Annual Financial Report

26 APRIL 2012

FORTUNE OIL PLC

("Fortune Oil", "the Company" or "the Group")

Annual Financial Report Announcement - Record Results

Fortune Oil (LSE: FTO.L) is a company focusing on oil, natural gas and resource supply operations and investments primarily in China. Fortune Oil has a Premium Listing, is quoted on the main market of the London Stock Exchange and has its headquarters in Hong Kong. Fortune Oil today reports its results for the financial year ending 31 December 2011.

FINANCIAL HIGHLIGHTS

§ Revenues including share of jointly controlled entities increased by 10% to £625 million (2010: £567 million).

§ Fortune Oil achieved record profit attributable to shareholders in 2011, up 39% to £18.2 million (2010: £13.1 million).

§ Operating profit increased by 11% to £27.4 million (2010: £24.6 million).

§ Basic earnings per share of 0.96 pence (2010: 0.69 pence) representing an increase of 40%.

§ Dividend of 0.18 pence per share declared, to be paid out on 27 June 2012 representing an increase of 39%.

§ Natural gas operating profit decreased by 3% to £10.5 million (2010: £10.8 million).

§ Share in Bluesky Aviation's net profit increased 32% to £11.6 million (2010: £8.8 million).

§ Single Point Mooring Facility's revenue increased by 15% to £17.2 million (2010: £15million).

OPERATIONAL HIGHLIGHTS

§ Bluesky Aviation jet fuel sales increased 14% to 2.6 million tonnes (2010: 2.3 million tonnes).

§ Single Point Mooring facility achieved record throughput of 11 million tonnes, 14% higher than the previous year (2010: 9.7 million tonnes).

§ Four new city natural gas projects launched. There was a 16% increase in number of new domestic gas customers connected; 212,000 total customers.

§ Three more lateral and four vertical wells were drilled and completed at Fortune's Coal Bed Methane project in Liulin. The gas gathering system has been designed, key equipment ordered, and contractors appointed.

§ Invested in the mining licenses for three iron ore mines in Armenia.

§ Post year end established a Joint venture to invest in China Gas Holdings Ltd.

OUTLOOK

§ China Gas Holdings investment is expected to yield significant commercial opportunities for the natural gas business.

§ Opportunities to expand the number of airports under the Bluesky joint venture.

§ Drilling programme at Liulin targets gas production of 100,000 cubic metres per day. 

§ Continuing urbanisation and industrialisation of China will continue to require increased oil products and natural gas supplies.

§ China 12th Five Year Plan requires natural gas as proportion of China energy usage to double by 2015.

Mr. Qian Benyuan, Chairman of Fortune Oil, commented:

"Fortune Oil delivered another strong performance in 2011 and continued to make significant progress across all core businesses. The Company's strong position, significant industry experience and clear strategic focus has allowed us to benefit from opportunities that have arisen and we remain confident of continue success in the coming years.

"We are very excited about the growth prospects for Fortune Oil. We continue to strengthen our position in the China gas industry while still seeking opportunities in the oil sector. Given Fortune Oil's attractive position within China's expanding energy and resource markets, we remain confident of delivering further success in the future."

 ENQUIRIES:

FORTUNE OIL PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT 2011

In accordance with the Disclosure and Transparency Rules, we set out below the extracts from the 2011 Annual Report and Accounts in unedited full text. The Annual Report and Accounts is available on the Company's website www.fortune-oil.com and will be posted to shareholders who have elected to receive a hard copy of this document.

CHAIRMAN'S STATEMENT

Introduction

Fortune Oil delivered another strong performance in 2011 and continued to make significant progress across all core businesses. Steps have been taken to further strengthen the organisation and management is now focusing on delivery of the Company's growth ambitions and operational excellence. The Company's strong position, significant industry experience, and clear strategic focus allowed us to benefit from opportunities that have arisen and we remain confident of continued success in the coming years.

Operations and Results

The Group achieved excellent results in 2011. Revenues including share of jointly controlled entities increased by 10 per cent to £624.6 million (2010: £566.9 million), and operating profits were £27.4 million, 11 per cent higher than 2010 (£24.6 million). Profit attributable to shareholders increased by 39 per cent to £18.2 million (2010: £13.1 million).

Fortune Oil's strength lies in its relationships with its joint venture partners in developing growth opportunities and new projects. The natural gas project in Shijiazhuang demonstrates our capability of being able to team up with major Chinese companies; Petrochina and Xinao Gas to supply natural gas to eleven county level cities in Hebei province. Our partners recognise the core capabilities that Fortune Oil adds to these joint ventures, ensuring continued access to new growth opportunities. Another example is Bluesky where we have secured an opportunity to potentially double the number of airports under the Bluesky operation together with our partner China National Aviation Fuels. In addition, the strategic investment in China Gas Holdings Ltd (a Hong Kong listed company) is another exciting opportunity which we believe could open up further opportunities for the natural gas business. As a Group, we will continue to seek joint venture developments and strategic partnerships both domestically and internationally which will enable us to pursue attractive growth opportunities and to achieve the benefits of scale and materiality.

Dividend

The Board recommends the payment of a dividend to shareholders for 2011, of 0.18p per share (2010: 0.13p per share). This is in line with the Board's stated intention to make an annual dividend payment to shareholders. The dividend will be payable on 27 June 2012 to shareholders on the register as at 25 May 2012.

Market Opportunities

Fortune Oil's impressive performance continues to be underpinned by China's sustained economic growth and the associated demand for clean fuels from both consumers and commercial enterprises. China's GDP grew at 9.2 per cent in 2011, in line with government targets as it tightened fiscal policy to manage property prices and inflation. On the back of the strong economic growth China's energy consumption continued to expand and, according to the International Energy Agency, China will account for more than 50 per cent of global energy demand growth over the next five years.

China's 12th Five Year Plan, issued in March 2011, promoted the use of natural gas over higher carbon containing fuels, such as coal and fuel oil, and includes a series of targets aimed at reducing energy consumption per unit of GDP and slashing major pollutant emissions. Natural gas will play a key role in ensuring the achievement of these targets and the 12th Five Year Plan is to more than double the 2011 percentage of natural gas in the primary energy mix by 2015. Also, China will need to continue to reduce its dependence on coal for power and industrial use and demand even stricter exhaust emission standards on vehicles and natural gas will play a pivotal role in achieving this.

Within this context Fortune Oil is well placed to being able to provide the fuels that China is going to require in ever increasing volumes. Our focus remains on growing natural gas supply as this is the cleanest burning fossil fuel. We are leading projects to introduce this fuel into more cities across China and into new markets such as a fuel for ships, heavy duty trucks and long distance buses.

China Gas Price Reform

As part of the development of the gas industry, in December 2011 the China National Development Reform Committee ("NDRC") announced a fundamental reform to gas pricing in China. The reforms will take the form of a pilot project, initially in southern China, with the strategic intent to raise the price of gas in coastal Chinese cities to a price close to oil parity and thereafter adjust the gas price according to future movements in the oil price. Assuming the pilot is a success, China will then roll out the pricing reform to other provinces. Under the new mechanism, natural gas prices will be linked directly to LPG and fuel oil import prices. The expectation is that the move towards a more market based pricing mechanism is likely to push up the prices of natural gas although the impact of these reforms on the affordability and demand for natural gas remains to be seen. Well head prices of gas are also expected to increase with some projections indicating the well head prices could double. China is also reforming the pricing of other fuels and we continue to monitor these developments and evaluate the potential impact on our markets.

Management and Governance

We continue to maintain high standards of corporate governance. Board succession planning is an essential component of effective corporate governance and continued success of the business as is the composition of our key committees. We continue to review the structure of the Board, the membership and impartiality of key committees, the management team, and ensure there is the most appropriate balance of skills and experience to drive effective decision making. In line with this policy we have changed the representatives on the audit committee and are currently reviewing the composition of the remuneration committee to ensure there is sufficient independence. The management team has also been strengthened by the appointment of Mr Bill Mok to the position of Chief Financial Officer and Mr Jerry Gorman is leading our Resource development in Armenia.

Outlook

The urbanisation and industrialisation of China continues and provides a strong platform for increasing demand for energy and resources. Although long-term fundamentals for growth are strong, there remains potential for volatility in the short to medium term due to persistent economic uncertainties both from local pressures in China to reduce residential property price escalation and control inflation and from the pressure on exports due to the lack of demand growth from the Organisation for Economic Co-operation and Development ("OECD") countries. We constantly seek to assess the potential impact of these factors on the Group's plans and enhance our capabilities to understand and invest accordingly in our chosen markets.

We are very excited about the future growth prospects for Fortune Oil. We continue to strengthen our position in the Chinese natural gas industry while still seeking opportunities in the oil sector. We continue to make good progress towards the production and gas sales from our CBM block at Liulin with China's natural gas price reforms potentially increasing the CBM well-head gas price. We expect demand in the oil sector to remain strong. Air travel will continue to increase in China and the Bluesky business is well positioned to participate in this anticipated growth in demand. Consumption of oil derived products such as diesel and petrol is expected to continue to grow to support the rapid expansion of the automotive sector. The resources activities are still at an early stage but 2012 will be a year where this business is able to get closer to value realisation.

I would like to thank the concerted efforts of our employees, who have enabled the Group to achieve another excellent performance, with the Group's businesses continuing to achieve strong profit growth. Given Fortune Oil's attractive position within China's growing energy and resource markets, we remain confident of delivering further success in the future.

Our commitment to our shareholders

We thank our shareholders for their continued support. Many have been steadfast investors in Fortune Oil and we are very appreciative of the loyalty. With our dedicated management team, compelling strategy and increasing momentum in our chosen sectors, we are well placed to thrive and grow as more customers in China demand cleaner fuels to power the country.

CHIEF EXECUTIVE'S REVIEW

2011 Results

In 2011 Fortune Oil recorded a strong performance as it sought to vigorously expand its core businesses of oil, gas and resources and move steadily towards its vision of being a leader in China's energy and resources supply. The Group continued its clear pathway for sustainable growth. We are now financially stronger and have greater operational flexibility thanks to significant progress with our established oil and gas assets and our new business developments.

Higher sales volumes drove a 10 per cent increase in revenues including share of joint control entities to £624.6 million in 2011 from £566.9 million in 2010. Group profit attributable to shareholders after taxation for the year amounted to £18.2 million, an increase of 39 per cent compared to £13.1 million in 2010. Group profit from operations increased by 11 per cent to £27.4 million (2010: £24.6 million). Earnings per share for the year increased to 0.96 pence compared to 0.69 pence in 2010, an increase of 40 per cent. Profit growth in 2011 was driven by a strong contribution from our Bluesky aviation business and one-off gains of £7.3 million from divestments (2010: £3.4 million). The net borrowing position stayed low at £5.7 million as at 31 December 2011.

As a result of the strategic investments we announced during the year we have significantly enhanced our position in key natural gas demand centres and in the downstream natural gas vehicle refuelling sector. During the year we invested £79.2 million including capital expenditure of £20.2 million, mainly to continue the development of our integrated natural gas business, the purchase of intangible assets of £34.3 million mainly paid for the acquisition of three iron ore mining licences in Armenia and £24.7 million paid to acquire shares in China Gas Holdings Limited, a Hong Kong listed company, as a long term investment. I am greatly encouraged by the Group's performance, which is a testament to our focus on creating shareholder value in the long term.

Strategy

Our strategy has remained consistent; we invest in and operate long-term cost competitive assets supplying oil, gas and resources to support China's growing economy. To achieve this we focus on a portfolio of assets with the intention of:

• Becoming a leading integrated natural gas supplier across our selected regions in China;

• Developing opportunities in the Chinese oil sector, in particular exploiting the Company's unique position in oil products supply and terminals; and

• Developing overseas resources supported by our strong relationships with major Chinese state owned enterprises.

Key Performance Indicators

We continue to apply the six principle Key Performance Indicators ("KPIs") that were adopted in 2004. We feel these continue to be valuable in assessing how well the Group has been performing against its strategic objectives. In 2011 we met or exceeded four out of the six KPIs (see the Annual Report and Accounts). Our gas supply growth target was missed due to disposals although underlying growth continued to be strong and whilst we achieved 12 per cent growth in profit attributable to equity shareholders (before other gains) this was lower than our target of 15 per cent.

2011 Key Achievements

In 2011 we focused the business on operational delivery of our oil and gas growth ambitions and we have made significant progress in all of our operational key areas. Our focus on our core operations helped us to achieve supply records in Maoming SPM and Bluesky's aviation refuelling businesses. We continued to optimise our financial position and grew our natural gas business organically, reflecting the confidence in the business and the outlook for our markets.

Looking into the future, China National Aviation Fuels has invited Bluesky to participate in the development and operation of refuelling infrastructure and fuel supply across fifteen new airports in southern and central China. The West Zhuhai oil products terminal is now part of Petrochina's strategic oil products reserve facilities. The trading business teamed up with Vitol S.A. and Huaneng Group in the first carbon asset investment fund in China, and we established a first mover advantage in the LNG vehicle refuelling market with our project in Liaoning province, again with strong partners.

In a year of considerable progress across the Group, several projects stand out: the progress we have made on the coal bed methane project in Liulin, establishing a joint venture to supply natural gas to eleven county level cities within Shijiazhuang municipal region, and the progress we have made in our Armenian iron ore project.

During 2011 we also explored options to make a step change in the development of our natural gas businesses and identified the opportunity to become a substantial shareholder, via a joint venture with other investors, in China Gas Holdings Ltd ("CGH"), the largest independent natural gas company in China in terms of city network, serving gas to over 150 cities. The strategic objectives for this joint venture are to explore the opportunities of combining CGH's strengths with those of Fortune Oil and to grow Fortune Oil's natural gas business in China. The joint venture we established in 2012 to effect this is a unique strategic investment, and together with its associates, is the largest shareholder of CGH. Our first step, were CGH open to such a cooperation, would be to explore synergistic opportunities benefiting both companies.

Meeting Rising Energy Demand

We remain optimistic about China's economy and, although China's GDP growth may be tempered slightly, we still expect continued strong growth for energy. Implementation of our strategy will enable us to take advantage of this increasing demand. In the long term, China continues to offer tremendous demand for energy and resources but we do not under estimate the competition for these customers. We intend to rise to the challenge and ensure that Fortune Oil is positioned as the preferred supplier of energy and resources to these new customers.

2012 Strategic Outlook

Although 2012 will be a challenging year we see tremendous opportunities ahead in the energy market, with cleaner energy sources offering enormous growth potential. The key objective in 2012 for the Group is to focus on execution of the investments announced over recent years and to drive maximum returns for the Company and for our shareholders.

Increased availability of natural gas from different supply sources and expansion of the gas infrastructure will continue to support the expansion of our natural gas business. Our upstream CBM project is progressing to plan and we look forward to the production and marketing of gas from the Liulin block in 2012. Under the 12th Five Year Plan China will continue to expand its airport infrastructure and Bluesky is well positioned to participate in this continued growth in domestic air travel in China.

The resource business made significant progress, we have a strong team and, together with our strategic partners, we are well placed to ensure our commercial success from our Armenian iron ore investment.

Our Employees

Fortune Oil has a dedicated and hard working team of employees which has been strengthened with the appointments of Mr Jerry Gorman, with more than 30 years mining and metals experience, as Project Director to lead the Armenia iron ore development and Mr Bill Mok as the Chief Financial Officer for the Group.

It is inspiring to see the way our team works together and strives for ways to improve our collective performance. Throughout the year, their commitment, talent and integrity have led to the delivery of our strong performance.

On behalf of the Board, I would like to thank all of our people for their hard work during the year. Our thanks also go to our shareholders as their continued support for Fortune Oil has helped us achieve such a strong performance in 2011.

FINANCIAL REVIEW

Revenue and Expenditure

Revenues including the Group's share of jointly controlled entities increased by 10 percent to £624.6 million (RMB 6,476 million) in 2011 from £566.9 million (RMB 5,891 million) in 2010, the increase is mainly due to the significant increase in Bluesky's turnover, which has been offset by the decrease in sales revenue in the natural gas sales and trading division. Group revenue excluding jointly controlled entities has dropped by 28 per cent in 2011 to £199.8 million (RMB2.1 billion) from £275.8 million (RMB2.9 billion) in 2010. This is mainly due to the decrease in natural gas sales, as a result of our divestment in 2010, as well as trading division due to the slowdown of oil products market in the PRC.

Before the gain on disposal of interests in a subsidiary of £7.3 million (the gain on disposal of interests in subsidiaries in 2010: £3.4 million), the operating profit was £27.4 million (RMB284 million) in 2011, compared with £24.6 million (RMB 256 million) in 2010, an increase of 11 per cent. This increase is mainly due to continuing growth in the aviation refuelling business.

The after tax net profit attributable to equity shareholders was £18.2 million (RMB188 million), an increase of 39 per cent compared to £13.1 million (RMB136 million) in 2010. Earnings per share increased to 0.96 pence compared with 0.69 pence in 2010. Administrative expenses remained at £11.7 million (RMB121 million) in 2011 (2010: £12.5 million or RMB129 million).

Capital expenditure and acquisitions

During the year we invested £79.2 million including capital expenditure of £20.2 million, mainly to continue the development of our integrated natural gas business, the purchase of intangible assets of £34.3 million mainly paid for the acquisition of three iron ore mining licences in Armenia and £24.7 million paid to acquire shares in China Gas Holdings Limited, a Hong Kong listed company, as a long term investment. The capex mainly consisted of the expansion of gas pipeline networks, development costs in Liulin CBM block and acquisition of three new subsidiaries, Liaoning Jianping Fortune Gas Company Limited, Fu Song Jin Run Natural Gas Limited and Beijing Fortune Power Technology Company Limited.

Financial Position

The net assets of the Group at 31 December 2011 were £196.5 million (RMB1.9 billion), compared with £166.3 million (RMB1.7 billion) in 2010. The Group had a net borrowing position of £5.7 million (RMB56 million) as at 31 December 2011, compared to a net cash position of £28.9 million (RMB293 million) in the previous year. With a gross cash balance of £128.4 million, the Group envisages no difficulties in meeting both current loan repayment obligations and investment commitments.

Financial Costs and Tax

Finance expenses for the Group were £5.3 million in 2011, compared to £3.0 million in 2010, it is mainly due to the increase in Group's borrowing and settlement of an interest rate swap during the year. Group's borrowings at 31 December 2011 totalled £134.1 million compared to £71.5 million at the end of 2010. The increase was mainly due to the drawdown of a US$180 million Morgan Stanley syndicated bank loan in 2011, which has been partly used to repay the US$80 million Standard Chartered Bank syndicated bank loan. The net gearing ratio (after deduction of cash) for the Group was 4 per cent as of 31 December 2011 (negative as of 31 December 2010).

The Group's tax charge in 2011 was £6.8 million (2010: £6.5 million) representing an effective tax rate of 21.5 per cent compared with 25.0 per cent in 2010. Since 2008 the corporate tax rate has been unified for both domestic and foreign companies at 25 per cent, being previously 15 per cent for foreign enterprises and 33 per cent for domestic corporations. Also since 2008, dividends distributed overseas by foreign invested enterprises in China were subject to tax. The tax rate is 10 per cent if there is a tax treaty concluded between China and the country of which the investor is a tax resident. It is 5 per cent for Hong Kong companies, and 10 per cent if share ownership is below 25 per cent. Dividends from Maoming Single Point Mooring, Bluesky and West Zhuhai Terminal to the holding companies in Hong Kong are subject to this tax rule. 

Foreign Exchange

The revenues and expenses of the Group are primarily denominated in China's renminbi (RMB). Some expenses are denominated in pound sterling (£) and in Hong Kong dollar (HK$), which is pegged to the US dollar (US$). On average from 2010 to 2011, the RMB appreciated against the US$ by 4.2 per cent and the pound sterling appreciated by 4.1 per cent against the US$, hence there was an overall 0.2 per cent depreciation of the pound sterling against the RMB. This currency movement has had the effect of increasing our profits as measured in pound sterling.

The assets and liabilities of the Group are also primarily denominated in RMB, although a small proportion are denominated in pound sterling, HK$ and Armenian Dram. In line with the average annual rates, the closing pound sterling exchange rate depreciated against the RMB by 3.6 per cent.

The Company does not have a policy to hedge currency risk and therefore any changes in the RMB/£ exchange rate are likely to affect the Group's results as denominated in pound sterling.

Capital Structure

Most of the Group's investments and expenses take place in the PRC and are held through Fortune Oil PRC Holdings Limited, a 100 per cent-owned Hong Kong based subsidiary of the Company. To facilitate inter-company restructuring most of the investments in China are held through subsidiary Hong Kong registered companies. The Company's UK operations consist only of local representation as a direct expense to the Company.

Dividend Policy

Subject to the shareholder approval, the directors recommend a final dividend of 0.18p per ordinary share (2010: 0.13p per ordinary share) to be paid on 27 June 2012 to ordinary shareholders on the register on 25 May 2012.

Directors' Statement

The Directors of Fortune Oil confirm that the financial statements in this report to shareholders are true and fair and the Directors' Report includes a fair review of the development and performance of the business, its position and description of the principal risks and uncertainties faced.

FORTUNE OIL PLC

Annual Financial Report Announcement

Condensed Consolidated Income Statement

for the Year Ended 31 December 2011

FORTUNE OIL PLC

Annual Financial Report Announcement

Condensed Consolidated Statement of Comprehensive Income

for the Year Ended 31 December 2011

FORTUNE OIL PLC

Annual Financial Report Announcement

Condensed Consolidated Statement of Financial Position

at 31 December 2011

FORTUNE OIL PLC

Annual Financial Report Announcement

Condensed Consolidated Cash Flow Statement

for the year ended 31 December 2011 

Annual Financial Report Announcement

Condensed Consolidated Statement of Changes in Equity

for the Year Ended 31 December 2011

FORTUNE OIL PLC

Annual Financial Report Announcement

Condensed Consolidated Statement of Changes in Equity

for the Year Ended 31 December 2011 (cont.)

Basis of preparation

The financial information set out in the announcement is extracted from the Company's full financial statements for the year ended 31 December 2011. Whilst the financial reporting included in this dissemination announcement has been computed in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company has published full financial statements that comply with IFRSs at the same day of this announcement. The accounting policies applied are consistent with those adopted and disclosed in the Company's financial statements for the year ended 31 December 2011.

2. Segmental Reporting

The Group has adopted IFRS 8 Operating Segments to identify seven operating segments on the basis of internal reports about components of the Group which are reviewed regularly by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.

The Group has classified the operating divisions and the reportable segments under IFRS 8 as "Natural Gas", "Single point mooring facility", "Aviation Refuelling", "Trading", "Products Terminal", "Resources" and "Others".

Information regarding these segments is presented below.

(a) Operating segments

 (a) Operating segments (cont.)

b) Geographical operations

All Group's revenues are attributed to PRC and Hong Kong. Except for £31.2 million (2010: £nil) which are located in Armenia, all of the Group's non-current assets, excluding the available for sale investments, are held in PRC and Hong Kong. The Directors are of the opinion that the PRC and Hong Kong form one geographic segment.

c) Analysis of group revenue

d) Major customers

None of the customers individually account for more than 10% of the Group's revenues during the current and previous year.

e) Segment information

(i) Revenues attributable to the natural gas segment are derived from the sale of gas, connection fees and the operation of gas stations in the PRC;

(ii) Revenues attributable to the single point mooring facility are based on volume throughput;

(iii) Revenues attributable to the aviation refueling segment are derived from the sale and storage of jet fuel in the PRC;

(iv) Revenues attributable to the trading segment are derived from the trading of petroleum products in the PRC and Hong Kong; and

(v) Revenues attributable to the product terminal segment are derived from the storage of petroleum products in the PRC.

3. Taxation

The taxation charge for the year is analysed below:

The above reconciliation uses a 25% (2010: 25%) standard rate of tax, being the standard rate of tax payable in the PRC, where the majority of the Group's activities take place.

Pursuant to the relevant laws and regulations in the PRC, certain of the Group's PRC subsidiaries are entitled to exemption from PRC income tax for two years starting from their first profit-making year, followed by a 50% reduction for the next three years. In 2011, there is one PRC subsidiary entitled to the above tax holiday. The subsidiary enjoyed the second year of 50% reduction.

The Group tax charge above does not include any amounts for jointly controlled entities, whose results are disclosed in the income statement net of tax.

4. Dividends

5. Earnings per share

Earnings per share have been calculated on the earnings activities after taxation and non-controlling interest of £18,164,000 (2010: profit of £13,083,000)

6. Property, plant and equipment