FTO.L Regulatory News (FTO)

17 Sep 2007 07:01

Fortune Oil PLC17 September 2007 17th September 2007 FORTUNE OIL PLC ("Fortune Oil" or "the Company") Coal Bed Methane Joint Venture with Shanxi Government and CUCBM Fortune Oil announces its investment in a key strategic joint venture for theutilisation of coal bed methane ("CBM") in Shanxi Province, one of the world'slargest resources of coal seam gas. Highlights • The investment will secure a 50 per cent interest in China United Shanxi CBM Company Limited ("Shanxi CBM"), a company already established by Shanxi Energy Industries Group Ltd, an arm of the Shanxi provincial government, and China United Coalbed Methane Corporation Ltd ("CUCBM"), the principal national government body for CBM development in China. • Fortune Oil's partners are the key central and provincial government companies responsible for exploitation of gas from coal seams in Shanxi. • This is the first time that a foreign company has partnered the government in such a CBM venture. • Shanxi CBM will be a major platform for Fortune Oil to collect and market methane gas in Shanxi Province through the acquisition and development of gas infrastructure in this gas-rich region. Participation in the joint venture will provide greater access to gas and downstream opportunities. • The initial investment of RMB 20.9 million (£1.4 million) will be funded from Fortune Oil's term loan facility announced on 26 April 2007 and the joint venture is expected to be earnings enhancing from 2008. CBM in Shanxi Province Shanxi Province currently produces significant volumes of gas from virgin coalseams (coal bed methane, CBM) and from operational coal mines (coal minemethane, CMM). This production is increasing as more coal mines remove gas fromcoal beds prior to mining in order to prevent explosions. The gas markets and infrastructure in Shanxi Province are not yet sufficientlydeveloped to utilise this gas, even though the demand for natural gas as a cleanfuel in this resource-rich region is expected to be large. As a result, largequantities of methane gas are currently being vented to the atmosphere. Notonly is this seen as a waste of an important domestic resource but also themethane emissions are a contributor to global warming. Joint Venture Creation Shanxi CBM was established by the central and provincial governments to capture,process and market gas from coal seams in Shanxi Province. Investment byFortune Oil will assist Shanxi CBM's ability to fund and develop gasdistribution networks and will build on Fortune Oil's experience andrelationships in the CBM industry. It is anticipated that, with Fortune Oil'sinvolvement, the joint venture will now accelerate the acquisition andconstruction of gas sales infrastructure, such as facilities for CNG and LNG(compressed and liquefied natural gas), pipelines and city gas networksthroughout Shanxi province. Prior to investment in Shanxi CBM, Fortune Oil wasalready the only foreign company distributing gas in this region, through jointventures with the provincial gas pipeline company (Shanxi Gas Company) in thenorth part of the province The shareholders in the Shanxi CBM joint venture are some of the most importantparticipants in the CBM industry in Shanxi Province. Shanxi Energy IndustriesGroup Ltd is a provincial company tasked by the provincial government withcapturing gas from coal in Shanxi, which has one of the world's largestresources of coal seam gas. CUCBM is the government party in the CBM productionsharing contracts with foreign investors in Shanxi and other provinces, such asfor Fortune Oil's Liulin block. The Shanxi CBM joint venture has receivedapproval from all the requisite government bodies. Joint Venture Structure Currently Shanxi CBM operates a retail CNG business in south Shanxi with a smallturnover. Net assets at end June 2007 were £0.4 million. Initially Fortune Oilwill invest RMB 20.9 million (£1.4 million) to increase the registered capitalof Shanxi CBM through two wholly owned subsidiaries, Fortune Gas Investment Co.Ltd and Guangzhou Fortune Oil Co. Ltd, and Fortune Oil will thereby hold acombined 50 per cent in the joint venture. Shanxi Energy Industries Group Ltdwill hold 37.2 per cent and CUCBM will hold 9.2 per cent, with the remaining 3.6per cent held by two other Shanxi government companies. Mr Qian Benyuan, Chairman of Fortune Oil, commented: "Fortune Oil is honoured to combine with Shanxi Energy Industries Group andCUCBM in this key venture for utilising Shanxi's vast methane resources. Thisis a very powerful combination of companies, bringing to bear the necessaryindustry experience, funding and government support. It is the first time thateither Shanxi Energy Industries Group or CUCBM has entered into a joint venturewith a foreign company for CBM utilisation. This reflects the strong reputationthat Fortune Oil has established in the gas distribution and CBM industries inChina and we are very excited about developing this major gas partnership inShanxi." Enquiries: Fortune Oil PLCJohn Pexton - Deputy Chief Executive Tel: 00 852 2583 3113 (Hong Kong) Pelham Public RelationsArchie Berens Tel: 020 7743 6679 or 07802 442 486 This information is provided by RNS The company news service from the London Stock Exchange