Honghua Group Limited — Capital/Financing Update 2018

Mar 7, 2018

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HONGHUA GROUP LIMITED

( Incorporated in the Cayman Islands with limited liability)

(Stock Code: 196)

VOLUNTARY ANNOUNCEMENT THE FIRST EPC SHALE GAS DRILLING SERVICES STARTED

T his is a voluntary announcement made by Honghua Group Limited (the “ Company ”).

The board of directors (the “ Directors ”) of the Company (the “ Board ”) is pleased to announce that Honghua Petroleum Engineering Services (Sichuan) Co., Ltd. (“ Honghua Oilfield Services ”), an indirect wholly-owned subsidiary of the Company, recently commenced its first EPC drilling service for a shale gas project in China (the “ Project ”) according to the customer's requests. The project is located in Sichuan Province, whose service contract has a consideration of approximately RMB150 million. The oilfield service covers the drilling of 4 wells, as well as the cementing and fracking process of the wells. Honghua Oilfield Services will use two drilling rigs to provide the service for the project. It is expected to be finished by the end of the year.

The area of the project is known to be a national-level shale gas demonstration site. According to the customer’s capacity planning, the shale gas production of the area will grow rapidly within the year. This project is Honghua Oilfiled Services' first EPC shale gas drilling service, which is a breakthrough that expands its oilfield business from well drilling and well fracturing to EPC service. Due to the development in the domestic natural gas market, especially the development in the shale gas market, Honghua Oilfield Services is expected to achieve rapid growth in China’s oilfield services market.

The project will be a great example to show China's improved efficiency in shale gas extraction. Against this backdrop, Honghua Oilfield Services is in position to obtain more EPC shale gas service contracts and sale contracts for specialized shale gas equipment in the future. A large portion of the Company’s self-developed equipment is used by Honghua Oilfield Services during the project. Such equipment includes a newly-developed shale gas drilling rig, a high-end casing device driven by topdrive, a 6000HP electric fracking pump, a hydraulic alternating pusher and other automated devices, which is China's most advanced equipment with self - owned intellectual property. At the same time, Honghua Oilfield Services will also be the first to use the world's leading shale gas drilling technologies in China, which include a 35Mpa-45Mpa high pressure jet-drilling technology and a dualpower rotary steering technology. These technologies are expected to improve the efficiency.

The Company is devoted to promoting the “Integrated shale gas extraction solution” in China. The solution consists of gas or electric grid powered system, shale gas specialized drilling rigs for

horizontal well drilling, a 6000HP electric fracking pump and a water tank fracking system. The sale of such equipment and the use of this unique solution in the Project can further promote the Company’s “integrated shale gas extraction solution” as a viable service solution. When the solution become widely accepted and deployed in the future, the company is expected to gain huge growth opportunities for the sale of shale gas drilling equipment and the development of oil & gas field services business.

By order of the Board Honghua Group Limited Chen Yajun Chairman

PRC, 7 March 2018

As at the date of this announcement, the executive directors of the Company are Mr. Chen Yajun (Chairman), Mr. Zhang Mi and Mr. Ren Jie, the non-executive directors of the Company are Mr. Han Guangrong and Mr. Chen Wenle, and the independent non-executive directors of the Company are Mr. Liu Xiaofeng, Mr. Chen Guoming, Ms. Su Mei, Mr. Poon Chiu Kwok, Mr. Chang Qing and Mr. Wu Yuwu.