China: Fortune Oil to Sell Gas Business

Fortune Oil said that it has conditionally agreed to inject its natural gas business into China Gas, for a total consideration of US$400 million.

The Proposed Transaction is conditional, inter alia, on approval by Fortune Oil 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 AntiMonopoly 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 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 2 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.

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  total consideration for the Proposed Transaction is US$200 million in cash on completion of the Proposed  Transaction and a further US$200 million  as Deferred Consideration.

[mappress]
LNG World News Staff, December 17, 2012