AAG Energy : ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2021

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AAG Energy Holdings Limited ԭߕঐ๕છٰϞࠢʮ̡

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2686)

ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2021

Key Highlights:

• • Our revenue and other income (including government subsidies and VAT refunds) for 2021 increased by 55.69%1 to RMB1.991 billion, while net profit and EBITDA for the year increased by 59.84% and 55.25% to RMB816 million and RMB1.545 billion, respectively. Our earnings per share increased by 60.00% to RMB0.24.

• • The Board recommends a final full year dividend of RMB0.0589 per share (equivalent to approximately HK$0.0724 per share) subject to the approval by shareholders of the Company at the AGM.

• • The gross production of CBM for 2021 reached 1,298 MMCM, representing an increase of 25.52% compared to that of 1,034 MMCM for 2020.

  - In respect of Panzhuang concession, gross production for 2021 was 1,175

MMCM, representing an increase of 21.46% compared to that of 967

MMCM for 2020;

-

In respect of Mabi concession, gross production for 2021 was 123 MMCM, representing an increase of 84.22% compared to that of 67 MMCM for 2020.

Note 1: Due to the difference in unit of expression and decimal places reserved of data, there may be slight deviation in the percentage of increase or decrease. The percentage of increase or decrease is based on the calculation of the minimum units of expression and decimal places reserved available in the announcement.

• • The average gas production for 2021 reached 3.56 MMCM per day, representing a YoY increase of 25.80% compared to that of 2.83 MMCM per day for 2020.

• • The gross sales volume2 for 2021 reached 1,250 MMCM, representing an increase of 24.49% compared to that of 1,004 MMCM for 2020.

  - In respect of Panzhuang concession, the gross sales volume for 2021 reached

  1,142 MMCM, representing an increase of 21.10% compared to that of 943 MMCM for 2020;

  -

  In respect of Mabi concession, the gross sales volume for 2021 reached 108 MMCM, representing an increase of 76.66% compared to that of 61 MMCM for 2020.

• • The realized ASP3 in respect of Panzhuang concession for 2021 increased by 26.76% to RMB1.80 per cubic meter compared to RMB1.42 for 2020; while the realized ASP in respect of Mabi concession for 2021 increased by 21.01% to RMB1.67 per cubic meter compared to RMB1.38 for 2020.

• • In 2021, a total of 62 wells have been drilled (of which 21 were SLHs and 41 were PDWs) in Panzhuang concession, average drilling time for SLH wells was just 15.97 days.

• • In 2021, a total of 190 wells have been drilled (of which 89 were SLHs and 101 were PDWs) in Mabi concession, average drilling time for SLH wells was just 14 days.

• • AAG Energy placed great value on HSE and made efforts on assuming its social responsibilities. In 2021, AAG Energy maintained zero for LTIR and TRIR in respect of its safety and environmental protection performance. As of 31 December 2021, the excellent safety performance record of zero lost time injury of AAG Energy has accumulated to 7 years and 117 days.

Note 2: Gross sales volume represents gross production less utilization loss.

Note 3: Realized ASP excludes the directly attributable pass through cost, thus reflecting the realized wellhead price.

Dear shareholders:

On behalf of the board (the "Board") of directors (the "Directors") of AAG Energy Holdings Limited ("AAG Energy" or the "Company", together with its subsidiaries, collectively the "Group"), I hereby present the annual results of the Group for the year ended 31 December 2021.

FINANCIAL SUMMARY

Year ended 31 December

2021	2020
RMB'000	RMB'000
Revenue	1,739,226	1,038,524
Other income	251,875	240,368
Profit from operations	1,148,199	723,629
EBITDA	1,544,722	994,997
Adjusted EBITDA	1,551,720	996,062
Profit for the year	815,679	510,296
Basic earnings per share (RMB)	0.240	0.150
Diluted earnings per share (RMB)	0.240	0.150
Property, plant and equipment
Cash and bank balances
Total assets
Total equity

2020
RMB'000	RMB'000
4,478,379	3,994,259
1,886,905	1,845,553
8,085,942	7,038,381
6,425,550	5,960,842

As at 31 December 2021

BUSINESS REVIEW

As climate change becomes increasingly severe, green and low-carbon development strategies have attracted extensive attention. According to the "Natural Gas Analysis and Forecast 2021-2024" report issued by the International Energy Agency, the global natural gas demand will show an increasing trend in the next few years.

In 2021, under the influence of extreme weather and the international oil price went out of the trough, the natural gas market showed a stronger peak season and a less-than-sluggish low season. 2021 is also the first year for China to widely promote the development of natural gas under the "14th Five-Year Plan". With the promotion of the "dual carbon" goal, natural gas consumption has grown rapidly. The fundamentals of the development of the domestic natural gas industry continue to improve with vibrant performance. In 2021, the apparent consumption of natural gas in China reached 372.6 billion cubic meters, representing an increase of 12.7% as compared with that of 2020.

By the end of 2020, the Group took the lead in establishing a development strategy to set up the existing business in the concessions and increasing development efforts, and made full use of industrial advantages to achieve excellent performance. In terms of production, the Group's gross production in 2021 increased by 25.52% from that of 2020 to 1,298 million cubic meters ("MMCM") (or 45.8 billion cubic feet ("bcf")), including 1,175 MMCM (or 41.5 bcf) of production from Panzhuang concession and 123 MMCM (or 4.3 bcf) of production from Mabi concession.

In terms of investment, the actual capital expenditure in 2021 was RMB859 million as compared with the annual budget of RMB967 million. Compared to 2020, drilling and fracturing activities in 2021 continued to increase by 62.58% and 23.53% to 252 wells and 147 wells respectively. At the same time, we continued to focus on reducing costs and improving profitability. The average drilling cost of a single lateral horizontal well ("SLH") decreased as compared with 2020, of which the average drilling cost of SLH wells in 3# coal seam was RMB2.54 million, representing a decrease of 8.63% as compared with RMB2.78 million in 2020, and the average drilling cost of SLH wells in 15# coal seam was RMB2.7 million, representing a decrease of 5.26% as compared with RMB2.85 million in 2020. The average drilling cost of a pad drilling well ("PDW") decreased by 10.34% from RMB0.87 million in 2020 to RMB0.78 million.

In terms of market sales, the Group's realized average selling price ("ASP") in 2021 was RMB1.79 per cubic meter, of which the realized ASP in Panzhuang concession was RMB1.80 per cubic meter (an increase of 26.76% from RMB1.42 per cubic meter in 2020), and the realized ASP in Mabi concession was RMB1.67 per cubic meter (an increase of 21.01% from RMB1.38 per cubic meter in 2020).

In terms of financial results, the Group's revenue and other income (including government subsidies and VAT refunds) in 2021 increased by 55.69% to RMB1.991 billion as compared to 2020 , operating profit increased by 58.67% to RMB1.148 billion, profit for the year increased by 59.84% to RMB816 million, EBITDA increased by 55.25% to RMB1.545 billion, and earnings per share increased by 60.00% to RMB0.24.

OPERATIONS REVIEW

AAG Energy placed great value on Health, Safety and Environment ("HSE") and made efforts on assuming its social responsibilities. 2021 is a year of rapid development for the Company's business. HSE work is full of challenges. By updating the safety production standardization system, and strengthening safety education and training, contractor management, ecological and environmental management and safety culture construction, the Group continues to strengthen the HSE awareness of employees. In 2021, the Group continued to maintain zero lost time injury rate ("LTIR"), zero total recordable incident rate ("TRIR") and zero environmental pollution incident rate in respect of the HSE performance. As of 31 December 2021, the Group has achieved extraordinary results of a total of 7 years and 117 days without lost time injury.

The two major assets operated by two subsidiaries of the Company, namely Panzhuang concession operated by Sino-American Energy, Inc. ("SAEI") and Mabi concession operated by Asian American Gas, Inc. ("AAGI"), have made significant progress in achieving certain key operational targets.

1. Panzhuang Concession

Our Panzhuang concession, which is in partnership with China United Coalbed Methane Corporation Ltd. ("CUCBM"), continued to be the Coalbed Methane ("CBM") project with the highest output in China, and was listed as China's key CBM project in production under the "14th Five-Year Plan" for the development and utilization of CBM (coal mine gas) prepared by the National Energy Administration (the "NEA") and issued by the National Development and Reform Commission ("NDRC") of the People's Republic of China ("PRC").