Upon completion of the transaction, the Group will hold 90% interest in 深圳 市擁友投資發展有限公司 (the “PRC Subsidiary”) which has a contractual right to undertake exploitation at Liu Luo Yu Oil Field located in Ganquan County in Shaanxi Province（陜西省甘泉縣）, in cooperation with Northern Shaanxi Oil and Gas Exploration Bureau, The term of cooperation for exploitation by the PRC Subsidiary is valid until 2015 which is renewable subject to negotiation.
Liu Luo Yu Oil Field stretches across an area of about 8.3 sq km, located in the south of the Yishaan slope tectonic belt of the Ordos basin, 27.6 km from Ganquan County and 63.7 km from Yan’an. The oil field consists of 86 existing oil wells and 15 potential new development wells.
Genesis Energy’s PRC Subsidiary will acquire the right to exploit 86 existing and other oil and gas wells within the project area. Subject to the drilling plan to be prepared, the Company intends to spend another Rmb 20 million for the development of new wells in the area.
Under a separate development contract, the PRC subsidiary is entitled to 95% of the income generated from the sale of oil and natural gas exploited from the existing wells, as well as 90% of the oil and natural gas to be exploited from the new wells.
Exploitation in Ganquan area started in 1970s with extensive works beginning in 1990s after a big reservoir was discovered. The area is highly explored with seismic data of high density. 200 wells are currently operating in the Liu Luo Yu Prospect with an annual oil production of about 23,000 tons. The oil reservoir has a total area of 272.1 sq km and oil reserve of 75 million tons, characterized by various structural traps to provide favorable conditions for oil and gas gathering.
Mr. Terence S T Kong, Executive Director of Genesis Energy, said: “The acquisition provides an excellent opportunity for the furtherance of our exploitation business in the PRC. The exploration risk and cost in Shaanxi area will be reduced substantially with abundant geological data, seismic and core analysis becoming available after the acquisition. We consider the acquisition price and terms favorable. It is also a good timing for the Group to invest during a period of low commodity prices so as to take advantage of potential future upsides. From the reserve assessment reports, we are confident of the prospect of this new project, which is expected to generate satisfactory revenue and profits to the Group. We are also confident that the acquisition will provide us a stepping stone to penetrate into oil exploration and exploitation activities in Shaanxi. ”
Completion of the transaction is scheduled to take place on 17 February 2009. The Group will satisfy the consideration for the acquisition from its internal resources.
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, and Xun Yi, Shaanxi, 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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