Mr Terence Kong, Executive Director, Genesis Energy, said: “Although there was a loss of RMB43.8 million, the Board has set a target to further reduce the full year loss to a level substantially lower than that reported in the first half. The Board is confident that the target can be achieved by accommodating fresh profit contribution from Utah oil field and extraordinary income from the disposal of Xinjiang Xingmei. Upon completion of the proposed disposal of Xinjiang Xingmei, the Group is also expected to reduce its gearing ratio to zero by the end of 2007. It is our priority to maintain a healthy balance sheet position, so as to enable us to tap new investment opportunities in the upstream oil business and credit facilities offered by international financial institutions.”
For the period, the operation of oil exploitation in Utah has not yet contributed revenue to the Group. The loss for the period increased mainly due to certain non-recurring and non-operating expenses, such as share-based payment expenses, increase in finance expenses of oil pipeline business and loss on exchange.
In January 2007, the Group became the first listed Chinese company to acquire an oil and gas asset in the US as it bought the exploitation rights and ownership title of Grassy Trails in Utah. Grassy Trails has a proven production of over 600,000 barrels of golden sweet crude since inception in the 1960s. A report in accordance with the American Society of Petroleum Engineers standards and practices confirmed a total remaining reserve of 1,004,481 barrels of crude in the defined property.
Oil exploitation operations have commenced at Grassy Trails since August, with the first-phase re-working of five prevailing wells almost complete. Four of them are online with better than expected production. The first 1,000 barrels of sweet crude will be delivered to Chevron’s Refinery by the end of September, and the first horizontal drilling is expected to take place by end of October. With Brent crude price breaking USD80 per barrel recently, the Group might adopt a more aggressive approach to develop Grassy Trails. The Group is confident that production in Grassy Trails will be lifted, and its contribution is expected to become much more promising in 2008 after the horizontal-kick-out drilling is adopted.
With the Group’s re-focus on profitable upstream oil and gas businesses, it has made the first move to participate in the upstream oil business in the PRC. In August 2007, the Group entered into an agreement in relation to an oil exploration project in Xun Yi, Shaanxi Province, the PRC. An independent Oil in Place (OIP) report confirmed a preliminary contingent resources of 60.87 million tonnes of crude, together with an unexpected of 96.93 million tonnes equivalent of natural gas within the defined property. Upon shareholders’ approval, drilling of the first test well may take place in early March 2008.
Mr Kong continued: “We strongly believe that this Shaanxi oil field will become a growth engine of the Group. This investment also enables us to have a more balanced geographical portfolio of oil assets.”
In addition to pursing profitable upstream investments, the Group also undertakes to remove its loss-making business. On September 7, 2007, it entered into an agreement for the disposal of its entire 80% interests in Xinjiang Xingmei. This proposed disposal is expected to bring benefits in three aspects. First, it will help the Group cut losses and financial cost substantially, especially amid a rising interest rate cycle in the PRC. Secondly, with the dilution effect of Xinjiang Xingmei removed, the earning prospects of the Group will be greatly improved towards a targeted turnaround in a timely manner. Finally, the Group is able to quarantine itself from any possible contingent liabilities as well as litigations arising from the bank loans in relation to Xinjiang Xingmei.
As at June 30, 2007, the Group’s bank loans and contingent liabilities amounted RMB454 million and RMB269 million respectively, all of which arose from Xinjiang Xingmei.
The natural gas pipeline network business, operated by the Group’s 72% held Lejion Gas, entered into a short term contracting agreement to re-assign the operation of the piped natural gas sales business to the local government. This reallocation enabled Lejion Gas to focus on the business of refilling station sales, which brought improvement in segment sales during the period.
In the reporting period, turnover was mainly derived from two segments, oil transportation and the business of refilling stations, with each contributing approximately 63% and 37% of the Group’s total turnover respectively.
As at June 30, 2007, the total assets of the Group were RMB736.8 million (December 31, 2006: RMB627.7 million). Gearing ratio based on total assets was 44.2% (December 31, 2006: 65.5%). Upon approval by shareholders of the proposed disposal of Xinjiang Xingmei, the Group’s gearing ratio will be reduced to zero, giving the Group a clean break against any potential liabilities arising from the bank loans of Xinjiang Xingmei. The Group foresees strengthened liquidity in the near future.
The Group has established a diversified asset portfolio, combining both short and long term growth drivers. Its strategy is to become a leading independent oil and gas player in the Greater China region with a portfolio of quality assets and to grow the business by developing these assets efficiently. Financial Highlights
| Six months ended June 30, | ||
| 2007 | 2006 | |
| RMB’000 | RMB’000 | |
| Turnover | 38,572 | 37,111 |
| Loss after taxation | 1,566 | (1,228) |
| Loss after taxation | 43,781 | 26,654 |
| Loss per share - Basic | RMB(1.10) cents | RMB(0.22) cent |
About Genesis Energy Issued by : Through :
Genesis Energy Holdings Limited (702) is an energy company with focus on oil and gas exploitation and operations. The company invests in and operates oil and gas fields in the United States and is currently in negotiations with regard to certain investments in oil and gas projects in the PRC. Downstream, the company is engaged in crude oil transportation and pipelined gas businesses.
Genesis Energy Holdings Limited
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