DISCLAIMER

Our parent, Xinchao Energy Corp. Ltd. (“Xinchao Energy”), is a Chinese oil and natural gas company listed on the Shanghai Stock Exchange (the “SSE”). Xinchao Energy is subject to the laws, rules and regulations of the People’s Republic of and the SSE, including certain periodic disclosure requirements. In connection with these disclosure requirements, earlier today Xinchao Energy issued its audited financial statements, the accompanying notes thereto and the auditor’s report thereon for the year ended December 31, 2018 (the “Xinchao Financials”). To provide access to financial information disclosed by Xinchao Energy, we have obtained this English translation of the Xinchao Financials. While our business comprises substantially all of Xinchao Energy’s assets, the financial information released by Xinchao Energy in the Xinchao Financials includes financial results attributable to assets and operations other than those of our business. Additionally, the Xinchao Financials may not be comparable to our financial information for a variety of factors, including differences in presentation currency and accounting standards and principles. Our management did not participate in the preparation or review of the Xinchao Financials. As a result, we caution you against undue reliance on the Xinchao Financials, and we do not accept or assume responsibility for such information by means of providing access to a translated version. The as-filed Xinchao Financials are available in the Chinese language at http://www.sse.com.cn/ and you should refer to the Chinese language version as the definitive Xinchao Financials. Verification Opinion of Caitong Securities Co., Ltd. on the Depositing and Actual Use of Raised Funds of Shandong Xinchao Energy Corporation Limited in 2018

In accordance with the provisions of laws, regulations and normative documents such as the Measures for the Administration of Sponsor Business of Securities Issuance and Listing, the Regulatory Guidelines for Listed Companies No. 2 - Regulatory Requirements for the Management and Use of Raised Funds of Listed Companies, and the Management Measures for Funds Raised by Listed Companies of the Shanghai Stock Exchange (Revised in 2013), Caitong Securities Co., Ltd. (hereinafter referred to as "Caitong Securities") shall fulfill the duty of continuous supervision over the raised funds that haven’t been used by Shandong Xinchao Energy Corporation Limited (hereinafter referred to as "Xinchao Energy" or the "Company"). Caitong Securities conducted verification of the depositing and use of funds raised by Xinchao Energy in 2018. The specific contents are as follows: I. Verification Method By inquiring the Company's special account of raised funds and reviewing the Company's internal audit reports, the special statement on the depositing and actual use of annual raised funds, and the verification reports on the annual use of the raised funds of the Company issued by accountants, Caitong Securities conducted verification of the depositing and actual use of funds raised by the Company in 2018 in terms of the management, use and information disclosure of the Company's raised funds based on the rules and regulations on the management of the Company's raised funds. II. Profile of Raised Funds In April 2016, upon the approval of the China Securities Regulatory Commission on the Approval of Xinchao Industrial Co., Ltd. to Issue Shares to Purchase Assets and Raise Supporting Funds from Beijing Longde Kaiyuan Venture Investment Center LP and Other Companies (Z.J.X.K. [2015] No. 2402), the Company issued non-public offering of 206,084,394 RMB common shares at a price of RMB10.19/share, with the total amount of raised supporting funds being RMB2,099,999,974.86. After deduction of the issuance expenses of RMB55,795,244.60, the net amount of actually raised funds was RMB2,044,204,730.26. Zhonghua Accounting Firm LLP conducted audit verification of fund allocation and issued the Capital Verification Report (Z.H.Z. [2016] No. 4568). III. Depositing and Management of Raised Funds i. Management of raised funds In order to regulate the management and use of the Company's raised funds and protect the interests of investors, in accordance with the provisions of relevant laws, regulations and normative documents such as the Company Law of the People's Republic of China, the Securities Law of the People's Republic of China, the Rules Governing the Listing of Stocks on Shanghai Stock Exchange, and the Management Measures for Funds Raised by Listed Companies of the Shanghai Stock Exchange (Revised in 2013), and in combination with the actual situation, the Company formulated the Management Measures for the Use of Raised Funds (hereinafter referred to as the "Management Measures") and the Internal Control System for the Deposit, Use and Management of Special Funds Raised by the Company. In accordance with the requirements of the Management Measures, the Company should store the raised funds in a special account. On May 16, 2016, the Company and Caitong Securities signed the Tripartite Regulatory Agreement for the Special Account Depositing of Raised Funds with Branch of Huaxia Bank, Muping Branch of Yantai Rural Commercial Bank and Muping Branch of Yantai Bank regarding the supervision of the raised supporting funds. On May 26, 2016, Zhejiang Benbao Industrial Investment Co., Ltd., a wholly-owned subsidiary of the Company, and Caitong Securities signed the Tripartite Regulatory Agreement for the Special Account Depositing of Raised Funds with Zhejiang Branch of Bank of China regarding the supervision of the raised supporting funds. In order to strengthen the use and management of overseas raised funds of the Company, on September 21, 2017 (US time), Surge Energy America Holdings, Inc., an original American subsidiary of Zhejiang Benbao Industrial Investment Co., Ltd., the Company's wholly-owned subsidiary, and Caitong Securities signed the Tripartite Regulatory Agreement for the Special Account Depositing of Raised Funds with Industrial and Commercial Bank of China, New York Branch regarding the supervision of the raised supporting funds. In order to strengthen the use and management of overseas raised funds after the overall adjustment of the Company's overseas oilfield asset control structure, on January 8, 2018 (US time), Moss Creek Resources, LLC, an American subsidiary of the Company, and Caitong Securities signed the Tripartite Regulatory Agreement for the Special Account Depositing of Raised Funds with Industrial and Commercial Bank of China, New York Branch regarding the supervision of the raised supporting funds. ii. Depositing of raised funds in special account As at December 31, 2018, the special deposit account for raised funds and its balance are as follows: Unit: RMB

Initial deposit Balance at the Deposit bank for fund raised Bank account No. funds closing date Hua Xia Bank Co., Ltd. Qingdao XXXXXXXXXX 500,000,000.00 6,235.53 Branch Yantai Rural Commercial Bank Co., Ltd. Muping District XXXXXXXXXXXX 500,000,000.00 731,918.06 Sub-branch Yantai Bank Co., Ltd. Muping XXXXXXXXXXXX 1,074,349,974.86 14,130.44 Sub-branch Bank of China Limited Zhejiang XXXXXXXXXXXX - 4,876,794.00 Branch Initial deposit Balance at the Deposit bank for fund raised Bank account No. funds closing date Industrial and Commercial Bank 218,036.93 XXXXXXXXXXX - of China, New York Branch (USD31,768.99)

Industrial and Commercial Bank 113,783.14 XXXXXXXXXXX - of China, New York Branch (USD16,578.73)

Total - 2,074,349,974.86 5,960,898.10

Notes: 1. The balance of Industrial and Commercial Bank of China New York Branch (XXXXXXX) as at December 31, 2018 is USD31,768.99, equivalent to RMB218,036.93 based on a central parity rate of 6.8632 on December 31, 2018. 2. The balance of Industrial and Commercial Bank of China New York Branch (XXXXXXX) as at December 31, 2018 was USD16,578.73, equivalent to RMB113,783.14 based on a central parity rate of 6.8632 on December 31, 2018. IV. Actual Use of Raised Funds i. Comparison of Use of Raised Funds The Comparison of Use of Raised Funds is detailed in the "Attached Table I" of this Verification Opinion. ii. Advance investment and replacement of the raised funds investment projects As at April 30, 2016, the Company paid an actual intermediary service charge of RMB60,157,700, of which the amount used by the special account for the raised funds was RMB25,650,000, and the amount used with self-raised funds was RMB34,507,700. In May 2016, upon deliberation and approval of the Company's Board of Directors, the Company replaced the self-raised funds with the raised funds of RMB34.35 million; the actual intermediary service charge exceeding the promised investment amount, namely RMB157,700 was paid with the self-raised funds of the Company. Zhonghua Accounting Firm LLP issued the Special Verification Report (Z.K.Z. [2016] No. 4883) on this replacement. iii. Cash management of idle raised funds and investment in relevant products Upon the approval of the Ninth Meeting of the Tenth Board of Directors of the Company and the Fifth Extraordinary General Meeting of 2017, the Company conducted cash management of idle raised funds with a total amount of no more than RMB1.1 billion. The term of the cash management shall be valid for 1 year from September 29, 2017; upon the approval of the 14th Meeting of the Tenth Board of Directors and the Seventh Extraordinary General Meeting of 2017, the Company conducted cash management of idle raised funds with a total amount of no more than RMB400 million. The term of the cash management shall be valid for 1 year from November 28, 2017. The above amount may be used in a rolling manner during the cash management period. Independent directors and the Board of Supervisors of the Company have expressed their agreement on the matter. As at December 31, 2018, the wealth management products purchased with the Company's idle raised funds have all expired, and the Company has cancelled relevant dedicated settlement accounts as stipulated. iv. Use of idle raised funds to temporarily replenish working capital On March 9, 2018, upon deliberation and approval of the 19th Meeting of the Tenth Board of Directors and the Tenth Meeting of the Ninth Board of Supervisors, the Company temporarily replenished its working capital with RMB650 million of the raised funds, with a use period of no more than 12 months from the date of deliberation and approval of the Board of Directors of the Company. On July 9, 2018, upon deliberation and approval of the 23rd Meeting of the Tenth Board of Directors and the 13th Meeting of the Ninth Board of Supervisors, the Company temporarily replenished its working capital of its wholly-owned subsidiary Shanghai Xinchao Petroleum Energy Technology Co., Ltd. with RMB252.5 million of the raised funds, with a use period of no more than 12 months from the date of deliberation and approval of the Board of Directors of the Company. Upon verification, as at the date of issuance of this verification opinion, RMB650 million of the raised funds of the Company for temporarily replenishing working capital was not returned as scheduled. After learning that the listed company failed to return the raised funds for temporarily replenishing working capital as scheduled, the independent financial adviser immediately conducted verification of the relevant situation. In accordance with the statement issued by Xinchao Energy, the Company is mainly engaged in overseas oil exploration, mining and sales. The main assets of the Company are located overseas, and domestic funds are insufficient to return the funds raised; due to factors such as litigation disputes, the Company has greater difficulty in domestic financing; if the overseas raised funds are directly returned to the overseas raised fund accounts, there are certain obstacles in terms of compliance and procedures. In response to the above difficulties, the Company has formulated a detailed solution for the return of raised funds. The Company is intended to return the raised funds for temporarily replenishing working capital as soon as possible by obtaining new credit facility with banks, tapping the domestic idle assets, and actively promoting the proper settlement of historical issues and litigation cases. V. Use of Funds for Changed Investment Projects of Raised Funds i. Table of changes in investment projects of raised funds The Table of Changes in Investment Projects of Raised Funds is detailed in the "Attached Table II" of this Verification Opinion. ii. Reasons for changing the investment projects of raised funds In order to effectively respond to the continued slowdown in the international oil prices and improve the efficiency of the use of funds, upon deliberation and approval of the 15th Meeting of the Tenth Board of Directors, the Ninth Meeting of the Ninth Board of Supervisors and the Eighth Extraordinary General Meeting in 2017, in December 2017, the Company has changed the USD65 million (equivalent to RMB428,606,000, and the actual investment shall additionally include the generated interest) of the raised funds of RMB740 million to be invested for replenishing operating funds of underlying asset (Hoople oilfield assets) of the original investment projects of raised funds to replenishing operating funds of Howard and Borden oilfield assets. In order to further optimize resource allocation, save mining costs, and properly balance the capital investment of the two oilfield assets, upon deliberation and approval of the 25th Meeting of the Tenth Board of Directors, the 14th Meeting of the Ninth Board of Supervisors and the Third Extraordinary General Meeting in 2018, in August 2018, the Company has changed the USD122.5 million (equivalent to RMB791,897,500, and the actual investment shall additionally include the generated interest) of the raised funds of RMB1.3 billion originally planned for the underlying asset (Hoople oilfield asset) oilfield development project to replenishing oilfield development project funds of Howard and Borden oilfield assets. VI. Verification Opinion of Accountants on the Depositing and Use of the Company's Funds Raised in 2018 Zhonghua Accounting Firm LLP reviewed the Special Report of Shandong Xinchao Energy Corporation Limited on Depositing and Use of Raised Funds in 2018 and issued the 2018 Verification Report on the Depositing and Actual Use of Raised Funds of Shandong Xinchao Energy Corporation Limited. Zhonghua Accounting Firm LLP believes that the special report of Xinchao Energy is formulated in accordance with the provisions of the Regulatory Guidelines for Listed Companies No. 2 - Regulatory Requirements for the Management and Use of Raised Funds of Listed Companies and the Management Measures for Funds Raised by Listed Companies of the Shanghai Stock Exchange (Revised in 2013) in terms of major aspects, which reflects the depositing and actual use of raised funds of Xinchao Energy as at December 31, 2018. VII. Verification Opinion of Independent Financial Adviser Upon verification, Caitong Securities believes that: Xinchao Energy failed to return the raised funds for temporary replenishment of working capital as scheduled, which is in violation of the provisions of laws, regulations and normative documents such as the Regulatory Guidelines for Listed Companies No. 2 - Regulatory Requirements for the Management and Use of Raised Funds of Listed Companies and the Management Measures for Funds Raised by Listed Companies of the Shanghai Stock Exchange (Revised in 2013); the independent financial adviser will continuously monitor the progress of the listed companies in returning the raised funds, and urge the listed companies to abide by relevant provisions of laws, regulations and normative documents and the resolutions of the shareholders' meeting to effectively fulfill its commitments and protect the interests of investors. (This page is intentionally left blank)

(This page is intentionally left blank as the signature page of the Verification Opinion of Caitong Securities Co., Ltd. on the Depositing and Actual Use of Raised Funds of Shandong Xinchao Energy Corporation Limited in 2018)

Financial adviser handlers: Zhan Limin Han Jianlong

Caitong Securities Co., Ltd. Date:

Attached Table I: Comparison of Use of Raised Funds Unit: RMB10,000

Total amount of raised amount that has been invested Total amount of fund raised 210,000.00 80,451.41 (USD124.5 million) this year Total amount of raised amount whose use 122,050.35 (USD187.5 million) purpose was changed Accumulative amount of raised amount that has been 129,312.01 Proportion of total amount of raised amount invested 58.12% whose use purpose was changed Difference between the Has there Promised Accumulated Investment Date on Whether accumulated been any Changed Promised investment investment progress at which the the investment significant Promised projects, investment amount at the Investment amount up the end of project Benefits expected Adjusted total amount and change in investment including partly amount end of the amount of to the end of the reaches its achieved benefits investment the the projects changed from raised reporting this year the reporting reporting intended this year have promised feasibility projects (if any) funds period period period (%) serviceable been investment of the (1) (2) (4)=(2)/(1) status achieved amount project? (3)=(2)-(1) Underlying Replenish asset (Hoople development oilfield asset) projects of 130,000.00 50,810.25 50,810.25 0.00 0.00 -50,810.25 - - - - Note 1 oilfield Howard and development Borden oilfield project assets Change part of Replenish the raised funds to operating funds replenish 1,261.66 1,261.66 of the development 74,000.00 31,139.40 31,139.40 (USD2 (USD2 -29,877.74 4.05% - - - Note 1 underlying projects of million) million) asset (Hoople Howard and oilfield asset) Borden oilfield assets

Replenish development projects and 122,050.35 122,050.35 79,189.75 122,050.35 - operating funds - (USD187.5 (USD187.5 (USD122.5 (USD187.5 - 100% Note 2 Note 2 Note 2 No of Howard and million) million) million) million) Borden oilfield assets Pay intermediary - 6,000.00 6,000.00 6,000.00 - 6,000.00 - 100% - - - No service charges Total - 210,000.00 210,000.00 210,000.00 80,451.41 129,312.01 -80,687.99 61.58% - - - - Reasons for not reaching the planned progress (based on Inapplicable specific raised fund investment project) Description of major changes in project feasibility Note 1 Up-front investment and replacement of raised funds investment For details, please refer to "ii. Advance investment and replacement of the raised funds investment projects" of "IV. projects Actual Use of Raised Funds" in this Verification Opinion. Use of idle raised funds to temporarily replenish working For details, please refer to "iv. Use of idle raised funds to temporarily replenish working capital" of "IV. Actual Use of capital Raised Funds" in this Verification Opinion. Cash management with idle raised funds and investment for For details, please refer to "iii. Cash management of idle raised funds and investment in relevant products" of "IV. relevant products Actual Use of Raised Funds" in this Verification Opinion. Amount of balance of raised funds and reasons for its formation Inapplicable Other use of raised funds Inapplicable

Note 1: After the Company acquired Zhejiang Benbao in 2015, the international oil prices continued to be sluggish. In order to further optimize resource allocation, save mining costs, and properly balance the capital investment of the two oilfield assets, the Company took rational control of the development progress of the Hoople oilfield to ensure that the Company starts its business steadily in the early stage of transformation; in the future, the Company is intended to further enhance the development of the Hoople oilfield at an appropriate time based on the changes in international crude oil prices; Note 2: In 2018, the Company focused more on the operations of its oil and gas business, optimized shale oil and gas exploration processes, and strengthened risk control. The U.S. oil and gas business recorded income of USD721 million and recorded net profit of USD295 million.

Attached Table II: Table of Changes in Investment Projects of Raised Funds Unit: RMB10,000

Date on Whether Accumulated which the the Has there been Amount of raised investment Actual Investment Investment project Benefits expected any significant Changed Corresponding funds to be amount at the accumulated progress amount of this reaches its achieved benefits change in the projects projects invested in end of the investment (%) year intended this year have feasibility of the changed projects reporting period amount (2) (3)=(2)/(1) serviceable been project? (1) status achieved Underlying asset Replenish (Hoople oilfield 79,189.75 79,189.75 79,189.75 79,189.75 development asset) oilfield (USD122.5 (USD122.5 (USD122.5 (USD122.5 100% Note 1 Note 1 Note 1 - projects and development million) million) million) million) operating project funds of Replenish the Howard and operating funds Borden 42,860.60 42,860.60 42,860.60 of the underlying - 100% Note 1 Note 1 Note 1 - oilfield (USD65 million) (USD65 million) (USD65 million) asset (Hoople assets oilfield asset) 122,050.35 122,050.35 79,189.75 122,050.35 Total - (USD187.5 (USD187.5 (USD122.5 (USD187.5 100% Note 1 Note 1 Note 1 - million) million) million) million) Reason for Change, Decision-making Procedures For details, please refer to "V. Use of Funds for Changed Investment Projects of Raised Funds" in this Verification Opinion. and Information Disclosure Statement Reasons for not reaching the planned progress Inapplicable (based on specific raised fund investment project) Description of major changes in project feasibility Inapplicable

Note 1: In 2018, the Company focused more on the operations of its oil and gas business, optimized shale oil and gas exploration processes, and strengthened risk control. The U.S. oil and gas business recorded income of USD721 million and recorded net profit of USD295 million.