Fortune Oil has announced the Interim Management Statement for the period July 1, 2008 to date.
China's GDP growth decreased to an annualised 9 per cent in the third quarter of 2008, in part due to Olympics-related restrictions on travel and production. The GDP growth is now decelerating because of lower exports, however domestic consumption remains strong. Household and national debt remain among the lowest in the world and China continues to invest in infrastructure. According to the National Bureau of Statistics, the investment in fixed assets for the first three quarters of 2008 exceeded that in the same period last year by 27 per cent, with the highest growth in the western and central regions (where Fortune Oil's gas operations are located)
Fortune Oil has not seen any reduction in the domestic demand for clean fuels, and the growth in the Company's gas sales is limited by infrastructure and supply availability rather than demand. We still expect natural gas prices to rise in China over the medium-to-long term, as measured in both RMB and US$ terms.
Sales of natural gas continue to grow strongly: sales from January to October 2008 were 278 million cubic metres, an increase of over 40 per cent compared to the same period in 2007. Due to the strong demand for natural gas in China, this business continues to experience sustained growth and sales margins.
Since 1 July 2008, Fortune Oil has completed the acquisition of Xinyang and Sishui gas companies and has commenced construction of a 1.5 bcm capacity pipeline at Tianjin. A second Liquefied Natural Gas (LNG) plant is now being commissioned at Puyang; gas supply commitments from both CNPC and Sinopec are expected to double the Puyang LNG sales capacity to 100 million cubic metres in 2009.
Oil Sector Operations
Bluesky's volume sales of jet fuel from January to October 2008 were 1.5 million tonnes, an 8 per cent increase over the same period in 2007. Jet fuel sales in the third quarter were affected by the travel restrictions imposed during the Olympics period. Oil price volatility is also adding uncertainty to the operating environment for airlines and Bluesky. Sales of jet fuel in 2009 are expected to be augmented by the new FedEx Asia hub at Guangzhou, for which Bluesky is now commissioning the supply facilities.
To date in 2008 there have been no lost time accidents at any of the Company's operations.
Over the past few months Fortune Oil has established a strong funding position: on 4th July 2008 a Kerry Holdings subsidiary invested £9.85 million in a placement for 4.74 per cent in Fortune Oil's share capital, and on 4th November 2008 Wilmar International Limited invested US$36 million (£23 million) to acquire a minority 15 per cent interest in the Company's integrated gas business.
The Company's syndicated term loan of US $50 million is being amortised over the 18 month period to April 2010 and benefits from a favourable interest margin above LIBOR or HIBOR of 1.1 per cent. The Group cash balance exceeds the outstanding Group bank loan balances and the Board envisages no difficulties in meeting both current loan repayment obligations and investment commitments.
Fortune Oil notes that the pound sterling has weakened by approximately 25 per cent against the RMB in 2008 to date. At current levels the exchange rate movements are expected to strengthen the Company's balance sheet on translation to sterling.
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