Brightoil Enters Upstream O&G Business with CNPC

HONG KONG (Dow Jones Newswires), Aug. 12, 2009

Shares of Brightoil Petroleum resumed trading Wednesday and surged in the morning session, after the marine bunkering service provider said it will expand its operations to include natural gas exploration and production with Chinese oil giant China National Petroleum Corp.

At the midday break in Hong Kong, Brightoil rose 16.4% to an intraday high of HK$3.90. The Hang Seng Index was down 1.9% at 20,667. The shares had been suspended midday Monday ahead of the announcement.

Brightoil said in a statement after the market closed Tuesday it has signed a production-sharing contract with CNPC to jointly develop a natural gas field in Xinjiang Uighur Autonomous Region, northwestern China, representing the company's first entry into the upstream oil and gas business.

Brightoil, which is headquartered in the southern Chinese city of Shenzhen, said the 30-year contract with CNPC will give the company access to gas reserves in Tarim Basin.

The contract covers about 22.1 billion cubic meters of original gas in place, it said, with output from the field to be sold to CNPC's listed unit, PetroChina Co.

"We believe it is the appropriate time to invest in a natural gas exploitation project, having considered the upside potential of natural gas prices in China in the near future," Brightoil Chairman Sit Kwong Lam said in the statement.

Brightoil said it will pay CNPC a lump-sum fee of US $300,000 for the contract and expects to spend at least US $5 million to evaluate gas reserves.

It didn't provide further details on the production-sharing contract.

Analysts said it is advantageous for the company to become an integrated energy conglomerate to diversify its earnings base, but said the company may face financial pressure from the new business.

"Although the new business looks attractive, investors may need to wait at least two years to see it bring a meaningful profit contribution to the company, " said Castor Pang, a strategist at Sun Hung Kai Financial.

However, Core Pacific Yamaichi analyst Billy Chen said becoming an integrated chain service provider will increase its risk exposure and result in a greater burden on the company's operations in the event of an economic downturn.

Brightoil entered the marine bunkering business in July 2008. Before 2006, the China duty-free marine bunkering industry was monopolized by state-run China Marine Bunker, the country's top bonded bunker supplier. In 2006, four licenses were granted, and Brightoil was the only private company that obtained a license.

Separately, Brightoil also said it plans to spend US $1.05 billion to build an oil storage facility and a wharf in the northern port area of the Changxing Island in Dalian city, Liaoning province.  

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