Good morning, ladies and gentlemen. Welcome to the conference call. Ruby, please begin your call, and I will be standing by for the Q&A. Thank you.
Thank you. [Non-English content] ladies and gentlemen. On behalf of China Oil And Gas Group, it is with pleasure for me to welcome you all to our 2026 interim results conference call. Today, our Chief Financial Officer, Ms. Jenny Law, will present the group's 2026 interim results, 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 Investor Relations, and then Roadshow Presentation. 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 PPT. First, let's look at the group's core financial highlights. In the first half of 2026, the group gross profit reached HKD 1,093 million, up 11% year-on-year. Benefit came from improved purchase sales margins. The overall gross profit margin rose from 12% in the same period last year to 14%. EBITDA stood at HKD 1,160 million, representing a three-year one-year increase. As at June 30th, 2026, net assets amounted to HKD 8,000 million, a 3% rise compared with HKD 7,755 million at the end of 2025.
The shareholders' equity base remained solid. Slide four. In terms of turnover, revenue totaled HKD 7,854 million in the first half, a slight 1% year-on-year decline. Profit before taxation was HKD 705 million. Profit for the period was HKD 501 million. Profit attributable to owners of the company was HKD 196 million, down 22% year-on-year. Slide five. This slide shows adjusted profit after stripping out of items. Reported profit attributable to shareholders down 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 these one-off items, the group's underlying operating profit was HKD 228.5 million, down 10%. These adjusted figures better reflect the true operating performance of the group's core businesses. Slides six and seven. 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%- 41%. Canadian Oil and Gas Production segment, gross profit margin remained stable at 35%.
Coal-Derived Clean Energy segment, gross profit margin stood at - 4%. We will continue to optimize the operating model for this segment going onward. Slide eight. The total sales and distribution plus administrative expenses reached HKD 304 million in the period, rising 31% year-on-year. The increase was mainly driven by higher RMD spending within the Coal-Derived 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. Slide number nine. EBITDA amounted to HKD 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 HKD 22,130 million.
Net assets, HKD 8,000 million. Total debt, HKD 9,791 million. Cash and cash equivalents, HKD 5,046 million. Net debt, HKD 7,745 million, up 12% compared with year end of 2025. In February 2026, the group issued $300 million, 7% senior note maturing in 2029. In first half of 2026, the group fully redeemed the $400 million, 4.7% senior notes due 2026 via market buyback, cash tender offers, and existing on-hand cash resources.
On office space 2026, the group secured a new $150 million syndicated loan, which was fully applied to repay the existing $350 million syndicated loan with a will to reduce future finance costs. The group's weighted average cost of all indebtedness, including bank borrowings, other borrowings, and senior notes, stayed at 4.5% for the first half of 2026. First half of 2025 was 4.7%. On cash flow, net cash flow from operating activity totaled HKD 470 million, down 6% year-on-year.
Capital expenditure was HKD 222 million, a 20% year-on-year decrease. The group maintained a prudent capital expenditure strategy, prioritizing the safety of operating cash flows. Part two, 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 the first half of 2026. Represent a 6% decrease compared to year-on-year. Affected by macroeconomic 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 volumes but higher profits. Slide 15. This shows the volume breakdown. Total gas sales volume down 9% year-on-year. Residential user down 12% year-on-year. C&I down 8% year-on-year. Gas station down 5% year-on-year. Transmission volume down 3% year-on-year.
On Slide 14, C&I customer accounted for 67% of gas sales volume and remained the core foundation of the group's revenue and profit. Going forward, the group will continue to prioritize the development of C&I customers in market expansion. Slide 15. By region analysis, Qinghai remains our largest volume province. Shandong, Jiangsu, and Jiangxi post notable gas sales growth, demonstrating solid progress in our key region expansion. Several other provinces record volume decline due to local industrial cycle fluctuations.
We will flexibly adjust market tactics according to local realities. Slide 16. The key profitable metrics. The branded average sales price, CNY 2.66/cu m . Branded purchase and sales margin, CNY 0.55/cu m per . A marked improvement from CNY 0.45/c m in the first half of 2025. Average transmission price remains flat at CNY 0.062/cu m . Slide 17. The end-user base expands steadily.
As at June 30th, Q2 2026, the group had accumulated 21,560 residential users and 21,089 C&I users. During the first half of Q2 2026, we added 25,014 new residential households and 394 new C&I 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 system. Enlarge the project pipeline for gas and integrated energy initiatives. Second, reinforce safe operations in integrating 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, [municipalities] cities, and autonomous regions in China, with more than 27,235 km of natural gas pipeline invested and built.
Let's go to part three, our oil and gas production business. Slide 21. Our Canadian Oil and Gas operations. Average production in first half of 2026, 5,209 BOE per day, down 4% year-on-year. Crude oil output 1,905 b p d, down 17% year-on-year. NGL output, +4% [year-on-year] Natural gas output, +5% year-on-year. International crude oil prices rose sharply. WTI average $82.67 /bbl in first half of 2026, up 23% year-on-year.
The group's realized crude oil selling price reached CAD 107.79/bbl , + 25% year-on-year. However, rising operating costs and royalty fees pulled the operating net back down to CAD 30.31/ BOE, down 6% year-on-year. Resource position as at end of 2025. Proved reserves 36.02 million— MMBOE. Proved plus probable reserves, 57 MMBOE. Both reserve categories increased by 13% year-on-year, further solidifying our resource base. Slide 22. The group adopts a drilling development program.
We complete six net wells in the first half with a 100% drilling success rate. Unit operating costs were controlled at CAD 14.46/ 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 2026, 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 delivered a 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, and power through digital intelligence, different customer-centric operations. We will strengthen and optimize our city gas core business, foster four growth engines, advance digital intelligent transformation, strictly control expense, reinforce risk management, and strive to deliver full-year operating targets. This concludes our presentation for first half 2026 results. This presentation is for reference only and does not constitute investment advice. Please refer to the proper interim announcement for full figures. We will now open the floor for questions. Thank you.
Thank you. Operator?
Thank you, Jenny. Ladies and gentlemen, we will now open for questions. If you would like to register for a question, please press star one on your telephone. Thank you. Once again, register star one to register for a question. Our first question comes from Don with Standard Chartered. 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. I know you touched briefly on it, that you've controlled costs quite well, but can you perhaps expand a little bit on why the input cost has gone down to CNY 2.11/cu m from CNY 2.2/cu m? Because obviously, I think natural gas prices domestically have gone up, right? I guess, can you perhaps share why for you guys it's come down on the cost side? 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 mention about the input cost, you mean the dollar margin?
I think on the slide you have it as CNY 2.11/cu m, basically the purchasing price, the blended average purchasing price.
Oh, the blended average purchase price? Why was that down?
Yeah.
Okay.
Yeah.
The main reason is because you can look at our slide with all our provinces. The Qinghai province has dropped their sales of natural gas dramatically. The reason is that we had 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 natural gas part in Qinghai. So without that part, the other province has grown their sales of natural gas, so the blended purchase price is down. Does this make sense to you?
Oh, okay. So it is basically just a favorable—
Climate, yeah.
—revenue mix.
Yes.
Make sense. Okay. Can you provide guidance for full year, what is the gas distribution sales volume and—
Okay.
—blended dollar margin for full year?
Okay. The blended dollar margin, we will expect it will stay stable, ±0.01 or ±0.0 2, due to the weather that will affect the dollar margin. For the sales volume, we expect we will 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 low, and we are doing our best to sustain our cash flow and operating profit. Thank you.
Okay. For first half, the gas sales volume was down 9% year-on-year. If you are expecting full year to be up year-on-year, you are expecting quite a significant rebound in the second half?
Well, for now, we expect sales volume will be down in single digits, will not be over to double digits. But it is hard to tell for now. It is around 6% to—
Okay.
—7%.
Okay. Also for full year, the sales volume will be down single digit year-on-year?
Yes.
Okay. Got it. The second question I have is, if I look at as of June balance sheet, the gross amount of bank loans, I think it is gone up about HKD 860 million. I know you got the syndicated loan, you drew that in August. That would not have been reflected on the balance sheet as of June, right? Can you just explain what additional loans you got in the first half that led to the loans going up about HKD 860 million in the first half?
Yeah, mainly due to increase of bank loans on our Mainland China operating business.
Are these short-term loans or long-term kind of loans?
Most of them are 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%-3% per annum. We were just trying to maintain most of our debt in the Hong Kong market company remain the same. We repay our U.S. dollar bond with our on-hand cash. Then we issue the syndicated loan during August 2026, is fully repaid existing syndicated loan that we have now. The total debt of our Hong Kong mother company will be lower by the end of the year.
Okay. Just to clarify.
Yeah.
Basically, obviously, you got the syndicated loan that is due next June is $350 million , right? Out of that $350 million, you have obviously gotten the new $150 million syndicated loan to partly refi that.
Yes.
The remaining amount of about close to $200 million, you basically gotten some onshore loans to prefund the syndicated loans.
The remaining outstanding 2027 of the syndicated loan—
Yeah.
—due will be because we have did the repayment, so the outstanding is around $165 million for next.
Yeah, for the $165 million, have you gotten any financing for the
Oh, yes. We have a few banks that have contacted me, and we will probably draw down a RMB syndicated loan to repay the due 2027 syndicated loan. We are still under discussion.
Okay. The RMB syndicated loan will be about $165 million. You are discussing about $165 million, right?
Yes, less than $200 million. Yeah. Equivalent U.S. dollar.
What is the tenure for that?
Probably we will ask—
What is the tenure?
Yeah. We usually get our syndicate on three years.
Okay.
With an option—
Okay. And so—
—one to three years extent.
Okay. The question I have is, because obviously at the end of June, the amount of loans had gone up about HKD 860 million. You are saying you got some onshore loans. I guess the question is, given that you are not really expanding any capacity, what is this additional HKD 860 million of loans that you got in the first half for?
Well, it is easy. We use our on-hand cash to repay the U.S. dollar bond. We repay $100 million with our on-hand cash. We use the channel of our Mainland China lower financing cost to help the mother company to repay as a debt.
Okay. Basically you use the cash on hand to help to repay the dollar bond, and then you replenish that cash by getting on shore.
Yes.
Okay. I will jump back to the queue and let the other people have a chance to ask some questions.
Okay.
Thank you.
Thank you, Don.
Thank you. Once again, ladies and gentlemen, please press one to register for questions. Thank you. Our next question comes from Zhang Jiao with AllianceBernstein. Please go ahead. Thank you.
Oh, hi. Good morning, Jenny. Thank you for the time. Just for some follow-up questions on the operating side, just follow Don's question. On the volume, I assume the volume drop is mostly due to the warm winter, the first quarter, the impact is still there. Getting into the second quarter, I just want to understand the trend, because we previously discussed when the competing energy source price 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 their procurement price for the 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 of the residential C&I can benefit from that. We didn't see a big jump of the purchasing price.
Got it, understand. The second question is on the procurement cost, the CNY 2.11 number that we have here. 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 a similar 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. With that volume, we will secure our natural gas. Then for the pricing, it really depends on the PetroChina. They will give us a notice before the end of the year. We'll know the full year's price. Whenever PetroChina or the other big oil company, they want to increase the price, which means our cost, they need to go through NDRC. This is not just linked to a market index.
Got it. It's not floating, it's like a fixed—
Yes.
—annual reset, depending on NDRC's approval of a price change.
Yes.
Okay, cool. That's very comforting. Since you mentioned that we locked the volume, 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 off-take 1 billion square meters of gas from PetroChina, but at the end of the day, full year, we only consumed or distributed 0.8 billion square meters , is there a penalty or it's negotiable?
That's a very good question. Yes, this is in the contract. This is one take or pay, right?
Oh, okay.
This is what is stated in the contract. What we did with PetroChina is that we will negotiate, and sometimes we will transfer this part of natural gas to other province. Some of the province they may have lack of natural gas because it is all through pipeline, right? We use the pipeline to transfer it to other provinces or other city that needed the natural gas. If we still have unpaid one, we will negotiate with PetroChina. It will not be a big penalty. No worries.
Oh, okay. Good to know. The third question I have is 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, if we have to, how fast we can pass through any volatilities to the residential and to the C&I customers?
Okay. For the C&I customer is actually pass-through directly. It is all written—
Yeah.
—in the contract. For residential, we can do it less than one month because we still need the regional government, the local government, NDRC, to approve the price pass-through. It usually take 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 residential gas price. Did you feel that?
Not for now, because we don't have an increase—
Oh, yeah.
—yet. But we will discuss with the local government, because in the past when we go through the past due of residential, the local government, of course, they are concerned about the increased expense of the residential user. But as our company, we are the one who is paying tax for the local government. So if they make a lot of money, they will not have any income at all. So this is one of the parts that we will negotiate with the local government.
Mm mh. Got it. Thank you. Last question from my side is on Shengli. I do not know if it is appropriate for me to get Shengli's information from you or not, but I would just try. May I ask, Shengli's volume performance and margin trends for half. Based on number, it does not 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 do not have the exact numbers on hand right now. It is all on their 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 inject a few projects into Shengli, and hopefully we can deal with that by the end of this year. It is still under question by The Stock Exchange of Shenzhen. So Shengli is still our associated company for now.
Okay.
If we consolidate it, we think it is a very good synergy for China Oil And Gas and Shengli. We will have cover more areas, and we can share our resources. Yeah. It will include both of our sales volume and margin.
Got it. Thank you. I do not know if I should still ask, but feel free to say that the information is not available. Shengli's procurement price exposure, is it going to be the same pattern as ours, or is it going to have a floating index-linked pricing on the procurement side?
As I know, it is the same with China Oil And Gas.
Okay, that is very cool. Thank you. That is it from me. I will get back to the queue.
Okay.
Thank you, Jenny.
Thank you. Our next question comes from Gao Xiang 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 same loans, and what is the borrowing entity for the loan? Is it the holdco level, or is it now becomes 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 SOFR + 1.3%. The original existing syndicated loan is SOFR + 1.75%. So we save around 0.45% on our interest. The lending entity is from onshore bank, Ping An Bank and Bank of East Asia is the lead manager. For the PRC, you mentioned about what is the cost if we lend these loans for on PRC, onshore. We haven't set up a platform to do syndicated loan for our onshore subsidiaries yet, so we are still landing on the holdco level with the main entity.
Sorry. Just to confirm, the lending entity is onshore Bank of Ping An and Bank of East Asia, but the borrowing entity is still the offshore holdco, right?
Yes.
This will also apply to the RMD syndicated loan as well?
Oh, you mean for the future ones that we are still under discussion?
Yes.
Well, we still haven't figured out which bank we are going to use as our lead manager. Ping An wants to get in, and we have our existing syndicated loan, Citibank, and we have Bank of China. They are all sending me proposal already, but I haven't really sit down and discussed with them yet. This is something that we will see in the next two or three months.
Got it. Thank you. That's all from me. Thank you.
Okay. Thank you.
Thank you. The next question comes from William with Aon Analytics. Thank you.
Hi. Thanks for taking my question. My question is also on Shengli. Can management share more about the vision going forward about how we are going to deal with the asset restructuring for Shengli and also China Oil And Gas? Because if we successfully inject four companies into Shengli, are we going to do this more and more going forward or is it just like we are just doing this for the sole company and maybe we will just stop here and see, only we are going to do more if we see other companies that are suitable candidates for this asset injection. Yeah.
Okay. I guess we will figure about are we going to inject more assets into Shengli after we have done the existing transaction successfully first. As our vision for the future, we think that the A-share company has a better platform on Hong Kong Stock Exchange . As you can see, our stock price, share price, and our P/E, P/B is really, really low. No equity investor are really focused on our shares, on 603 shares.
So we have a point that we want to use the platform of Shengli. Since their P/E and everything is on the market side, the P/E is 23x and the trading is good, and we can use the Shengli platform to do some placement. Placement is one way to get a lower cost debt, right? This way, we can lower our debt on the whole for the whole group. This is what we want to do for now. For the next step, we will wait for the transaction for now to complete first, and then we will figure our next step.
Okay. Sure. Thank you. I also want to understand, for syndicated loan, especially on the offshore to left, like any covenants that are limiting asset injection into the offshore company? Because once the assets that are injected into the offshore company, the cash flow from those companies are more difficult to get out from those companies because, as we know, A-share companies, when we try to get the dividends or cash distribution from a company, then they subject to quite strict rules. I just wonder if that will affect more of the holdco bank loans, the covenants.
I am not sure if I get your question correct, but if you mention about the cash from Mainland China back to the mother company, there is one way we can do, we can always pay dividend. This is one way the cash flow can hop back to Hong Kong. For the bank, for the syndicate loan, we did not see any covenants on asset injection.
Okay.
The covenant actually is the same with the existing loan that we have.
Okay. Great. That's good. Thank you. That's all from me for now.
Thank you. We do have a follow-up question from Don with Standard Chartered . Please go ahead. Thank you.
Hey, Jenny. Just a follow-up to what you mentioned on the longer-term strategy for Shengli. I guess you're looking way ahead, is there a chance that you guys could potentially try to raise If eventually down the road you do inject more assets into Shengli, would you try to issue an offshore bond out Shengli and then maybe replace the current bond that you issued out of China Oil And Gas with the bond that you issued out of Shengli?
Given that that eventually will be kind of the off go, right? That's my first question. The second question is just more housekeeping. Can you just provide, at a holdco level, what's the current cash balance and then 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. With our S hengli platform on our A-share company, they can raise more debt with cheaper finance costs, or they can do placement to issue shares to some core investor in later future. This is one thing that we will definitely look into. 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 position.
For the debt, Hong Kong has 48% on a mother company level and CCNG around 20% debt. The other mainland company will be 30%, and our Canadian company will have 2%. We receive around HKD 500 million of dividend from CCNG by the end of June this year. The Canadian company, they will remain their dividend around CAD 14.3 million by early November this year.
Okay. Just one follow-up, if I may. On the loans receivable from related parties, I think at the end of December, you had about HKD 1.2 billion outstanding. What's the repayment plan for this year on that loan?
Yes. They have repaid around HKD 36 million to the mother company during end of May 2026. They've paid, yeah, 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. We will let you know later.
Okay, great. Thanks.
Thank you. Once again, ladies and gentlemen, that is now when to register for questions. Thank you. Once again, that is now when to register for questions. Thank you. Excuse me again, if there is no further question at this point in time. Thank you.
Okay. 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@hk603.com or call us at 2200-2000. Thank you very much for joining us today, and our group appreciate 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.