FTO.L Regulatory News (FTO)

17 May 2013

FORTUNE OIL PLC

("Fortune Oil", the "Company" or the "Group")

Q1 2013 Interim Management Statement

Fortune Oil (LSE: FTO.L) focuses primarily on Chinese oil, natural gas and resource supply operations and investments. Fortune Oil is listed on the London Stock Exchange.

Fortune Oil announces its Interim Management Statement for the period 1 January 2013 to date.

Highlights

·; Shareholders of China Gas Holdings Limited ("CGH") and of Fortune Oil have both approved the proposed transaction in relation to Fortune Oil's natural gas business which will significantly strengthen the Group's balance sheet. Completion expected around mid-year 2013 following receipt of regulatory approval.

·; China Gas Group, a joint venture company between the Company and Mr Liu Minghui, acquired all the 207,968,000 CGH shares previously purchased by Fortune Max. Following the transaction as at May 17 2013, China Gas Group owns 702,446,000 CGH shares, representing 15.36 per cent. of CGH total issued shares.

·; New natural gas supply connections increased by 57.6 per cent. to 7,689 in Q1 (Q1 2012: 4,880). The total number of connected customers is now over 280,000.

·; Natural Gas Sales volumes increased 21 per cent. to 151.3 million cubic metres in Q1 (Q1 2012: 125.6 million cubic metres).

·; Chinese Reserves Certification obtained across the Liulin block for seams 3,4,5,8 and 9. The Chinese certification reported a total gas in place of 21.8 billion cubic metres.

·; Bluesky jet fuel sales volumes in Q1 2013 increased 9.4 per cent. to 770,000 tonnes (Q1 2012: 704,000 tonnes).

OPERATIONAL OVERVIEW

Natural Gas Business

The natural gas business continues to benefit from China's robust economy and thriving natural gas demand. The Company has steadily expanded its upstream and midstream operations as well as its downstream city-gas and refuelling operations. Through its transaction with CGH the Company will have an ideal platform to accelerate this expansion.

·; In Q1 2013 7,689 new customers were connected, an increase of 57.6 per cent. compared to the same period in 2012 (4,880 new customers) as the Company's gas pipeline network expands and gas supplies increase.

·; Natural Gas Sales volumes increased 20.5 per cent. to 151.3 million cubic meters in the first quarter (Q1 2012: 125.6 million cubic meters).

·; China Gas Group acquired all the 207,968,000 CGH shares previously purchased by Fortune Max. Following the transaction, China Gas Group, the joint venture company in which Fortune has a 50 per cent. interest, owns 702,446,000 CGH shares, representing 15.36 per cent. of CGH total issued shares. As at 17 May 2013 the joint venture and its associates held 911,550,000 shares in CGH representing 19.9 per cent. of CGH total issued shares making the joint venture and its associates the second largest shareholder of CGH.

·; Shareholders of CGH and of Fortune Oil have both approved the proposed transaction in relation to Fortune Oil's natural gas business, which will significantly strengthen Fortune Oil's balance sheet. Completion is expected around mid-year 2013 following receipt of regulatory approval.

·; Construction is underway for the first permanent LNG ship refuelling station on the Yangtze River near Chongqing, having achieved a major first in China in obtaining the regulatory approvals for commercial operations.

The Chinese government continues to encourage the expansion of natural gas supply to meet the 12th Five Year Plan target to increase gas usage in China to 8 per cent. of the energy mix from the current level of approximately 5 per cent. (China natural gas demand was 147 billion cubic metres in 2012). Through our transaction with China Gas Holdings we will be cooperating with one of the largest natural gas companies in China supplying gas to over 200 cities with a strong platform for future growth.

Upstream Coal Bed Methane ("CBM")

Fortune Oil continues to make progress at its Liulin CBM operations and the project remains on track for first commercial gas sales in 2013.

·; Having obtained the necessary approvals to progress the construction of the gas gathering system (a critical step towards commercialisation of gas from this block) construction of this and the nodal compression station is underway, with the target for this to be completed by mid 2013.

·; Total gas field production from Liulin has exceeded 100,000 cubic metres per day. The rate of dewatering the wells and the natural gas production is currently being moderated to minimise natural gas production until the gas gathering system has been completed.

·; An additional Chinese reserves certification of 16.3 billion cubic metres gas reserves was obtained for seams 3,4 and 5 in the southern part of the Liulin block and for seams 8 and 9 for the whole Liulin block. The total gas in place for the whole Liulin block (seams 3,4,5,8 and 9) is therefore estimated by the Chinese approval agencies to be 21.8 billion cubic metres. The Chinese Reserves Certification is a requirement of the Overall Development Programme ("ODP") process. 

Oil Business

The Oil business continues to be a strong cash generator for the Group.

·; Bluesky jet fuel sales in Q1 2013 were 770,000 tonnes, representing an increase of 9.4 per cent. over the same period in 2012 (704,000 tonnes), underpinned by the continued strong demand for domestic air travel in China.

·; Fortune Oil and Sinopec are in the final stages of negotiating a replacement structure for the Maoming Single Point Mooring partnership, which will include the development of a new pipeline and buoy, increasing the capacity of the terminal.

·; In Q1 2013, West Zhuhai Terminal's volume throughput increased by 38.7 per cent. to 720,000 tonnes compared to the same period in 2012 (519,000 tonnes) due to increased throughput utilisation by Petrochina.

Trading Business

The trading business continues to focus on the supply and trading of oil and petrochemical products

·; In Q1 2013, the total quantity traded of base oils and petrochemicals was approximately 14,000 tonnes compared to 19,000 tonnes for the same period in 2012.

·; Fortune Oil obtained one of the first licences issued to enable the supply and trading of diesel and other refined products and agreement has been reached with Tianjin Gas to supply LNG to the city of Tianjin.

Resources Business

As part of its stated strategy Fortune Oil is pursuing overseas investment opportunities to capitalise on China's growing demand for energy and resources. Fortune Oil continues to make good progress on the development of the Hrazdan mine.

·; Fortune Oil is in negotiations with several potential customers for the iron ore off-take from the Hrazdan mine. Customer evaluations of the processed material obtained from pilot plant scale trails meet or exceed the customer's requirements.

·; SRK Consulting (UK) and Sinosteel are carrying out a set of additional test studies which if successful will enable Fortune Oil to reduce the land requirements of the tailings and waste rock areas. This is expected to lead to a significant reduction in the capital costs of the project. These studies are also required to obtain the regulatory approvals which are now expected in 2014.

·; Fortune Oil is working with the Armenian and Georgian rail companies and key government agencies to ensure that the iron ore from the Hrazdan mine can be transported cost effectively and reliably to the key markets in the region.

FINANCIAL PERFORMANCE

Financial Position

There has been no material change in the financial position of the Group since the end of the most recent reporting period on 31 December 2012.

As at the date of this announcement, Fortune Oil's balance sheet remains healthy. The Group monitors and maintains a level of cash and cash equivalents considered adequate by management to finance the Group's operations and repayment of bank loans and investment commitments for the foreseeable future.

As announced on 26 April 2012 subject to the shareholders' approval the directors have recommended a final dividend of 0.16p per ordinary share (2011: 0.18p per ordinary share) to be paid on 15 August 2013 to ordinary shareholders on the register on 12 July 2013. This is in line with the Board's stated intention to make an annual dividend payment to shareholders.

OUTLOOK

Overall business performance is in line with expectations. The Board remains optimistic with regard to Fortune Oil's prospects, despite the reduction in China's economic growth rate from 7.9 per cent. in Q4 2012 to 7.7 per cent. growth in Q1 2013. Although this will slow the growth rate for energy consumption, the Board does not believe it will affect the inevitable move from high carbon/high pollution fuels to natural gas. In addition, the Board believes that the slowing of economic growth will not materially impact the continuing growth in vehicle ownership and air travel, which continues to drive up demand for transport and aviation fuels.

For further details:

Background on Fortune Oil

Fortune Oil is a leading independent energy company engaged in the investment and operations of oil and natural gas supply projects in China. With over 20 years of operating history in China, Fortune Oil has acquired a unique portfolio of high quality oil and natural gas projects across the country and has formed a strong partnership with domestic and international market leaders. Fortune Oil recently started an expansion outside China securing resource projects. Fortune Oil is listed on the London Stock Exchange with its operational headquarters in Hong Kong.