China Huarong Energy : Announcements and Notices - Business Update on Development of the Kyrgyzstan Project in Relation to Reserve Report of Evaluated Zones

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中國華榮能源股份有限公司

(Incorporated in the Cayman Islands with limited liability)

This announcement is made by China Huarong Energy Company Limited (the "Company", together with its subsidiaries, the "Group") pursuant to Rule 13.09 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules") and the Inside Information Provisions (as defined in the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).
The board of directors of the Company (the "Board") is pleased to announce that APEX Reservoir Service, Inc., an independent competent evaluator (the "Independent Evaluator"), has issued a petroleum reserve report dated 20 July 2015 (the "Reserve Report") for the three oilfield zones (namely Maili-Su IV, Eastern Izbaskent and Izbaskent) (the "Evaluated Zones") in the project involving four oilfields located in the Fergana Valley of Kyrgyzstan comprising five oilfield zones (the "Kyrgyzstan Project" ) with a base date of evaluation of
31 May 2015 (the "Base Date of Evaluation"). The remaining two oilfield zones (namely, Changyrtash and Chigirchik) of the Kyrgyzstan Project were not covered by the Reserve Report as more data were required for conducting an evaluation.
The Reserve Report was performed and prepared in accordance with the Petroleum Resources Management System ("PRMS"), a set of internationally recognised standards and guidelines, which is prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers and reviewed and jointly sponsored by the World Petroleum Council, the American Association of Petroleum Geologists and the Society of Petroleum Evaluation Engineers. By their very nature, reserves and resources are forward-looking estimates which may be subject to change and revision. Please refer to the risk and uncertainty inherent in the reserves and resources estimate in the paragraph headed "Risk and Potential Uncertainty Inherent in Reserve and Resource Forecasting" below.
The Independent Evaluator has used a large amount of production test data to determine the reservoir boundary and re-defined the oil-bearing area of the Evaluated Zones and has used the area weighted method to determine the effective thickness of the calculated unit. The Independent Evaluator adopted the volumetric method to calculate the original geological reserves of the Evaluated Zones. The recovery rate was verified by using the dynamic method according to the actual production data and the deterministic method has been used to calculate the reserves estimates.

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Certain findings of the Reserve Report include:
1) as at the Base Date of Evaluation, the proved (1P) recoverable reserves of the Evaluated Zones in the Kyrgyzstan Project were approximately 24.39 million tons, whereas the proved plus probable (2P) recoverable reserves were approximately 50.54 million tons. The reserves were composed mainly of light crude oil.
2) as at the Base Date of Evaluation, the proved (1P) geological reserves of the Evaluated Zones in the Kyrgyzstan Project were approximately 144.46 million tons, whereas the proved plus probable (2P) geological reserves were approximately 194.48 million tons. The reserves were composed mainly of light crude oil.
3) as at the Base Date of Evaluation, the post-tax net present value of the petroleum reserves of the Evaluated Zones (calculated with an annual discount rate of 10%) shared by КыргызжерНефтегаз ("Kyrgyzjer Neftegaz" Limited Liability Company*) (the "Project Company"), which is an indirect subsidiary that is 60% owned by the Company, was approximately USD1.925 billion. The Independent Evaluator adopted a set of technical and economic parameters (including annual discount rate, oil price, operating cost, tax rate, production sharing and production life of drilled wells) as the basis for its net present value calculations. The data used in the calculations mainly came from actual drilling and production data and oil sales contracts and invoices, and the tax rate used was a composite rate of the various taxes currently applicable in the Kyrgyz Republic.
Set out below are the petroleum reserves of the Evaluated Zones in the Kyrgyzstan Project as at the Base Date of Evaluation：

The Board considers that the Reserve Report supports the view of the Group that the Evaluated Zones have favourable development potential and value, and is pleased and encouraged by this. The Group will accelerate the pace of new well development and enlarge the scope of well fracturing in order to realise the development potential of the Kyrgyzstan Project.

Risk and Potential Uncertainty Inherent in Reserve and Resource Forecasting

Based on reserve and resource definitions in PRMS, these estimates include various levels of risk and uncertainty, and are continuously affected by current economic conditions regarding pricing, costs, legal and regulatory framework, etc. In addition, different experts may review and interpret the same data and conditions according to their own experience and arrive at different estimates and categorisations for the reserves and resources. The Project Company has engaged the Independent Evaluator to determine these reserves and resources in accordance with existing standards and industry practice. Actual exploitation results in the future may differ from the estimates presented herein.

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* for identification purposes only

By Order of the Board

China Huarong Energy Company Limited

LEE Man Yee

Company Secretary

Hong Kong, 21 July 2015

As at the date of this announcement, the directors of the Company are: Executive directors:

Mr. CHEN Qiang (Chairman), Mr. HONG Liang, Mr. Sean S J WANG, Mr. WANG Tao, Mr. WEI A Ning and Ms. ZHU Wen Hua;

Independent non-executive directors:

Mr. XIA Da Wei, Mr. WANG Jin Lian and Ms. ZHOU Zhan.

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