Proposed disposal of Fortune Oil's Natural Gas Business

Fortune Oil (LSE: FTO.L) focuses on oil, natural gas and resource supply operations and investments, primarily in China. Fortune Oil is listed on the Main Market of the London Stock Exchange.
– Injection of Fortune Oil’s natural gas business into China Gas Holdings Limited (“China Gas”) one of the largest gas companies in China
-Total consideration of US$400m for Fortune Gas Investment Holdings Limited (“FGIH”)
-Strengthens Fortune Oil’s strategic investment in China Gas
-Combining the strengths of our management and employees to ensure the future success of the combined natural gas businesses
Fortune Oil is pleased to announce that it has conditionally agreed to inject its natural gas business (the “Natural Gas Business”) into China Gas, for a total consideration of US$400 million (the “Proposed Transaction”). The Proposed Transaction is conditional, inter alia, on approval by Fortune Oil shareholders (“Shareholders”) and China Gas shareholders; on the consent or waiver being obtained from the facility agent on behalf of the majority of lenders from the Fortune Oil group’s medium term lending syndicate; as well as on receipt of regulatory approval from the Anti-Monopoly Bureau of the Ministry of Commerce of the Peoples’ Republic of China (“PRC”) and on negative confirmation from the Hong Kong Takeovers Executive or Takeovers and Mergers Panel.
China Gas is a natural gas services operator listed on the main board of The Hong Kong Stock Exchange with a market capitalisation of circa US$3.6 billion. It engages principally in the investment, operation and management of city gas pipeline infrastructure, distribution of natural gas and liquid petroleum gas (“LPG”) to residential, commercial and industrial users, construction and operation of oil stations and gas stations, and development and application of natural gas and LPG related technologies in the PRC.
Reasons for the Proposed Transaction
Fortune Oil’s strategy has been to focus on operations in the oil and natural gas supply sector together with investments in infrastructure projects in the PRC to capitalise on the country’s increasing demand for energy and resources. The Company’s Natural Gas Business has therefore built a portfolio of natural gas supply assets in the PRC together with an upstream coal bed methane exploration project (the “CBM Project”).
The Natural Gas Business and China Gas’ gas assets are complementary to one another and the Board believes that a unique opportunity exists for the Company and its associates to become one of the largest shareholders in and be involved in the management of China Gas. The Company intends to be a long term shareholder in China Gas so as to benefit from the potential growth in this sector in the PRC over the medium term. The Board believes that the combination of the Natural Gas Business with China Gas will create an enhanced gas supply platform better able to benefit from the PRC’s growing energy demands and favourable political environment with the opportunity to create additional value for Shareholders through the Company’s sizeable stake in China Gas which will increase further should the Deferred Consideration be paid in China Gas shares.
The Board believes that the terms of the Proposed Transaction fairly values, and takes into account the risk associated with, the Natural Gas Business.
Information on the Natural Gas Business
The Natural Gas Business includes a coal bed methane block in Shanxi Province, gas pipeline infrastructure covering 3 major municipalities of Beijing, Tianjin and Chongqing, as well as 7 provinces including Shanxi, Henan, Hebei, Shandong, Liaoning, Jilin and Hubei. The Natural Gas Business also has CNG (compressed natural gas) and LNG (liquefied natural gas) operations with downstream retailing to end-users through its city gas companies or CNG vehicle stations such as the largest CNG station in Beijing.
The CBM Project consists of a coal bed methane exploration block in Liulin, Shanxi province, PRC in which the Company has a 25 per cent. interest, through its 50 per cent. holding of Fortune Liulin Gas Limited. The Liulin CBM block is on track for first gas sales in 2013 and construction of the field gas gathering system, the nodal compression station and the main export product trunk-line is currently underway. Further details on the CBM Project are contained in the Company’s interim management statement dated 19 November 2012.
For the year ended 31 December 2011, the Natural Gas Business generated revenues of £59.0 million, profit before tax of £18.0 million and had gross assets of £168.8 million. The holding company for the Natural Gas Business is Fortune Gas Investment Holdings Limited (“FGIH”), and the Proposed Transaction is being effected through the transfer by the Company’s 100 per cent. owned subsidiary, Fortune Oil PRC Holdings Limited (“FOPRC”) of its entire equity interest (85 per cent.) in FGIH for gross consideration totalling US$340m. The Company has agreed to guarantee the obligations of FOPRC under the Proposed Transaction.
Wilmar International Limited, the 15% shareholder of FGIH, will also be transfering all of its stake in FGIH to China Gas on substantially the same terms as the Proposed Transaction.
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