Acquisition

31 Mar 2008 07:02

Fortune Oil PLC31 March 2008 31st March 2008 FORTUNE OIL PLC ("Fortune Oil" or "the Company") Acquisition of Xinyang City Gas Fortune Oil is pleased to announce the acquisition today of the city gas companyin Xinyang, a city with 600,000 residents in the south of Henan Province. Thisis the largest city to date where the Company has acquired the gas distributionrights. Xinyang City Gas Xinyang City is a fast growing transportation hub and administrative centre fora region with a population of 8 million people. The city has significant lightindustries such as tea processing, automobile parts and packaging materials. Thecity government established the city gas company in 2001 to sell bottled LPG anddeveloped an outline reticulation network after connecting to the West East GasPipeline in 2006. The pipeline assets currently include a 106 km spur to theWest East Gas Pipeline and a city gas network of 138 km, with total assets ofRMB 222 million (£15.3 million) as at 31 December 2007. The construction ofthese pipelines was funded by bank loans. The Xinyang city gas operations havea staff of 150, all of whom are expected to be retained by Fortune Oil,including Mr. Qi Zheng, who has been the General Manager of the gas companysince formation. Total sales of gas by these operations were 6.5 million cubic metres in 2007 butthis is expected to exceed 16 million cubic metres in 2008, mainly through salesto newly connected CNG stations, commercial and industrial users. Furthersignificant growth in gas sales is expected as the city network is developed,particularly in connecting up industrial users. By the end of 2007 there were24,500 households who had contracted for a connection, which represents only 15per cent of the connectable population. As more users are connected up, theprincipal fuel for city households and factories will become natural gas ratherthan coal (which is polluting) or LPG (which is more expensive). Acquisition Highlights Fortune Oil has agreed to pay the city government RMB 26 million (£1.8 million)for 100 per cent of the shares in the city gas company and its distributionrights for 30 years in all the residential zones and most industrial zones,together with outstanding bank debt of RMB 204 million (£14.1 million). FortuneOil expects to repay a major part of these bank loans in 2008 in order tooptimise the gearing ratio, using funds from existing cash balances. Theexisting gas network was mostly built in 2007, hence the revenues in 2007 werelow at RMB 29 million (£2 million) and profit before interest was break-even.Revenues and profit are expected to grow significantly as the network isdeveloped, without the need for further external funding. The gas company will be renamed as Xinyang Fortune Gas Company Limited and willbe 100 per cent owned by Fortune Gas Investment Company Limited, a 100 per centsubsidiary of Fortune Oil. The acquisition will be effective followingregistration with the local government bureaus, which should be completed inApril. Mr. Qian Benyuan, Chairman of Fortune Oil, commented: "The acquisition of the Xinyang city gas business is an important step-up in thesize of city gas company now controlled by Fortune Oil, in line with ourstrategy of building an integrated gas company. It further strengthens ourcustomer base in Henan Province following our acquisition of Henan Fortune GreenEnergy Development Company in 2007. We are very pleased to assist Xinyang, arapidly expanding city, in accessing clean energy for both the residents andindustries." 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