FTO.L Regulatory News (FTO)

28 Sep 2006 07:05

Fortune Oil PLC28 September 2006 28 SEPTEMBER 2006 FORTUNE OIL PLC ("Fortune Oil" or "the Company") Announcement of Interim Results for 6 Months Ended 30 June 2006 Fortune Oil focuses on oil and gas supply and infrastructure projects in China.Fortune Oil is quoted on the full list of the London Stock Exchange and has itsheadquarters in Hong Kong. KEY POINTS • Revenues including share of joint ventures increased by 48 per cent to £94.9 million (2005: £64.2 million). • Profit before tax increased by 5 per cent to £3.3 million (2005: £3.2 million) and earnings per share steady at 0.08p. • Gas supply business now in profit as sales volume increased by 240 per cent to 38 million cubic metres, with operating profit of £0.5 million (2005: loss of £0.2 million). • First half profits were affected by a lower operating margin and jet fuel pricing disparity at Bluesky; the government has initiated a compensation mechanism which has restored the Bluesky margin from the second quarter onwards. • Fortune Oil entered the upstream gas business by acquiring control of the Liulin coal bed methane block, with all approvals now in place for the PSC transfer. Pilot drilling will commence in late 2006. • High Court approval obtained in July 2006 to cancel the surplus in the share premium account, thereby enabling the Company to pay dividends in the future. Mr Qian Benyuan, Chairman of Fortune Oil, commented: "Excellent performance in the gas business was offset by a pricing disparity inthe first quarter at Bluesky. We welcome the new government pricing policieswhich assure Bluesky's future margin, with end-users paying for changes in theprice of imported jet fuel. The strong growth in natural gas sales reflects theincreasing demand for clean energy in China. With the recent investment in coalbed methane, Fortune Oil is now making exciting and crucial steps in becoming anintegrated gas company." ENQUIRIES: Fortune Oil PLC Tel: 00 852 2583 3113 (Hong Kong) John Pexton, Deputy Chief Executive Pelham Public Relations Tel: 020 7742 6679 / 07802 442486 Archie Berens FORTUNE OIL PLC Announcement of Interim Results for 6 Months Ended 30 June 2006 CHIEF EXECUTIVE'S REVIEW INTRODUCTION In the first half of 2006 Fortune Oil's revenues increased substantially as aresult of volume and pricing growth in both the natural gas and aviationrefuelling sectors. Growth in profit was restrained because of lower tariffsand pricing policy issues in Bluesky, which were resolved by the government fromthe second quarter onwards. China continues to show strong economic growth butwith increasing emphasis on environmental issues and the search for cleanerfuels. Security of supply remains a critical factor both for the nation and forthose energy companies such as Fortune Oil serving the community. Fortune Oil recently entered the upstream gas business by acquiring control of acoal bed methane (CBM) block and we expect future CBM production to supply ourgas distribution ventures. The Company intends thereby to create one of thefirst independent integrated gas businesses in China. Fortune Oil also remainsone of the few international companies with interests in petroleum terminals inChina and we will continue to exploit investment and supply opportunitiescentred around such terminals. Results for the six months ending 30 June 2006: • Revenues including the Group's share of joint ventures increased to £94.9 million, up 48 per cent from the same period last year. • Profit before tax increased 5 per cent to £3.3 million. • Retained profits (attributable to equity shareholders) were steady at £1.4 million with earnings per share remaining at 0.08 pence. • Sales of natural gas tripled to 38 million cubic metres, which lifted the gas business into an operating profit of £0.5 million. • An ongoing compensation mechanism was implemented from the second quarter by the government to protect Bluesky from the effects of excessive international jet fuel prices. However, a lower operating margin and the fact that no compensation has been received to date for the first quarter caused a fall in Bluesky's first half profit. • All approvals for PSC transfer and extension for the Liulin CBM block have now been obtained and pilot drilling is scheduled to commence in late 2006. • High Court approval has now been obtained in July 2006 for canceling the surplus in the share premium account, thereby allowing dividends to be paid in future. OPERATING REVIEW Oil Infrastructure In the first 6 months of 2006 throughput at the Maoming Single Point Mooring(SPM) was 5.3 million tonnes of crude oil from 23 tankers, a performance similarto previous periods. For some years the crude oil supply system to the SinopecMaoming refinery has been operating close to a practical utilisation limit for250,000 dwt tankers. This capacity was increased in mid-2006 by making certainmodifications, with local government approvals, to permit the handling of300,000 dwt tankers, such as the new class of double-hulled tankers. Inanticipation of Sinopec increasing its throughput rate, we agreed to decreaseboth the throughput tariff and Sinopec operations charge from January 2006. Theoperating profit at the MKM joint venture was £2.9 million (US$5.2 million)(2005: £3.0 million). There were no lost-time accidents at MKM in this period. The South China Bluesky Aviation Refuelling joint venture increased volume salesby 18 per cent to 700,000 tonnes (2005: 591,000 tonnes). There was volume salesgrowth at most of Bluesky's 15 airports, but with Guangzhou Baiyun InternationalAirport again being the major contributor. There were no lost-time accidentsin this period, customer satisfaction surveys continue to show excellentperformance and near-100 per cent equipment availability. Despite the continuing rise in throughput the net profit fell to £3.3 million(US$5.8 million), compared with £4.2 million (US$7.8 million) in the same periodlast year. From April 2006 the tariff for domestic flights decreased atGuangzhou and increased at the regional airports, resulting in a lower operatingmargin for Bluesky. In addition, a combination of exceptionally high jet fuelprices and surging domestic demand also affected the operating margin and forthis pricing disparity, the government initiated a compensation mechanism in thesecond quarter. The compensation mechanism obliges domestic airlines to pay a rebate as a jetfuel surcharge to the aviation fuel supplier. The airlines are allowed torecover these payments through a ticket surcharge to passengers. This rebate isfixed every quarter based on the deemed deficit for the entire aviationrefuelling industry in the preceding quarter. This deficit may arise when jetfuel is imported to supply domestic airlines but sold at a lower price set bythe government. For the third quarter the rebate paid by domestic airlines isRMB 290 (US$36) per tonne of jet fuel sold. All the details of thiscompensation mechanism have yet to be finalised and we still expect to receivesome retrospective compensation for earlier periods. However, the objective isclear and provides an encouraging signal for the private sector in China: theend-user should pay for changes in international energy prices, not the energydistributors. Throughput at the West Zhuhai Oil Products Terminal joint venture was 1.1million tonnes for the first half of 2006, down from 1.3 million tonnes in 2005.The net profit in the period was £1.0 million (US$1.8 million) (2005: £1.4million). The supply disruptions that commenced in mid 2005 continued into2006, particularly as the price gap increased between international and domesticdiesel, making it uneconomic for PetroChina to import diesel. However, the terminal remains a key asset for distribution of diesel andgasoline on the west side of the Pearl River Delta, the new expansion area forthe world's largest manufacturing centre. New chemical and manufacturing plantsare being planned near the West Zhuhai port and a bridge should eventually linkZhuhai to Hong Kong. As the oil markets further liberalise, there will beopportunities for supply and trading based around independent oil productsterminals, of which our terminal is the largest. The joint venture iscontinuing to plan for a third phase expansion of 100,000 cubic metres ofchemical storage. Consequently in early 2006 we proposed to raise our stake inthe joint venture to 37 per cent by acquiring Vitol's 18.5 per cent interest.Under the terms of the agreement, which was approved at an EGM in June, we arealso acquiring Vitol's interests in Fu Duo for a total consideration of £3.3million (US$5.7 million). The West Zhuhai transaction was completed in Augustwhile the Fu Duo transaction is expected to complete in early 2007. The Company is in the process of downscaling the Zhanjiang Fu Duo LPG business,which is no longer core and remains a break-even concern. From January 2006some operations were contracted out for an annual fee income of US$150,000 andcertain subsidiaries are being sold. There remains considerable value in the FuDuo terminal and associated land. Trading and Retail Operations made a small profit in the first half of 2006.This year the Company has commenced trading of deregulated products on a lowrisk basis, such as the import of bitumen from the Middle East. Gas Infrastructure As expected, the Company's natural gas business became earnings-positive in thefirst half of 2006, with an operating profit of £0.5 million (US$0.9 million)(2005: loss of £0.2 million). Sales of natural gas increased by 240 per cent to38 million cubic metres (2005: 11 million cubic metres). Half of the gas saleswere in the form of CNG (Compressed Natural Gas) from the Tongzhou CNG station,which is the largest CNG station in the Beijing area. Volume throughputincreased at all the joint ventures. For example the flow of gas through theJinshatan spur pipeline increased ten-fold to 3.5 million cubic metres as theShanxi Gas Company began to supply the city of Datong. Our principal city gascompanies connected 3,700 new customers in the first half of 2006. Further growth is expected as both demand and supply grow along theShaanxi-Beijing pipelines, the current principal source of our natural gas. Ourinfrastructure still has spare capacity to leverage this growth. Meanwhile, wehave strengthened the supervision of the gas business by enhancing the controlsystems, particularly in regards to HSE (Health, Safety and Environment) andfinancial reporting, and by creating a new management organisation headed by Mr.Tian Jun, the Group's Chief Operations Officer in China. Fortune Oil remains the only international company investing in and operatinggas distribution companies in China. However, there are now a number of Chinesecompanies competing to acquire and build city gas companies as a result of thegrowing demand and the rise in domestic gas prices. We believe that some ofthese companies are not adequately assessing the risks of future gas supply.Fortune Oil has been more conservative in its acquisition policy and instead weare focused on creating, developing and maintaining an integrated chain ofsupply. Coal Bed Methane A new focus for the Company is the development of China's vast resources of CoalBed Methane (CBM) and the integration of such upstream supplies with our gasdistribution business, particularly in Shanxi Province. Our first investmenthas been in the Liulin CBM block, where we have acquired 60 per cent of theforeign contractor rights in the Production Sharing Agreement (PSC) with CUCBM,the government body responsible for developing CBM fields with foreigninvestors. Our partner is Molopo Australia Limited, an experienced CBMdeveloper. CBM is methane gas held in coal seams which can be extracted by drilling priorto coal mining operations. CBM is similar to the natural gas found inconventional petroleum reservoirs and can be distributed and sold in the sameway. We believe that this is opportune timing for Fortune Oil as all therequirements are now in place to make China CBM an attractive investment: thereis a growing market for gas in Shanxi Province as well as a regional pipelinenetwork, gas prices will steadily rise across the gas chain and horizontaldrilling technology is now having some success in China. Many developers todate have been unsuccessful in developing China CBM as they lack Fortune Oil'sexpertise such as local gas marketing, government relationships and localmanagement skills. Fortune Oil has now established a professional Chinese CBMteam to develop Liulin and seek other CBM opportunities. The Liulin block is one of the best CBM blocks in China in terms of knownconcentration of gas, as judged by CUCBM, with an estimated in-place gasresource of 23 billion cubic metres. All government approvals have now beenreceived for transfer of the PSC rights to a Fortune Oil subsidiary andextension of the PSC term for a further two years. We intend to commence pilotdrilling operations later in 2006 with the objective of obtaining developmentapprovals for a section of the block in 2008. FINANCIAL REVIEW Revenues including the Group's share of joint ventures in the first six monthsof 2006 increased by 48 per cent to £94.9 million (US$169.9 million) (2005:£64.2 million, US$120.2 million). Profit before taxation was £3.3 million, anincrease of 5 per cent over the previous year (£3.2 million). The profitattributable to equity shareholders was steady at £1.4 million (US$2.5 million)and earnings per share were steady at 0.08 pence. Capital expenditure of £0.7 million (US$1.2 million) was incurred for purchaseof CNG trucks and construction of pipelines. Trade and other receivablesdecreased to £5.6 million (US$10.4 million), the decrease primarily being £1.3million in respect of MKM and £0.5 million in respect of trading. The Group had net cash as of 30 June 2006 of £4.7 million (US$8.7 million)(2005: £4.7 million). Net cash provided by operating activities improved to£2.9 million (2005: £0.4 million). Interest expense for the period was £236,000(2005: £232,000). At the June AGM the shareholders agreed to a capital reduction exercise,permission for which was granted from the High Court in July 2006. Accordinglya transfer will be made from the share premium account to the retained earningsaccount in the second half of 2006. This will enable the Company to paydividends in the future. GOVERNANCE Corporate Responsibility As an investor and operator we are very concerned about the safety of our staffand the impact of our operations on our community, customers and suppliers. TheCompany also recognises that certain industries, such as natural gasdistribution, are relatively new in China and the nation's regulations andmonitoring systems are still evolving. The Company is in the process ofenhancing systems for safety monitoring and training and recently carried out aninternal HSE audit for all the principal gas joint ventures. This will lead tothe establishment of a Group HSE Management System based on a continuousimprovement cycle. Directors The Board of Directors has been restructured in 2006 with the retirement of somelong-standing directors. Vice-Chairman Mr. Bruce McGowan retired in April andthe Non-Executive Directors Mr. Li De, Mr. Feng Xuechang and Mr. Yang Chunshu atthe AGM in June. In addition Ms. Louisa Ho stepped down as Finance Director forfamily reasons but remains on the Board as Non-Executive Director responsiblefor corporate governance. We are very grateful for their dedication to the Company over many years and weare pleased that they all retain an ongoing interest in the Company'sactivities. PROSPECTS We are pleased that the government has taken action to protect Bluesky's futuremargin. China continues its phenomenal growth in demand and we have confidencethat similar measures will be taken when other pricing tensions develop, so asto ensure the ongoing supply of fuel to the community. We will continue todevelop investment and supply opportunities in the oil sector, particularlycentred around terminals such as West Zhuhai. However, our principal focusremains in the gas sector, both in downstream developments and investment incoal bed methane as future supply for our integrated gas business. Li Ching Chief Executive 28 September 2006 CHINA REVIEW Economy China's economic growth continues to be phenomenal: GDP increased a further 11.3per cent in the second quarter, despite dampening measures by the central bankincluding higher interest rates. Revenues from China's exports have resulted inits foreign reserves reaching US$940 billion as of June 2006, six times higherthan those of India. The RMB continues to appreciate, having strengthened 4per cent against the US dollar since July 2005. Currency reform is now on theagenda as the country's markets open further, for example convertibilityrestrictions will be eased in a trial development area at Tianjin. The apparent demand for all oil products rose by 7 per cent over the same periodlast year, but crude oil imports increased by 15 per cent, reflecting the lackof growth in domestic oil production. Power production is growing 13 per centyear on year: 32,000 MW of new power capacity was installed in the first half ofthe year, equivalent to almost half of UK's total installed capacity; 88% of thenew capacity is coal-fired, with hydropower accounting for the balance. Thereare very few power plants designed to use domestic natural gas, which is nowregarded as a premium fuel for household, commercial and transportationapplications. Energy supply is becoming an increasingly important issue at all levels ofChinese society. The NDRC (National Development and Reform Commission) hasreported that at current rates China's proven domestic reserves of oil will last15 years, gas for 30 years and coal for 80 years. These reserve ratios lag theworld average but do not account for new resource finds and likely increases inextraction technology and utilisation efficiencies. Indeed there is a growingrealisation that China's energy efficiency is low and that significant powersavings can be made through better technologies, lower waste and betterconservation efforts. For example by 2008 China's fuel efficiency standards forcars will be above the Federal USA levels. In order to leap-frog the development pattern of western nations, China willneed to find new approaches for energy supply. The NDRC recently announced thatChina will focus on developing a dozen energy industries as a substitute forpetroleum products, in addition to renewable resources. These are principallybiofuels (ethanol is already mandatory in gasoline in certain provinces) andcoal-derived fuels, including coal gasification and coal bed methane. Inaddition, there are now many projects aimed specifically at capturing greenhousegases, such as waste methane, thereby mitigating global warming. Energy Pricing China continues to set the domestic price of transportation fuels at lower thanimport prices, with gradual changes so as to prevent economic shocks. The NDRCrecognises that this is not sustainable long term because of the need to importcrude oil and it aims eventually to bring domestic prices in line withinternational levels while protecting certain sectors of the community. Thegovernment will pass through international price changes to end-users where theycan, as in the case of the rebate now being paid to Bluesky. Natural gas prices are now being increased as current prices are well below boththose of both imported gas and competing liquid fuels. Over the past yearprices along the gas chain have increased by 10 to 20 per cent through aconsensus process. City gate gas prices average RMB 1.4 per cubic metre (US$4.9/MMBTU) but China is now agreeing to import LNG up to 5 years in the future atprices which imply a city gate price up to 50 per cent higher. As a resultFortune Oil expects natural gas prices to increase significantly across thechain, particularly at the well-head for independent sources of gas. Coal Bed Methane Coal bed methane is gas found in coal seams and is an alternative source ofnatural gas to petroleum reservoirs. Development of CBM is critical for China,not only to meet the nation's growing energy demands but also for safety andenvironmental reasons. This methane gas is the principal cause of explosions incoal mines and, should it otherwise escape to the atmosphere, could contributeto global warming. China has the world's third largest reserves of coal and CBM, after USA andRussia. According to the PRC government, there are over 30,000 billion cubicmetres of CBM reserves in China, but current production is small, most being bycoal mine companies for safety reasons. The NDRC plans to promote coal bedmethane in its 11th five-year period (2006-2010), for example through new taxpolicies. We expect significant development of this industry in the comingdecade, particularly as there is more focus on the beneficial effects forclimate change. FORTUNE OIL PLC Announcement of Interim Results for 6 Months Ended 30 June 2006 GROUP INCOME STATEMENT 6 months 6 months 12 months ended ended ended 30.06.06 30.06.05 31.12.05 Amount in £'000 (Unaudited) (Unaudited) (Audited) Revenue including share of joint ventures 94,912 64,180 143,057 Share of revenue of joint ventures (61,473) (40,547) (98,068) Group revenue- continuing operations 33,439 23,633 44,989 Cost of sales (28,775) (19,204) (36,851) Gross profit 4,664 4,429 8,138 Exceptional items - (629) - Administrative expenses (2,188) (2,454) (4,617) Share of results of joint ventures 1,010 1,336 2,810 Profit from operations 3,486 3,311 5,702 Finance costs (236) (232) (454) Investment income 79 87 156 Profit before taxation 3,329 3,166 5,404 Taxation (290) (267) (544) Profit for the year 3,039 2,899 4,860 Attributable to Equity shareholders 1,355 1,350 2,792 Minority interests 1,684 1,549 2,068 3,039 2,899 4,860 Earnings per share Basic 0.08p 0.08p 0.16p Diluted 0.08p 0.08p 0.16p FORTUNE OIL PLC Announcement of Interim Results for 6 Months Ended 30 June 2006 GROUP BALANCE SHEET 6 months 6 months 12 months ended ended ended 30.06.06 30.06.05 31.12.05Amount in £'000 (Unaudited) (Unaudited) (Audited) AssetsNon-current assetsProperty, plant and equipment 24,524 24,040 26,747Investment properties 1,679 1,634 1,800Goodwill 1,002 1,037 1,074Other intangible assets 834 1,076 914Investments in joint ventures 19,025 16,616 19,410Other investments 109 130 117Other receivables - 2,219 - 47,173 46,752 50,062Current assetsInventories 2,411 1,907 2,151Trade and other receivables 5,583 8,087 6,272Cash and cash equivalents 13,135 13,510 11,713 21,129 23,504 20,136Total assets 68,302 70,256 70,198 LiabilitiesCurrent liabilitiesBorrowings 2,168 2,104 1,944Trade and other payables 9,257 11,298 9,813Current tax liabilities 186 187 241 11,611 13,589 11,998 Non-current liabilitiesBorrowings 6,288 6,662 7,126Deferred tax liabilities 307 381 336 6,595 7,043 7,462 Total liabilities 18,206 20,632 19,460Net assets 50,096 49,624 50,738Shareholders' equityOrdinary shares 18,361 18,336 18,351Treasury shares (775) (744) (760)Share premium account 37,353 37,318 37,344Translation reserve (690) 517 2,062Retained earnings (16,630) (19,490) (17,985)Total shareholders' equity 37,619 35,937 39,012Minority interests 12,477 13,687 11,726Total equity 50,096 49,624 50,738 FORTUNE OIL PLC Announcement of Interim Results for 6 Months Ended 30 June 2006 GROUP CASH FLOW STATEMENT 6 months 6 months 12 months ended ended ended 30.6.2005 30.6.2005 31.12.2005 Amount in £'000 (Unaudited) (Unaudited) (Audited) Cash flows from operating activitiesProfit for the year 3,039 2,899 4,860Adjustments for:Share of post-tax results of joint ventures (1,010) (1,336) (2,810)Taxation 290 267 544Amortisation and depreciation 1,232 1,165 2,419Impairment 58 - 158Profit on disposal of property, plant and equipment - 90 803 Share-based payments - - 63Investment income (79) (87) (156)Finance costs 236 232 454 Increase in inventory (405) (268) (413)Decrease/ (increase) in trade and other receivables 70 (2,440) 2,076(Decrease)/ increase in trade and other payables (95) 238 (1,859)Cash generated from operations 3,336 760 6,139Investment income 79 87 156Finance costs (236) (232) (454)Taxation paid (329) (198) (545)Net cash from operating activities 2,850 417 5,296 Cash flow from investing activitiesDividend received from a joint venture 47 1,397 1,496Payments for property, plant & equipment (678) (4,078) (7,383)Payments for intangible assets - - (14)Payments for investment properties - - (187)Receipt from disposal of property, plant & equipment - 6 99Acquisition of business/ subsidiaries - (3,211) (3,273)Repayment from a joint venture 8 1,512 794Total cash flows used in investing activities (623) (4,374) (8,468)Cash flows from financing activitiesProceeds from issue of share capital 4 - 41Loan from minority shareholders 68 931 478Dividend paid to minority shareholders - - (2,346)Decrease in loans (90) (748) (1,194)Total cash flows (used in)/ from financing activities (18) 183 (3,021)Net increase/(decrease) in cash & cash equivalents 2,209 (3,774) (6,193)Cash & cash equivalents at beginning of the period/year 11,713 16,086 16,086Effect of foreign exchange rate changes (787) 1,198 1,820Cash & cash equivalents at end of the period/year 13,135 13,510 11,713 FORTUNE OIL PLC Announcement of Interim Results for 6 Months Ended 30 June 2006 SEGMENTAL ANALYSIS (a) Business segments Single point Aviation Natural Gas mooring facility 2006 2005 2006 2005 2006 2005Amount in £'000 Revenue including share of joint ventures 5,778 5,731 59,028 38,092 5,164 1,929Share of revenue of joint ventures - - (59,028) (38,092) - - Group revenue 5,778 5,731 - - 5,164 1,929 Profit from operations (includingshare of results of joint ventures) 2,863 2,970 797 1,020 500 (224) Finance costs Investment income Profit before taxation Taxation Profit for the year Attributable to Equity shareholdersMinority interests Oil trading Others** Central Group & storage* administration Amount in £'000 2006 2005 2006 2005 2006 2005 2006 2005 Revenue including share of joint ventures 22,881 16,450 2,061 1,978 - - 94,912 64,180Share of revenue of joint ventures (408) (477) (2,037) (1,978) - - (61,473) (40,547)Group revenue 22,473 15,973 24 - - - 33,439 23,633Profit from operations (including share of results of joint ventures) (315) (211) 46 52 (405) (296) 3,486 3,311Finance costs (236) (232)Investment income 79 87Profit before taxation 3,329 3,166Taxation (290) (267)Profit for the year 3,039 2,899 Attributable toEquity shareholders 1,355 1,350Minority interests 1,684 1,549 b) Geographical operations With the exception of operating loss of £345,000 (2005: £296,000) in respect ofcentral administration in the United Kingdom, all of the Group's activities arecarried out in China and Hong Kong. The directors are of the opinion that the PRC and Hong Kong form one geographicsegment. * Includes overheads in Hong Kong/PRC offices. ** Others include distribution. FORTUNE OIL PLC Announcement of Interim Results for 6 Months Ended 30 June 2006 GROUP STATEMENT OF CHANGES IN EQUITY Share Total Ordinary premium Treasury Translation Retained Shareholders' Minority TotalAmount in £'000 Shares account shares reserve earnings equity interests EquityGroup Balance at 1 January 2006 18,351 37,344 (760) 2,062 (17,985) 39,012 11,726 50,738Issue of share capital 10 9 - - - 19 - 19Movement in treasury shares - - (15) - - (15) - (15)Currency translationdifferences - Group - - - (1,412) - (1,412) (933) (2,345)- joint ventures - - - (1,340) - (1,340) - (1,340) Profit for the year - - - - 1,355 1,355 1,684 3,039 Balance at 30 June 2006 18,361 37,353 (775) (690) (16,630) 37,619 12,477 50,096 FORTUNE OIL PLC Announcement of Interim Results for 6 Months Ended 30 June 2006 NOTES 1. Basis of preparation and accounting policies The interim financial statements for the six months to 30 June 2006 have beenprepared on the basis of the accounting policies set out in the Company'sfinancial statements for the year ended 31 December 2005. These accountingpolicies are drawn up in accordance with International Accounting Standards(IAS) and International Financial Reporting Standards (IFRS) as issued by theInternational Accounting Standards Board. These interim financial statementshave been prepared in accordance with IAS 34 'Interim financial reporting'. The financial information for the six months ended 30 June 2006 and 30 June 2005was neither audited nor reviewed by the auditors and does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. A copyof the statutory accounts for the year to 31 December 2005 has been delivered tothe Registrar of Companies. The auditors' report on those accounts wasunqualified and did not contain statements under section 237 (2) or (3) of theCompanies Act 1985. 2. Dividends were not paid in any of the periods reported upon and no dividend is proposed. 3. Earnings per share has been calculated by dividing earnings attributable to the shareholders by the weighted average number of shares in issue during the respective periods, as indicated below: 30.6.06 30.6.05 30.12.05 '000 £'000 '000 £'000 '000 £'000 Basic 1,775,612 1,355 1,773,586 1,350 1,774,293 2,792 Share option adjustment 6,732 - 9,252 - 8,618 - Diluted 1,782,344 1,355 1,782,838 1,350 1,782,911 2,792 4. POST BALANCE SHEET EVENT On 22 May 2006, Fortune Oil PLC issued a circular to shareholders seeking approval to cancel all amounts standing to the credit of its share premium account. This approval was given at an extraordinary general meeting held on 21 June 2006 and approval from High Court was given on 12 July 2006. Accordingly a transfer will be made from the share premium account to the retained earnings in the second half of 2006. 5. This report will be sent to all shareholders. Further copies are available from the Group's registered office, 6/F., Belgrave House 76 Buckingham Palace Road, London SW1W 9TQ, United Kingdom. This information is provided by RNS The company news service from the London Stock Exchange