Shandong Molong Petroleum Machinery : ANNOUNCEMENT...

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(A Sino-foreign joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 568)

THE ANNOUNCEMENT IN RELATION TO THE JUDGMENT OF

ADMINISTRATIVE PENALTY RECEIVED BY THE PARTIES CONCERNED INCLUDING ZHANG EN RONG AND ZHANG YUN SAN FROM

CHINA SECURITIES REGULATORY COMMISSION

This announcement is made by Shandong Molong Petroleum Machinery Company Limited (the ''Company'' or ''Shandong Molong'') in accordance to Rule 13.09(2)(a) 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 under the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong) (the ''SFO'').

Zhang En Rong, the controlling shareholder of the Company, and Zhang Yun San, a person acting in concert with him received the Notices of Investigation (Lu Zheng Diao Cha Zi No. [2017]001 and Lu Zheng Diao Cha Zi No. [2017]002) by the China Securities Regulatory Commission (hereinafter refer to as ''CSRC'') on 8 February 2017. See the announcement dated 8 February 2017of the Company for details.

On 12 May 2017, Zhang En Rong and Zhang Yun San received the Prior Notification of Administrative Penalty issued by the CSRC (Chu Fa Zi [2017] No. 52). See the announcement dated 15 May 2017of the Company for details.

On 25 September 2017, Zhang En Rong and Zhang Yun San received the Judgement of Administrative Penalty issued by the CSRC ([2017] No. 88), the details of which set out as follows:

Parties concerned:

Zhang En Rong, currently the chairman of Shandong Molong Petroleum Machinery Company Limited (hereinafter refer to as ''Shandong Molong'').

Zhang Yun San, currently the deputy chairman and general manager of Shandong Molong.

In accordance to the relevant requirements of the Securities Law of the People's Republic of China (hereinafter refer to as the ''Securities Law''), CSRC has conducted an investigation and consideration in respect of the illegal reduction of shareholding and inside trading act by Zhang En Rong and Zhang Yun San, and have legally advised the parties concerned that the facts, reasons, grounds on administrative penalties, and the rights legally entitled as parties concerned. The parties concerned, Zhang En Rong and Zhang Yun San have requested to state and defend, as well as applied for hearing. At the request of the parties concerned, CSRC has conducted a hearing to listen to the statements and defending opinions by the parties concerned and their agents. This case has now been investigated and reached final decision.

Upon investigation, there are illegal facts by the parties concerned:

1. Failure of information disclosure on excessive reduction of A shares in ''Shandong Molong'' by Zhang En Rong

   Zhang En Rong, the chairman and de facto controller of Shandong Molong reduced his A shares in ''Shandong Molong'' by 13,900,000 shares and 30,000,000 shares on 26 September 2014 and 13 January 2017, respectively at the reduction ratio of 1.74% and 3.76%, respectively. Zhang Yun San, the deputy chairman and the general manager reduced his A shares in ''Shandong Molong'' by 7,500,000 shares on 23 November 2016 at a reduction ratio of 0.94%. Zhang En Rong is the father of Zhang Yun San. Being parties acting in concert, they reduced their shareholdings in Shandong Molong in a total of 51,400,000 shares during the above period, representing 6.44% of the total share capital of Shandong Molong in aggregate. The failure of making reports and announcements upon the reduction in the issued shares of Shandong Molong held by Zhang En Rong and Zhang Yun San reaching a percentage of 5% in aggregate is suspected of in breach of Paragraph 2 of Article 86 of the Securities Law, which constitutes an illegal act of information disclosure as stated in Paragraph 2 of Article 193 of the Securities Law.

2. The insider trading of A shares in ''Shandong Molong'' by Zhang En Rong and Zhang Yun San

1. The information on Shandong Molong's major losses as at the end of the third quarter of 2016 and which extended to the whole year of 2016 as insider information

   The information on Shandong Molong's major losses as at the end of the third quarter of 2016 and which extended to the whole year of 2016 falls under ''(V) The incurrence of any major deficit or major loss in the Company'' as prescribed in Paragraph 2 of Article 67 of the Securities Law, that is, ''a major event that may considerably affect the trading price of a listed company's shares''. Pursuant to Paragraph 2 of Article 75 of the Securities Law, the information on Shandong Molong's major losses as at the end of the third quarter of 2016 and which extended to the whole year of 2016 shall be classified as insider information.

2. The formation of insider information of major losses of Shandong Molong

   On around 10 October 2016, Ding X Shui, the manager of the finance department and Yang X Qiu, the deputy manager of finance department of Shandong Molong reported to Yang X, the financial controller, about the financial position for the third quarter of the Company. The then financial statements indicated that there was a major loss of the Company (a loss of RMB219 million for the third quarter. The fact of incurring a loss for the third quarter of the Company was confirmed by the announcement made by Shandong Molong on 31 March 2017). Subsequently, Yang X reported to Zhang Yun San, the general manager on the financial position of the Company. Under the direction of Zhang Yun San, on around 17 October, Yang X requested Ding X Shui and Yang X Qiu to make adjustment to the relevant information for the purpose of profitability. After discussion between Ding X Shui and Yang X Qiu, Yang X Qiu arranged Liu X Tao, a finance personnel, to amend the relevant information of the financial system of the Company. The financial information publicly disclosed by Shandong Molong on 27 October for its last three quarters was a profit of RMB8.34 million, and it was forecasted that the profit for the whole year would be RMB6 million to RMB12 million.

   In October and November 2016, there was no improvement in the Company's operations. No substantial progress was made on the plans of disposal of equity interests in subsidiaries and a piece of land in the industrial park. The Company had been facing great financial pressure as it was required to make repayment for its overdue bank loans.

   On 30 December 2016, a loan of US$4 million from Dongying Bank required an in-person signature by the legal representative of the Company. Zhang En Rong had delegated the managerial power of the Company to Zhang Yun San since 2005, such that the powers of legal representative and the chairman authorized Zhang Yun San to act on their behalf. Since Zhang Yun San was in poor mental and physical health, and went to a doctor at that moment, Yang X visited Zhang En Rong's home and asked him to sign in-person. Upon coordination, personnel from Dongying Bank visited the home of Zhang En Rong to fulfill the procedure of the signature.

   In the evening of 11 January 2017, Yang X and Guo X Ran, the executive deputy general manager of Shandong Molong, visited the home of Zhang En Rong to report on the difficulty in working capital of the Company, and asked Zhang En Rong to think of ways to raise funds, hoping that it could be done no later than 18 January.

   On 25 January 2017, the Company convened a meeting among general managers, and reported on the major loss of the Company. On the same day, the members of the Board of Directors and the Supervisory Committee agreed to publish an announcement in relation to the revision of the forecast for the results. Prior to that, Yang X had communicated with the accountant who was responsible for the audit of the annual report. On 3 February 2017, Shandong Molong published the Announcement Regarding the Revision of the Forecast for the Annual Results of 2016 and the Existence of Delisting Risk Warning.

   Pursuant to the above, on 10 October 2016, the financial statements of Shandong Molong showed that there was a major loss of the Company as at the end of the third quarter of 2016. It was the starting time of the sensitive period for insider information. On 3 February 2017, Shandong Molong published the Announcement Regarding the Revision of the Forecast for the Annual Results of 2016 and the Existence of Delisting Risk Warning, in which it was expected that there would be a loss of RMB480 million to RMB630 million of the Company. It was the ending time of the sensitive period for insider information. During such period, the insiders for such insider information comprised Zhang En Rong, Zhang Yun San, Yang X, Ding X Shui, Yang X Qiu, Liu X Tao, as well as other directors, supervisors and senior management of the Company, and the accountants.

3. Trading of A shares in ''Shandong Molong '' by Zhang En Rong and Zhang Yun San during the sensitive period of the insider information

4. Trading under the account

5. The account of ''Zhang En Rong'' was opened on 12 January 2017 with Securities Sales Department, China Merchants Securities (招商證券) (晉江和平中路), with a funding

   account no. of 3910027888, under which there are one Shanghai Stock Exchange securities account no. A725661633 and one Shenzhen Stock Exchange securities account no. 144055225.

   The trading of A shares in ''Shandong Molong'' under the account of ''Zhang En Rong'' during the sensitive period for insider information: 30,000,000 shares of A shares in ''Shandong Molong'' were transferred in by Securities Sales Department, China

   Merchants Securities (招商證券) (北京金融街) by way of transfer stock of custody on 12

   January 2017. A total of 30,000,000 shares of A shares in ''Shandong Molong'' were sold in three transactions by way of block trading on 13 January 2017, at a price of RMB9.25 per share and a total trading amount of RMB277.50 million. As per the calculation by the Shenzhen Stock Exchange, the information disclosure of major loss as of 3 February 2017 avoided a loss of RMB16,259,280.

6. The account of ''Zhang Yun San'' was opened on 17 November 2016 with Securities Sales Department, China Merchants Securities (招商證券) (壽光聖城街), with a funding

account no. of 3950678858, under which there are one Shanghai Stock Exchange securities account no. A684861045 and one Shenzhen Stock Exchange securities account no. 144187054.

The trading of A shares in ''Shandong Molong'' under the account of ''Zhang Yun San'' during the sensitive period for insider information: 7,652,000 shares of A shares in ''Shandong Molong'' were transferred in by Securities Sales Department, China

Merchants Securities (招商證券) (北京金融街) by way of transfer stock of custody on 18

November 2016. 7,500,000 shares of A shares in ''Shandong Molong'' were sold in one transaction by way of block trading on 23 November 2016, at a price of RMB10.97 per