recuperation as well as the general increase in oil prices.

In view of the recovery of crude oil prices, the Group is poised to devote more resources in the oil exploitation of its oilfields in Qiqihar, Heilongjiang Province, the PRC. The objective is to enhance production capacity from these oilfields by deployment of various oil exploitation techniques. In July 2010, we have started the drilling of an exploration well (the “TC5-1”) in the newly developed Fu 718 area of the Fulaerjiqu Oilfield in Qiqihar. The TC5-1 deviated exploration well has reached its total depth of 594 meters on 31 July 2010. Well logging data confirmed an oil layer with a net thickness of 11.4 meters (effective thickness of 8.4 meters). This is the best pay thickness in the whole oilfield so far amongst a total of 137 wells drilled by different companies in its previous 21 years of development history in this general area. PetroChina Great Wall Drilling Downhole Operating Company, our contractor of this multi-wells drilling program, will continue to drill further deviated wells and horizontal wells in Fu 718 subject to favourable drilling outcome.

On 20 July 2010, our onshore well drilling in the Ksar Hadada Permit, Tunisia was also commenced. The spudding of the exploration well (the “Oryx-1 exploration well”), is one of the two wells drilling programme that forms par t of the work programme for the development of our Ksar Hadada Permit.  On 1 August 2010, the Oryx-1 exploration well has reached a total depth of 1,140 meters. Although oil shows were encountered in both the upper and lower Ordovician reservoir units, log analysis indicates that no significant oil saturation is present in these reservoirs at this location. Hence saved from setting production casing and further well testings, the Oryx-1 exploration well is now being plugged and abandoned. The Oryx-1 exploration well has been drilled below budget and without a time losing incident. It is noteworthy that, in the oil industry, encounter of dry wells without commercial value is very common.

The Compagnie Tuniesenne de Forage Rig 06, our drilling team and equipments, will all be moved 22.5 km away to commence drilling of Sidi Toui-4, the second well in the current work programme. Sidi Toui-4 has been designed as a deeper deviated wellbore which will specifically target resources in the upper Ordovician reservoir unit, the Bir Ben Tartar Formation, of the much larger Sidi Toui structure in the Ksar Hadada Permit area where an earlier well Sidi Toui-3 had been drilled in 2004 with 144 meters of good hydrocarbon fluorescence show. We remain confident on the drilling prospect of the Sidi Toui structure.

During the period under review, the Group has undergone a restructuring exercise so as to dispose of its loss-making paint manufacturing business. This not only allows better deployment of our capital application and management resources to our healthy businesses, but also to enhance our focus in our core businesses which include energy business, oil exploration and exploitation.

On the other hand, in order to further strengthen and complement our core businesses, we are in the process of completing the acquisitions of a 51% equity interest in an oil technology company, and a 52% participating interest in Modamuji Sag, Hailaer Oilfield, Inner Mongolia, the PRC. With the increase in the crude oil prices over the year which have now become more stabilised, the ever-increasing global consumption of oil and other energy, and the recent oil spill in the Gulf of Mexico, it is expected that global oil reserves will continue to decline, if not at an even quicker rate, which eventually would result in inadequate supplies and inflating prices. Hence, the Group firmly believes that the long-term prospect of the oil industry is very optimistic. 

Our proposed acquisition of a 51% of the equity interests in an oil technology company, and a 52% of the participating interests in Modamuji Sag, Hailaer Oilfield, will not only extend our potential oil reserve, but also extend our revenue stream outside of the sale of crude oil from the existing exploration and exploitation activities of our existing oilfields in Northeast China and Tunisia. With regards to the possible acquisition of the oil technology company, we are confident that its oil exploitation technology and its existing servicing of oilfields in Liaohe, Shenyang Province would be beneficial to the Group and its shareholders as a whole in order to strengthen the technology development base of the Group with the expertise of its expert team and technical team. Having signed a legally binding agreement on 30 July 2010, we are now edging closer to the completion of the acquisition of the oil technology company. If successful, it will be an important step for the Group’s further business development in the energy sector in the PRC. The Group also believes that this will provide additional income to strengthen its revenue base.

On 22 April 2010, the Company entered into a sale and purchase agreement for the acquisition of 177,785,861 shares, representing approximately 37.55% of the issued share capital of Mobile Telecom Network (Holdings) Limited (“Mobile Telecom”), a company incorporated in Bermuda with its shares listed on the Growth Enterprises Market Board of The Stock Exchange of Hong Kong Limited for a consideration of HK$35,557,000 (equivalent to HK$0.2 per sale share). Mobile Telecom is engaged in telecommunications into which the Group’s business will be diversified. Although the global economy has seemed to have bottomed out and that economic situation has been improving gradually, the Board remains prudent and optimistic towards the Group’s business development in the future.

Last but not least, I would like to take this opportunity to express my sincere gratitude to members of the Board and all our dedicated staff for their invaluable services during the previous year. I would also like to thank our shareholders and business partners who have been supportive over the years. In the new fiscal year with opportunities and challenges, the Board will be committed to maximise the profit and the return for our shareholders.

By order of the Board

Poon Sum

Chairman Hong Kong, 17 August 2010