The gas pipeline subsidiary has been delivering unsatisfactory financial results in the past few years, and recorded an unaudited after-tax loss of HK$10.62 million and HK$11.82 million for the financial years ended December 2007 and 2006 respectively. Due to the substantial increase of the cost of gas supply from January 2009, it is expected that the loss from this subsidiary will exacerbate in the foreseeable future, and there will be a significant shortfall in the Group’s previous estimate in its business prospects.
Due to the global economic downturn and competition of the alternative conventional energy, such as coal, in that region, the outlook for connection fee and natural gas consumption growth becomes gloomy. Moreover, the well head cost of gas supply is expected to inflate substantially while retail price is strictly controlled by the municipal government. It is unlikely for the Group to predict a drop in such cost and relaxation in the government pricing policy.
Mr. Terence S T Kong, Executive Director of Genesis Energy, said: “The Board is pleased to have the loss making unit disposed simply because of its unsatisfactory financial result in last few years, high depreciation cost, deteriorating margin and the overwhelming political tension in Xinjiang during and after the Olympics Games. Selling of this asset took us a little bit longer than expected due to its unique investment environment; especially the global financial meltdown further discourages potential buyers. We therefore consider that the consideration is reasonable and the disposal represents a good opportunity for the Group to realize the subsidiary and to strengthen its own financial position.”
“Although we might experience a one-off extraordinary loss from the disposal, it does not have any negative cash flow impact to the Group. We are confident that there won’t be any non-core loss making unit jeopardizing the lucrative up-stream oil exploitation business. Retreat from the pipeline gas network reflects the Group’s determination to re-allocate its internal resources for development of more promising businesses, in particular in the upstream oil and gas sector,” added Mr Kong.
The disposal is subject to the approval of the shareholders at a special general meeting. Trading in the shares of Genesis Energy was suspended at the request of the Company. An application has been made to the Stock Exchange for the resumption of trading in the shares with effect from 9:30 a.m. on November 7, 2008.
The Group currently operates oil and gas businesses in Utah and the Four Corners Area (of Colorado, New Mexico, Utah and Arizona) of the United States, as well as in Xun Yi, Shaanxi and E Tuo Ke, Inner Mongolia (內蒙古鄂托克油田) of the PRC. The Group has also formed a strategic 50/50 joint venture with New Times Group Holdings Limited (HKEx: 166) to pursue other investment opportunities, including a possible joint venture oil and gas exploration in Tasmania, Australia.
About Genesis Energy Issued by : Through :
Genesis Energy Holdings Limited (HKEx: 702) is an energy company with focus on oil and gas exploitation and operations. The Group is committed to building a diversified portfolio of oil and gas assets and operations with an aim to developing into one of the leading independent oil and gas businesses in Greater China. The Group currently operates oil and gas fields in the US and PRC.
Genesis Energy Holdings Limited
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