Q3 2013 Interim Management Statement - Fortune Oil

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1













1
9

November

201
3


FORTUNE OIL PLC

(“Fortune Oil”
,

the “Company”

or the “Group”
)


Q
3

201
3

Interim Management
Statement



Fortune Oil (LSE: FTO.L) focuses
primarily on Chinese
oil, natural gas and
resource supply operations and investments

and

i
s listed on
the London Stock
Exchange.


Fortune Oil announce
s

its Interim Management Statement for the

period 30 June 2013
to date. Unless stated otherwise financial disclosures relate to the

third quarter ended
30 September 2013
.


Highlights





Transfer o
f
Fortune Gas International Holdings Limited (“FGIH”)
to
China Gas
Holdings Limited (“CGH”)
completed
.



Following completion of the acquisitions approved by Sh
areholders at the General
Meeting First Level Holdings Ltd. and Vitol Energy (Bermuda) Ltd. hold 5
6.9 per
cent of the Company.



T
he Group
’s

shareholding
in China Gas Holdings
through China Gas Group
Limited was 15.26

per cent.



S
pecial dividend of 2.36p
per share paid to shareholders
.



FGIH

n
atural
g
as
s
ales volumes increased
20.4

per
cen
t

to
422.1

millio
n cubic
met
re
s
for the period to the end

Q
3

(201
2
:
350.7

million cubic metr
e
s).



CGH natural gas volume increased 22.7 per cent to 6,824.9 million cubic metres
for the year ending 3
1

March 2013.



Bluesky jet fuel sales volumes
in Q
3

201
3

increased
13

per
ce
nt

to

884
,0
00 tonnes

(Q
3

201
3
:
7
8
0
,0
00 tonnes)
.



US$300 million (
£
188 million)

loan facility signed to aid future expansion of the
group
.



The Board remains optimistic with regard to Fortune Oil’s prospects, with signs
that China’s economic growth rate is a
ccelerating in the second half of 2013
.


OPERATIONAL OVERVIEW


Corporate Matters


The Company has completed the
transfer

of FGIH to CGH and the two companies


natural gas businesses are in the process of completing the integration.



Shareholders
approved

the acquisition of Wilmar International Limited’s interest in
the consideration
receivable

as a result of the disposal of FGIH. The total
consideration was US$60 million payable to Fortune Dynasty Limited (“FDH”) in
Ordinary Shares in Fortune Oil (the “
Ac
quisition
”).






2

Shareholders also approved the amendment
to the terms
of the loan from FDH
to
Fortune Oil
of US$12 million, such that it was repaid in Ordinary Shares in Fortune
Oil (the “Loan Settlement”).


Fortune Oil

obtained from the UK T
akeover Panel a
nd
from

the independent
shareholders of the Company
a waiver
of the requirement of Rule 9 of the UK
Takeover C
o
de for a general offer to be made for the Company by persons who,
as a
result of

receiving Ordinary Shares through the Loan Settlement and comple
tion of
the Acquisition, would own more than 56.
9

per cent of the Company’s issued share
capital.



China Gas Group, the joint venture company in which
the Company

has a 50 per cent
interest, owns 7
32
,446,000 CGH shares, representing 15.
2
6

per cent of CGH
total
issued shares.

As at 18 November 2013 the joint venture and its associates held
1,011,550,000

shares in CGH representing
21.07

per cent of CGH total issued shares
making the joint venture and its associates the second largest shareholder of CGH

(as
a
t 31 October 2013 CGH’s total issued shares 4,801,095,098)
.



Natural Gas
Business

T
he
natural gas busin
ess continues to benefit from China’s robust economy and
thriving natural gas demand
. T
he Company has
steadily exp
a
nded
its
upstream and
midst
r
eam opera
tions as well as
its
downstream city
-
gas and refuelling operations.
Through
our shareholding
and strategic partnership with

CGH
,

the Company

is

one of
the largest natural gas companies in China supplying gas to
195

cities with a strong
platform for future
growth.

In FY 2013 CGH supplied over 7 billion cubic metres of
natural gas to cities with an urban population of over 65 million people.



FGIH n
atural
g
as
s
ales volumes increased 20.5 per
cent

to
13
5

million cubic
meters in the third quarter (Q3 2012:
11
2 m
illion cubic meters).
Total Gas sales of
422.1 million cubic metres for the year to date, an increase of 20.4 per cent
compared to the same period in 2012 (350.7 million cubic metres).



FGIH n
ew n
atural gas supply connections increased by 3 per
cent

to

52,4
89

in Q3
(Q3 2013: 51,170). The total number of connected customers is now over
300,000
.



Construction
has continued
on 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 Company is
currently planning to open three LNG refuelling stations to cover the length of the
Yangtze River
.



CGH natural gas sales volumes increased 22.67 per cent to 6,824.9 million cubic
metres for

the financial year ending 3
1

March 2013. During the same period CGH
increased the number of residential customers by 17.4 per cent to 8.4 million,
industrial customers increased 32.3 per cent to 2,155, and commercial customers
increased 15.2 per cent to 4
9,895. A further 37 CNG/LNG stations were also
added to the CGH network.


The
Chin
ese

government
c
ontinue
s to
encourage the
expan
sion

of
natural

gas supply
to meet the 12
th

Five Year Plan target to increase gas usage in China to 8 per
cent

of
the energy mi
x from the current level of approximately
5

per
cent
. On this basis, it is
expected
that natural gas supply in China will
increase by 20 per cent per year to
surpass 260 billion cubic metres by 2015.
Despite the
economic
slowdown

China




3

natural gas demand
in the first half of 2013
rose 13.1 per cent to 81.5 billion cubic
metres according to
the National Development and Reform Commission
.



Upstream
C
oal
B
ed
M
ethane

(“CBM”)

Fortune Oil continues to make progress at its Liulin CBM operations

and the project
remains on track for first
commercial
gas sales
by the end of the current year
.



The gas gathering system on the northern area is over 95 per cent completed and
linked to the CNG wholesale station where the CBM will be dispatched for sale.



We have c
omplete
d the Overall Development Plan (“ODP”) reports for the
subsurface, surface and project economics and these are being reviewed by
China
United Coalbed Methane Corp
oration (“
CUCBM
”)
.



Two new wells have been drilled
during

2013 and work is in progress to pre
pare
the well sites for two directional and two horizontal wells
with drilling planned to
commence in Q4
2013.



FLG
currently
has five inseam wells on line and together with the CUCBM wells
will produce the gas for dispatch through the gas gathering system

with the aim to
commence commercial gas sales
next month
.


Oil
Business

The Oil business continues to be a strong cash generator

for the Group

underpinned
by the continued strong demand for domestic air travel in China
.



Bluesky jet fuel sales

in Q
3

201
3
w
ere

884
,000

tonnes, representing an increase of
13

per
cent

over the same
period in 201
3

(
7
80
,
0
00

tonnes)
,

with total jet fuel sales
of
2.45

million tonnes for the year to date, an increase of
12

per cent compared to
the same period in 2012
(2.19 million t
onnes)
.



T
he main commercial arrangements for the
replacement structure for the
Maoming Single Point Mooring
(“SPM”)
partnership

have been agreed
between
Fortune Oil and Sinopec
and the two parties are awaiting final approvals from the
regulatory agencies i
n the Peoples Republic of China.



In Q
3

201
3
,
West Zhuhai Terminal
’s

volume throughput

de
creased

by
18

per
cent

to
511
,000

tonnes
compared to

the same period in 20
1
3

(
623
,000

tonnes)

with
total throughput of 1.9 million tonnes for the year to date, an incr
ease of 8 per cent
compared to the same period in 2012 (1.76 million tonnes).


Trading Business

The trading business suppl
ies

and trad
es

oi
l

and petrochemical products



In the y
ear to date the total quantity of traded
base oils and petrochemicals
increased
by 20 per cent to

approximately

14
6,261

tonnes compared to
121,570

tonnes for the same period in 201
2
.


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
.

W
ork on the
Armenian iron ore
projects continues to determine
whether these assets can be
developed
economic
ally.



The rail cost continues to be
the

major issue
which is currently undermining
the
commercial viability of these projects
. The current tariffs in Georgia and Armenia
need to be reduced significantly to ensure the iron ore concentrate product can be
sold cost competi
ti
vely.





4



Sinosteel
completed the basic engineering design with the focus on reducing the
capital expenditure req
uirements of the
Hrazdan
iron ore beneficiation plant,
tailings and waste rock areas.


FINANCIAL PERFORMANCE


Financial Position

On 18 October 2013, the Company announced the signing of a loan agreement with
various financial institutions arranged by Morga
n Stanley. The facility size is US
$
300
million (
£
188 million
) with a term of three years and a margin of 2.75

per cent
over
LIBOR. The new facility
has been
used to repay the existing
syndicated

loan,
and
will
provide working capital to the Group, and fin
ance new
investment
.


The

Group

s balance sheet remains strong and healthy. Fortune Oil monitors and
maintains a level of cash and cash equivalents considered adequate by management to
finance the Group

s operation and repayment of bank loans and investmen
t
commitments for the foreseeable future.



As a result of the completion of the FGIH transaction, CGH is treated as an associate
to the Group and equity accounting has therefore been adopted.


On 25 September 2013
shareholders approved
an ordinary resolut
ion
to
pay a special
interim dividend of 2.36p per share. This dividend
was

paid to shareholders on 25
October 2013.


MANAGEMENT


The Company announced on 13 November 2013 that
Mr.
Tee Kiam Poon

has
resigned as an Executive Director of the Company to be e
ffective from
31 December
2013

and he will cease to hold the office of the Chief
Executive

of the

Company with
effect from
1 January

201
4
.

Mr.
Tee

confirmed that he has no disagreement with the
Board

and the Company and
there is no matter in relation to hi
s resignation that needs
to

be brought to the attention of the shareholders of the Company.


With the changes in the Group’s business structure following the completion of the
CGH transaction, the move of certain management to manage and monitor activities

a
t

CGH and other changes as
sociated with SPM and Armenia
, the Board is
considering what changes are necessary in the structure of its management. A further
announcement on the constitution and structure of the management team going
forward is likely to be

made in Q1 2014.


The completion of the CGH transaction has altered the Group’s risk profile with a
greater part of its assets no longer being controlled

by the Group

and its income and
cash flow having a higher dependence on activities within non
-
control
led entities. The
Group will be considering its risk assessment and monitoring to ensure that they adapt
to this new situation.


OUTLOOK






5

Overall business performance is in line with expectations.
The Board remains
optimistic with regard to Fortune Oil’s

prospects,
with signs that China’s

economic
growth
rate is accelerating in the second half of 2013
.



For further details:


Fortune Oil PLC

Tee Kiam Poon
, Chief Executive

Bill Mok
, Chief Financial Officer


Tel: 00 852 2583 3125

Tel: 00 852 2583 31
20


Bell
Pottinger

Archie Berens



Tel:
07802 442486




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
op
erating 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
expans
ion outside China securing resource projects. Fortune Oil is listed on the
London Stock Exchange with its operational headquarters in Hong Kong.