China Rongsheng Acquires Stakes in Kyrgyzstan's Oil Fields for $282M

China Rongsheng Heavy Industries Group Holdings Limited (China Rongsheng Heavy Industries, the Company or We) announced Thursday that Ocean Sino Holdings Limited, an indirectly wholly-owned subsidiary of the Company, has entered into a share purchase agreement with New Continental Oil & Gas Co. Ltd.. Pursuant to the share purchase agreement, Ocean Sino Holdings Limited conditionally agreed to acquire a 60 percent equity interest in Central Point Worldwide Inc., a wholly-owned subsidiary of New Continental Oil & Gas Co. Ltd., at the consideration of $281.7 million (HKD 2.184 billion), which shall be satisfied by the allotment and issue of 1,400,000,000 consideration shares of the Company.

The acquisition involves four oilfields adjacent to the Fergana Valley of Kyrgyzstan comprising five oilfield zones namely, Maili-Su IV, Eastern Izbaskent, Izbaskent, Changyrtash and Chigirchik. Under the agreements entered into with the national oil company of Kyrgyzstan and a project company (a subsidiary indirectly owned by Central Point Worldwide Inc., the Project Company), the Project Company was granted rights to cooperate with the national oil company of Kyrgyzstan in the operation of the five oilfields zones. Currently, all five oilfield zones have gradually commenced exploration.

The Company believes that the acquisition offers the Group a great opportunity to enter into the energy sector. Business activities involving oil exploration projects will help to enhance its profit margins and competitiveness of the Company, which in turn strengthen its ability to withstand risks and to alleviate the periodic effects from the shipbuilding business. It will also promote the Group’s transformation to a comprehensive heavy industry player in the energy industry.

Those oilfields have been verified by an independent third party. The Research Institute of Petroleum Exploration & Development of Sinopec Henan Oilfield Company conducted a feasibility assessment on the development of the Kyrgyzstan Project in May. It was determined that the petroleum exploration area is located in the Fergana Valley, with an established oil and gas area in Central Asia where oil and gas resources are abundant and the geological background is relatively favorable. As indicated by the review results of the reserves, the geological reserve of crude oil in such oilfields amounted to 276 million tons in aggregate, of which 97.13 million tons are exploitable, and the remaining exploitable reserve amounted to 88.34 million tons. In addition, two of the five oilfield zones contain large areas of oil reserves where development has not commenced, representing significant potential in development and increase in production. The Company expects to realize a dramatic increase of oil output through upgrade and consolidation of the existing exploration technology.


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