Fortune Oil Optimistic About Prospects, China

Fortune Oil announced its Interim Management Statement for the period from 30 June to date.

Highlights

• New natural gas supply connections increased by 89 per cent to 21,557 in the third quarter (Q3 2011: 11,427).
• Liulin coal bed methane (CBM) remains on track for first gas sales in 2013. Construction of the gas gathering system, nodal compression station and the main export product trunk-line at the CBM Liulin block commenced with construction scheduled for completion by mid 2013. Currently Fortune Oil’s best performing well in the field has achieved gas production in excess of 12,500m3/day and production rates are expected to improve as the wells are dewatered.
• Licence obtained for the first liquefied natural gas (LNG) dual fuel ship which enables the ship to enter commercial operations on the Yangtze River. This is the first approval of this type in China.
• Bluesky jet fuel sales volumes increased 16 per cent to 780,000 tonnes year on year (Q3 2011: 671,700 tonnes) with total jet fuel sales of 2.19 million tonnes for the year to date, an increase of 16 per cent compared to the same period in 2011.
• West Zhuhai Terminal’s volume throughput increased 80 per cent to 623,000 tonnes compared to the same period in 2011 (346,000 tonnes). West Zhuhai throughput volume up 9 per cent and Maoming SPM volume up 4 per cent, respectively for the year to date compared to 2011.
• The feasibility study on the Hrazdan iron ore mine and processing plant has been completed and the regulatory submissions are being finalised for the Armenian approval agencies.

OPERATIONAL OVERVIEW

Natural Gas Operations

The growth of the natural gas business is still strong with new natural gas supply connections increased by 89 per cent to 21,557 in the third quarter (Q3 2011: 11,427).

Natural gas sales volumes were 112 million cubic meters in the third quarter as a result of the disposal of a throughput pipeline as part of the transactions to establish the Shijiazhuang joint venture.

The Company has made significant progress on the new natural gas projects announced over the past 18 months and is on track to deliver its growth strategy:

• The main Petrochina natural gas pipeline to the city of Dashiqiao is complete and gas supply commenced. The local gas distribution network has been installed to key industrial customers in the local economic zone.
• Shenyang LNG bus refuelling joint venture company is operating with two mobile refuelling stations for a fleet of twenty LNG buses. Negotiations are progressing to supply LNG to buses on additional routes between Shenyang, Liaoyang and Chaoyang.
• China United Shanxi CBM Company Limited has commissioned the wholesale compressed natural gas (CNG) station at the Liulin CBM block which will collect, compress and dispatch gas from the Liulin gas gathering system.
• Fortune Oil has become a substantial shareholder, via a joint venture (China Gas Group Ltd) in China Gas Holdings Ltd (CGH), the largest independent natural gas company in China in terms of city network, serving gas to over 150 cities. Fortune Oil is in discussions with its joint venture partner to identify opportunities for cooperation between Fortune Oil and CGH in the natural gas sector in China. As of November 16 2012 the joint venture and its associates hold 836,550,000 shares in CGH representing 18.4 per cent of CGH total issued shares making the joint venture and its associates one of the largest shareholders of CGH.

Yangtze River Vessel – LNG Ship refuelling

Fortune Oil has obtained the first approval of its type in China for its LNG dual fuel ship following the successful completion of the river shipping trials and submission of documentation to the Maritime Safety Administration. The license obtained for the first ship is the key step to enable the commercial deployment of LNG dual fuel ships.

Fortune Oil is progressing the engineering design for the first two LNG refuelling stations along the Yangtze River which will enter operation in 2013 and 2014.

Fortune Oil has received regulatory approval for the LNG pier and LNG receiving terminal for the Chongqing LNG refuelling station which is now under construction. The current plan is to build seven LNG stations along the Yangtze River over the next few years.

Liulin CBM Operations

There continues to be significant progress made at the Liulin CBM block which is on track for first gas sales in 2013. The project is now in the final stages of appraisal with production testing in progress on various vertical and multi-lateral wells drilled by Fortune Liulin Gas (FLG) and China United Coal Bed Methane Corporation (CUCBM) and commercial gas flow rates have been achieved. FLG is preparing the overall development plan and will seek relevant government approvals to enable full – scale development of the Liulin block together with CUCBM starting in 2013.

• Production rates from the field have continued to improve as the wells are dewatered. Currently the best performing well in the field drilled by FLG has achieved gas production in excess of 12,000m3/day and the total field production from FLG wells is currently approximately 28,000m3/day. Additionally CUCBM has drilled an inseam well currently producing 15,000m3/day. As the wells are further dewatered gas flow rates are projected to continue to improve.
• Construction of the field gas gathering system, the nodal compression station and the main export product trunk-line commenced with construction scheduled for completion by mid 2013.
• FLG has completed two more vertical wells and is currently dewatering four horizontal wells. Under the production sharing contract extension FLG has a ten well commitment under the 6 th exploration period.

Financial Position

As at 19 November, the Group had a cash balance of £ 77 million. As a result of this, together with the continuous cash inflow from operations, the Board of Fortune Oil envisages no difficulties in meeting both current loan repayment obligations and the Company’s investment commitments.

Outlook

Overall business performance is in line with the Board’s expectations. The Board remains optimistic with regard to Fortune Oil’s prospects in view of the current economic backdrop, the Company’s financial strength and market potential.

[mappress]
LNG World News Staff, November 20, 2012