News & Analysis

Fortune Oil Plc (FTO: LSE) review and analysis

By PSQ Analytics

Fortune Oil Plc (Fortune Oil) operates in oil and gas supply and related infrastructure projects in China. The company also has contractor rights for coal bed methane (CBM) block in Shanxi Province in China. The CBM project is part of the company’s strategy to grow into an independent integrated gas company with presence across the value chain. The company got listed on the Main Market of London Stock Exchange in 1993.

Fortune Oil’s gas business is grouped under Fortune Gas Investment Holdings Limited (Fortune Gas). In 2008, Wilmar International Limited, one of the largest companies listed on the Singapore Stock Exchange, acquired a 15% stake in Fortune Gas. The gas business includes the following:

– Natural gas distribution: This comprises of retail and wholesale natural gas supply infrastructure including city gas companies, four spur pipeline companies, one compressed natural gas (CNG) wholesale station (among the largest CNG stations around Beijing), two liquefied natural gas (LNG) production plants, CNG retail stations and a fleet of CNG trucks.

– CBM: Fortune Liulin Gas Co. Ltd. (FLG) has a production sharing contract (PSC) with the government-owned China United Coalbed Methane Corporation (CUCBM) for Liulin CBM block. An application has already been made for reserves certification of the northern section of the block, defining FLG as an exploration company. The company’s operations in oil business include:

– West Zhuhai Products Terminal: Located at the western entrance of the Pearl River Delta, the terminal distributes refined products and has a capacity to handle 80,000 deadweight tonnes (dwt) ocean-going tankers. The terminal has 240,000 cubic metres of storage capacity for gasoline and diesel. Fortune Oil holds a 37% stake in the terminal.

– Maoming Single Point Mooring (SPM): Maoming SPM, in which the company has a 56% stake, supplies crude oil to Sinopec's Maoming refinery (southern China’s largest refinery) through a 15km sub-sea pipeline. Maoming SPM can handle tankers up to 300,000 dwt.

– Trading: It includes trading of unregulated petroleum products (like fuel oil and lube base oil), two gasoline stations in Beijing and a storage facility in Shantou.

– South China Bluesky Aviation Oil Company: This is a joint venture between Fortune Oil, BP (each holding a 24.5% stake) and China National Aviation Fuel Company (51% stake) supplying jet fuel to 15 airports in central and southern China. It had a 13% share in China’s jet fuel market in 2008.

Key recent news

21 December 2009: Announced a major strategic alliance with Arrow Energy International (AEI) whereby AEI acquired a 35% stake in FLG (including a conditional option to increase the stake to 75% in later years) for a total consideration of USD13.3 mn. The company expects that the alliance will strengthen its integrated gas business, combining Arrow’s upstream CBM expertise with Fortune Oil’s gas distribution capabilities and extensive operating experience in China.