Acquisition

18 Jun 2007 07:00

Fortune Oil PLC18 June 2007 18th JUNE 2007 FORTUNE OIL PLC ("Fortune Oil" or "the Company") Acquisition of Major LNG and CNG Business Fortune Oil is pleased to announce a major step forward in creating anintegrated gas business in China by acquiring a Liquefied Natural Gas (LNG) andCompressed Natural Gas (CNG) production and distribution enterprise, to berenamed as Fortune Green Energy (Henan) Development Company Limited ("GreenEnergy"). Key acquisition highlights: • Fortune Oil will invest in new shares totalling 51 per cent of Green Energy, which operates China's first commercial LNG liquefaction plant, CNG stations and a fleet of LNG/CNG distribution vehicles. • Fortune Oil will provide RMB 71.4 million (£4.7 million) of new equity to Green Energy in cash in return for the new shares and will also provide a loan to Green Energy of RMB 74.3 million (£4.9 million). The funds will be drawn from the loan facility signed in April 2007. • The funds will be used to finance new investments and to repay a RMB 90 million (£6 million) loan to Sinopec. • Green Energy is one of the most significant centres of excellence for LNG technology in China. For Fortune Oil this acquisition seals a major aspect of the technology and resource required to develop a gas distribution network in the world's second largest energy industry. Prior to Fortune Oil's acquisition Green Energy was called Henan Zhongyuan GreenEnergy Hi-Tech Co. Ltd. and was owned by its employees as a result of a recentprivatisation from Sinopec. After Fortune Oil's 51 per cent investment GreenEnergy will be a sino-foreign joint venture with a minority 49 per cent held bythe 491 staff. These shareholders will be represented on the board of GreenEnergy by two directors who had been instrumental in developing this LNGbusiness in Sinopec, Mr Zhang Kong Ming (Chairman) and Mr Xie Xin (previousGeneral Manager). Fortune Oil will appoint three directors to the board and itis expected that Green Energy will be treated as a subsidiary of the Company foraccounting purposes. Green Energy is based at Puyang in Sinopec's Zhongyuan oil and gas field inHenan Province. The LNG production plant was constructed by Sinopec at Puyangin 2002 and it was the first commercial LNG production plant operating in China.The LNG is delivered by specialised road tankers to LNG storage tanks at endusers in cities such as Beijing and Qufu, where Fortune Oil first delivered LNGfrom Puyang in 2004. Green Energy currently owns a fleet of 18 LNG and CNGdistribution trucks. The LNG production plant has a design capacity of 55 million cubic metres peryear which is expected to be achieved after installation of new compressors inJuly 2007. Green Energy also sells 34 million cubic metres per year of CNG fromits eight stations that supply natural gas fuel to a local user base of 5,000buses and taxis. Green Energy has investments in another three CNG stations andplans to develop further CNG stations in the Puyang area. As a result of the employee privatisation from Sinopec, Green Energy benefitsfrom many government and Sinopec incentives, for example relating to taxationand land rights. Sinopec has provided commitments on gas supply to Green Energyfrom the Zhongyuan field that will enable the company to expand both its LNG andCNG sales in the coming years. The employees have committed significantfinancial support to Green Energy, demonstrating their confidence in the futureof their LNG technologies in China. Fortune Oil expects that the existing assets of Green Energy will generate anannual net profit of £1-2 million in the initial years and that the acquisitionwill be earnings enhancing in 2007. Prior to the forthcoming increase in LNGproduction capacity the LNG plant had been operating at a small loss because ofthe low throughput. The pro forma gross assets of Green Energy were RMB 223million (£14.8 million) at end December 2006 and turnover for the year toDecember 2006 was RMB 144 million (£9.6 million) based on PRC accountingstandards. Fortune Oil plans to refinance its shareholder loan via local bankfinancing in order to increase equity returns. Green Energy has unique skills in China to design and implement gas distributiontechnologies, given its background as Sinopec's LNG base. Green Energy hasalready been providing technical assistance in the development of other LNGliquefaction plants now operating or under construction in China. These plantsenable gas to be trucked to end-users that are not otherwise accessible bypipeline. As more independent gas fields are developed, for example at FortuneOil's Liulin coal bed methane block, there will be an increasing demand forsmall-scale LNG plants to monetise the gas. Mr Qian Benyuan, Chairman of Fortune Oil, commented: "This is a major step for Fortune Oil, acquiring not only assets to produce anddistribute LNG and CNG, but also acquiring the best LNG expertise in China. Formany of China's recent gas developments such as coal bed methane, LNG offers themost economic way of transporting gas to end-users, as it will be many yearsbefore the country's pipeline infrastructure can be fully developed. GreenEnergy's assets and expertise fit very well with our coal bed methane and gasdistribution companies as we create China's first independent integrated gascompany." Annual General Meeting Fortune Oil will be holding its AGM in London on Tuesday 19th June at 11 am atOriental Club, Stratford House, Stratford Place, London W1C 1ES. The Company ispleased to report that its operations are progressing well as summarised in the2006 Annual Report and look forward to meeting shareholders at the AGM. 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