Half Year Report for the 6 months ended 30 June 12

FORTUNE OIL PLC

("Fortune Oil", "the Company" or together with its subsidiaries "the Group")

Half Year Report for the six months ended 30 June 2012

Fortune Oil develops and operates oil and gas supply and infrastructure projects in China. Fortune Oil is quoted on the Main Market of the London Stock Exchange and has its headquarters in Hong Kong.

FINANCIAL HIGHLIGHTS

§ Revenues including share of jointly controlled entities increased by 12.9 per cent to £338.8 million (H1 2011: £300.1 million).

§ Group profit from operations, excluding gains on disposal, increased by 20.3 per cent to £14.3 million (H1 2011: £11.8 million).

§ Earnings per share was 0.55p (H1 2011:0.57p). Earnings per share, excluding gains on disposal, increased 27.5 per cent to 0.31p (H1 2011: 0.24p).

§ Net assets further increased to £200.3 million as at 30 June 2012 (31 December 2011: £196.5 million).

§ Group net borrowings of £63.3 million as at 30 June 2012 (31 December 2011: £5.7 million).

§ The Annual General Meeting on 19 June 2012 approved a dividend payment of 0.18p per share for 2011 which was paid on 27 June 2012.

OPERATIONAL HIGHLIGHTS

§ A 187.1 per cent increase in new customer connections to 31,031 (H1 2011: 10,810 new customers connected).

·; Total field production from the Fortune Liulin Gas ("FLG") wells now exceeds 27,000 cubic metres per day with the most successful well to date (H3) currently producing over 11,000 cubic metres per day, a rate which exceeds all previous wells drilled by FLG and is in line with our projections.

§ Bluesky maintained its strong performance with a 15.7 per cent increase in sales volumes to 1.4 million tonnes (H1 2011: 1.2 million tonnes), driven by the continued increase in domestic air travel demand.

§ Maoming Single Point Mooring ("SPM") revenue increased 11.8 per cent to £8.9 million (H1 2011: £8.0 million) as throughput volumes increased by 7.3 per cent to 5.5 million tonnes (H1 2011: 5.2 million tonnes) with net profit increasing 34.9 per cent to £2.6 million (H1 2011: £2.0 million).

§ West Zhuhai Products Terminal throughput volume was down by 10.7 per cent to 1.1 million tonnes (H1 2011 1.3 million tonnes) and profit contribution to the Group decreased by 7.2 per cent due to decreased utilisation of the terminal by Petrochina.

Mr Qian Benyuan, Chairman of Fortune Oil, commented:

"I am delighted to report that Fortune Oil has continued to make excellent progress in the first half of 2012 building on the record performance achieved in 2011. Our natural gas business is making good progress and is on track to become the growth engine of the Company.

"The combination of our portfolio of assets, strong local relationships and geographical footprint in China, the world's largest energy consumer, will enable Fortune Oil to continue to build on this track record in the second half of the year, increasing our market share in China, and delivering shareholder value."

ENQUIRIES:

FORTUNE OIL PLC

Half Year Report for the six months ended 30 June 2012

CHIEF EXECUTIVE'S REVIEW

FINANCIAL HIGHLIGHTS

§ Revenues including share of jointly controlled entities increased by 12.9 per cent to £338.8 million (H1 2011: £300.1 million).

§ Group profit from operations, excluding gains on disposal, increased by 20.3 per cent to £14.3 million (H1 2011: £11.8 million).

§ Earnings per share was 0.55p (H1 2011:0.57p). Earnings per share, excluding gains on disposal, increased 27.5 per cent to 0.31p (H1 2011: 0.24p).

§ Net assets further increased to £200.3 million as at 30 June 2012 (31 December 2011: £196.5 million).

§ Group net borrowings of £63.3 million as at 30 June 2012 (31 December 2011: £5.7 million).

§ The Annual General Meeting on 19 June 2012 approved a dividend payment of 0.18p per share for 2011, which was paid on 27 June 2012.

OPERATIONAL HIGHLIGHTS

Natural Gas

§ Operating profits increased by 31.3 per cent to £5.2 million (H1 2011: £4.0 million).

§ A 187.1 per cent increase in new customer connections to 31,031 (H1 2011: 10,810 new customers connected).

§ Two new liquefied natural gas ("LNG") bus refuelling stations are now in operation in Liaoning province to refuel a fleet of thirty intercity buses operating on the route between Shenyang and Fushun.

§ Fortune Gas invested in the Quyang joint venture in Hebei Province which will operate the city gas network along with LNG and CNG refuelling stations in the region.

§ Fortune Oil and its associates are now the second largest shareholder of China Gas Holdings ("CGH") with the combined shareholding increased further to 836,550,000 shares, representing 18.5 per cent of CGH total issued shares.

§ The Group remains well positioned to generate strong growth through execution of existing gas projects and demonstrated track record of developing new projects aligned to China's growing demand for natural gas.

Coal Bed Methane ("CBM")

§ Total field production from the Fortune Liulin Gas ("FLG") wells now exceeds 27,000 cubic metres per day with the most successful well to date (H3) currently producing over 11,000 cubic metres per day, a rate which exceeds all previous wells drilled by FLG and is in line with our projections.

§ Initial commercial gas sales expected early 2013.

§ Exploration period for the Production Sharing Contract ("PSC") has been extended for a further two years to 29 March 2014.

Oil Business

§ Bluesky maintained its strong performance with a Fortune Oil share of net profit of £6.0 million in the first half of 2012 (H1 2011: £5.9 million) on a 15.7 per cent increase in sales volumes to 1.4 million tonnes (H1 2011: 1.2 million tonnes), driven by the continued increase in domestic air travel demand.

§ Maoming Single Point Mooring ("SPM") revenue increased 11.8 per cent to £8.9 million (H1 2011: £8.0 million) as throughput volumes increased by 7.3 per cent to 5.5 million tonnes (H1 2011: 5.2 million tonnes) with net profit increasing 34.9 per cent to £2.6 million (H1 2011: £2.0 million).

§ West Zhuhai Products Terminal throughput volume was down by 10.7 per cent to 1.1 million tonnes (H1 2011 1.3 million tonnes) and profit contribution to the Group decreased by 7.2 per cent due to decreased utilisation of the terminal by Petrochina.

Resources

§ JORC compliant resource estimate of the Hrazdan mining area confirmed an Indicated Mineral Resource of 17.3 million tonnes at an average iron ore grade of 26.0 per cent and an Inferred Mineral Resource of 4.1 million tonnes at an average iron ore grade of 29.4 per cent.

§ Interests in the three Armenian iron ore mines increased to 73.34 per cent through renegotiation of the joint venture agreements.

There were no lost time incidents recorded in any of the Group's operations during the period.

Outlook

Overall, China's economic growth cooled significantly in the past year, however the economy is still projected to grow by 8 per cent in 2012. As of October 2012, the new Chinese administration is expected to take significant steps to demonstrate its commitment to maintaining China's strong and sustained growth. Even with the slowdown, China still has the world's largest growing energy market and will continue to provide growth opportunities in both the oil and gas markets which Fortune Oil can benefit from.

In line with the Chinese 12th Five Year Plan, the central government advocates increased urbanisation, expansion of domestic demand but with increased energy conservation and the reduction of gaseous emissions. Natural gas will play an increasing role in meeting the government targets in energy conservation and environmental protection and therefore we see good prospects for our natural gas business in particular the natural gas vehicle sectors.

During 2012 we have continued to expand our integrated gas network and to commercialise gas produced from the Liulin CBM block. Fortune Oil is also at the leading edge of the provision of clean fuels, particularly CNG and LNG, in the transportation market.

The Company anticipates steady growth in the second half of 2012 and we are excited by the medium term growth prospects for Fortune Oil. We continue to strengthen our position in the Chinese natural gas industry and will see further expansion of our customer base as natural gas availability increases. Our investment in China Gas Holdings through our joint venture with Mr Liu Minghui has the potential to further enhance the development of our natural gas business. 

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. Consumption of oil derived products such as diesel and petrol will also continue to grow with the rapid expansion of the automotive sector. 

The resources activities are still at an early stage but we believe 2012 will be a year in which significant steps will be taken to bring this business closer to value realisation.

TEE Kiam Poon

Chief Executive

23 August 2012

BUSINESS REVIEW

CHINESE ENERGY MARKET

The first half of 2012 has seen continued global economic uncertainty with the growth rate of the major economies, including China, slowing over the course of the year. China GDP growth for Q2 2012 was 7.6 per cent, the lowest for three years and down from 8.1 per cent in Q1. Although China's economic growth rate is expected to reach 8 per cent in 2012 China's central bank has cut interest rates twice to help stimulate the economy. Over the last 18 months the Chinese government was concerned about tackling the dual threat of inflation and the house price boom in major cities. Inflation has now eased to 2.2 per cent as of June 2012 the lowest level for two years, which provides the Chinese government with more flexibility to further ease monetary policy in order to stimulate the economy.

As a result of the slowdown in the Chinese economy growth in oil demand decreased to 3 per cent year on year and gas growth also reduced from 30 per cent year on year at the start of 2012 to less than 15 per cent year on year in June 2012. Despite the declining growth rate, demand for natural gas rose 15.9 per cent year on year to 72.1 billion cubic metres ("bcm") in the first six months of 2012, according to the National Development and Reform Commission. Natural gas imports, comprising LNG and pipeline supply from Central Asia, surged 44.6 per cent year on year to 19.8 bcm whilst domestic gas output during the period rose 6.3 per cent year on year to 53.6 bcm, according to the National Bureau of Statistics.

The continued industrialisation and urbanisation of China will see continued growth in natural gas demand, presenting considerable potential for the development of new city gas projects. By 2015 China's natural gas demand is projected to exceed 200 bcm which will represent about 8 per cent of China's total energy consumption, a level which is still significantly below the OECD average of 24 per cent and the UK's 40 per cent of the total energy consumption. The 12th Five Year Plan includes plans to construct 250,000 km of city gas pipelines bringing the total length to 600,000 km and build seven more LNG import terminals by 2015. The Central Government is promoting gas use as part of a series of measures aimed at curbing local air pollution and improving energy conservation. China continues to encourage natural gas use in the transportation sector with the amount of gas consumed by natural gas powered vehicles and vessels set to double under the period covered by the plan.

China continues to drive the development of its indigenous conventional and unconventional gas resources to meet this growing demand. However, CBM and shale gas are both still in the early stages of development in China and the pace of their development has not been sufficient in meeting Government's targets. Currently CBM production is around 1.5 bcm per annum with CBM total proven reserves of over 400 bcm. China has ambitions to increase annual CBM production to 10 bcm by 2015 and 20 bcm by 2020. The expectation is that the Chinese Government will continue to provide incentives for unconventional gas developers to encourage the investment needed to bring these resources on stream.

NATURAL GAS BUSINESS

Since entering the natural gas market nine years ago, Fortune Gas has continued to expand rapidly and is on track to be the future growth engine of the Group for some years The fundamental drivers for the natural gas business remain firmly in place, with demand in China for natural gas continuing to outstrip supply. The Company continues to make significant progress on the new natural gas projects announced over the past 18 months and is on track to deliver its growth strategy.

Revenue, including the share of jointly controlled entities, of the gas division in H1 2012 increased by 21.0 per cent to £38.4 million (H1 2011: £31.8 million) and the gas sales volume increased slightly to 239 million cubic meters (H1 2011: 237 million cubic meters) as operations at the new projects including Xinyang came on stream replacing lost volumes from divestments in H1 2011. The operating profit for the gas business increased by 31.3 per cent to £5.2 million (H1 2011: £4.0 million) driven by increased connections and rising gas sales margins.

A further 31,031 new customers were connected in this period (H1 2011: 10,810 new customers), representing a 187.1 per cent increase in the rate of connections, demonstrating the continued growth as new city gas networks are connected to gas supply. 

As part of its development strategy, Fortune Oil announced two new developments in its target markets in the first half of 2012 and made further progress in developing natural gas as a fuel for buses in Liaoning province and for ships on the Yangtze River.

1. Tianjin Gas LNG Joint Venture

Fortune Oil, through its 100 per cent subsidiary Fortune Oil PRC Holdings Limited, has established a joint venture with Tianjin Gas that will be responsible for the supply of liquefied natural gas ("LNG") to the city of Tianjin, China's sixth most populous city with a population of over 12 million. The joint venture company will manage, on a non-exclusive basis, the procurement, import and supply of LNG to Tianjin Gas including securing reliable and competitive overseas LNG supply. Fortune Oil holds 60 per cent and Tianjin Gas 40 per cent of the equity interest in the joint venture company.

Tianjin Gas is the largest natural gas supplier in Tianjin City responsible for gas supply and operations to 18 districts and counties in Tianjin City with over 95 per cent of the market, 2 million customers and 9,000 km of gas pipelines. Tianjin Gas is one of the main shareholders in the Tianjin LNG Import and Regasification terminal which is expected to start operations in 2013. The terminal will initially import 2.2 million tonnes (3 bcm) of LNG per annum into China using a floating storage and regasification unit ("FSRU") with the plan to expand the LNG import terminal in Tianjin to a capacity of 6 million tonnes per annum (8 bcm) from 2015.

2. Strategic Investment in China Gas Holdings Ltd ("CGH")

Fortune Oil has become a substantial shareholder, via a joint venture (China Gas Group Ltd) in CGH, the largest independent natural gas company in China in terms of city network, serving natural gas to over 160 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. As of August 23 2012 the joint venture and its associates held 836,550,000 shares in CGH representing 18.5 per cent of CGH total issued shares making the joint venture and its associates the second largest shareholder of CGH.

This investment is very much in line with our stated strategic objectives of developing Fortune Oil in to a leading business in the Chinese natural gas supply market.

3. LNG Bus Refuelling Joint Venture in Liaoning Province

The rapid expansion in the use of natural gas as a fuel for the transportation sector provides Fortune Oil an opportunity to invest in refuelling facilities to supply natural gas to this sector. During the period Fortune Oil has installed two LNG refuelling stations on the route between Fushun and Shenyang to refuel a fleet of thirty LNG inter-city buses. Negotiations are also underway to supply LNG fuel on the inter city bus routes between Shenyang, Liaoyang and Chaoyang across Liaoning province.

As we expect demand for transport and LNG within this region to continue to grow going forward we will continue to evaluate opportunities to increase our exposure to this growth market further.

4. Yangtze River LNG Ship refuelling Joint Venture

In our joint venture to bring natural gas as a fuel to ships on the Yangtze River, the sites for the first two permanent LNG ship refuelling stations have been identified and Chinese design institutes are progressing the design and approvals prior to construction. These are the first of a number of stations Fortune Gas is planning to build along the Yangtze River.

Negotiations are also ongoing with a leading shipping company to commence conversion of its ships to dual fuel technology and the LNG fuel supply arrangements for these ships.

COAL BED METHANE

Fortune Oil continues to make progress at its Liulin CBM operations and the project is on track for first commercial gas sales in early 2013 following the expected completion of the gas gathering system.

Total field production from the Fortune Liulin Gas ("FLG") horizontal wells now exceeds 27,000 cubic metres per day with the most successful well to-date (H3) currently producing over 11,000 cubic metres per day, a rate which exceeds all previous wells drilled by FLG. These flow rates have been achieved with a bottom hole pressure ("BHP") of 1.6 megapascals (MPa) and gas flow rates are predicted to increase as the BHP is reduced further to a target of around 0.2 MPa.

In 2012, FLG drilled two more horizontal wells which are currently being dewatered and undergoing production testing. These wells, together with existing wells are expected to provide sufficient production volumes to meet the requirements of the existing Gas Sales Agreement ("GSA") of 100,000 cubic metres per day. Pricing under the GSA, is RMB1.58 per cubic metre which equates to gross sales revenues of RMB 52.1 million (£5.0 million) per annum (£2.5 million net to FLG).

Initial gas sales from the Liulin field will be via a Compressed Natural Gas wholesale station which has been constructed by Shanxi CUCBM and is currently awaiting final approval before operations commence in the second half of 2012. FLG has also completed the engineering design of the gas gathering system and the Engineering, Procurement and Construction contract is in place to install the gas gathering system across the Liulin block. The construction of the gathering system and associated equipment is expected to take around six months, which will enable initial gas sales in early 2013.

The Overall Development Plan ("ODP") has been prepared for submission in 2012 and a summary ODP has been submitted to FLG's Chinese partner China United Coal Bed Methane Corporation. The ODP is the final approval procedure required for full commercial operations and marks the transition of the field from exploration to development and operation and is a key step towards the commercialisation of gas from Liulin.

FLG met its exploration drilling targets for the CBM Liulin Block and the Ministry of Commerce has approved an extension of the exploration period of the Production Sharing Contract for the Liulin CBM block for a further two years to 29 March 2014.

OIL BUSINESS

Aviation Refuelling (South China Bluesky Aviation Oil Company)

The Bluesky joint venture achieved jet fuel volume growth of 15.7 per cent to 1.4 million tonnes with revenues of £980.1 million (H1 2011: £725.5 million), resulting in net profits of £24.3 million in H1 2012 (H1 2011: £24.2 million). Given recent momentum in the business we are confident in achieving another strong performance in 2012 although the decreasing oil price is having an impact on jet fuel prices in China. Bluesky therefore is seeking to minimise any potential impact price changes may have on its performance.

Maoming Single Point Mooring

The Maoming SPM volume throughput in the first half of 2012 increased 7.3 per cent to 5.5 million tonnes (H1 2011: 5.2 million tonnes). The joint venture revenue increased 11.8 per cent to £8.9 million (H1 2011: £8.0 million). Net profit for H1 2012 increased 34.9 per cent to £2.6 million (H1 2011: £2.0 million) due to the increase in throughput volume and a reduction in the impact of depreciation of recent capital expenditures. Presently we are negotiating with our joint venture partner to extend the joint venture contract which is due to expire in Q1 2013. The SPM facility continues to operate efficiently and with an accident-free and spill-free record. 

Products Terminal and Supply

The West Zhuhai Products Terminal (South China Petroleum Company) performance has continued to face declining volumes in H1 2012 with the throughput for the first half of 1.1 million tonnes decreasing by 10.7 per cent (H1 2011: 1.3 million tonnes). The profit contribution to Fortune Oil decreased to £0.39 million compared to £0.42 million in H1 2011 due to reduced usage of the terminal during the period.

This terminal continues to play an important role for Petrochina given its strategic interest in the asset and downstream strategy in Southern China. Options to diversify the terminal's customer base are currently being evaluated in order to help address declining volumes 

The Trading Business continues to focus on non-regulated oil and petrochemicals products and generated a turnover that decreased by 41.1 per cent to £45.7 million, (H1 2011: £77.5 million). Profits from operations amounted to £0.5 million in H1 2012 (H1 2011 £0.6 million). The trading business continues to explore options for the expansion of the types of products that it trades. 

RESOURCES 

Fortune Oil continues to make good progress on the development of the Hrazdan mine. SRK Consulting (UK) completed the JORC compliant Mineral Resource Statement for the Hrazdan iron ore mine, as announced on 13 April 2012. The Resource Statement confirmed an Indicated Mineral Resource of 17.3 million tonnes at an average iron ore grade of 26.0 per cent and an Inferred Mineral Resource of 4.1 million tonnes at an average iron ore grade of 29.4 per cent. Planning has now commenced to develop a 2.5 million tonnes per annum iron ore concentration plant producing in excess of 500,000 tonnes of concentrate of approximately 66 to 68 per cent iron. Sinosteel is finalising the flow sheet, basic design for the iron ore processing plant and the Feasibility Study is due to be completed by the end of 2012 with a view to determining the viability of developing the Hrazdan mine. Fortune Oil has also renegotiated various agreements to increase its effective interest in its three Armenian iron ore mining licenses to 73.34 per cent.

FINANCIAL REVIEW

Revenue and Expenditure

Revenues including the Group's share of jointly controlled entities increased by 12.9 per cent to £338.8 million in H1 2012 from £300.1 million in H1 2011. This was largely driven by the rapid growth in the Group's aviation refuelling business and the Gas business, which has been partially offset by the decrease in sales revenue in trading division.

On 14 February 2012, the Group disposed of its available for sale investments in respect of shares held in CGH, a listed company on the Hong Kong Exchange. The shares were held by a wholly owned subsidiary and were sold to China Gas Group Limited, a jointly controlled entity. The Group has realised gains on disposal of £4.7 million (H1 2011: £7.9 million). The gain in 2011 arose from the deemed disposal of FLG and the disposal of a Gas business subsidiary.

Operating profit before the gains on disposals improved to £14.3 million in H1 2012, compared with £11.8 million in H1 2011, an increase of 20.3 per cent. This increase was mainly due to steady growth in the Gas and Single Point Mooring businesses.

Distribution expenses increased by 29.0 per cent to £3.4 million in H1 2012 from £2.6 million in H1 2011 mainly due to the growth of the Gas business.

The after tax net profit attributable to equity shareholders, including gains on disposal, was £10.5 million, a decrease of 2.6 per cent compared to £10.8 million in H1 2011. Earnings per share also decreased to 0.55 pence compared with 0.57 pence in H1 2011.

Capital Expenditure and Acquisitions

Capital expenditure and acquisitions totalled £42.0 million of which £11.3 million was capital expenditure by the Group and £30.7 million was primarily expenditure by the Group to acquire shares in CGH as well as funding to a newly formed jointly controlled entity to acquire further shares in CGH. The capital expenditure mainly consisted of the expansion of gas pipeline networks, replacement of submarine pipeline and accessories of the buoy in Single Point Mooring and additions to exploration and evaluation assets in respect of the iron ore mining license in Armenia. Property, plant and equipment increased slightly by 4.9 per cent to £61.4 million as at 30 June 2012 (as at 31 December 2011: £58.6 million). 

Financial Position

The net assets of the Group as at 30 June 2012 were £200.3 million, compared with £196.5 million as at 31 December 2011. The net borrowing position as at 30 June 2012 was £63.3 million compared with £5.7 million as at 31 December 2011. With a cash balance of £71.9 million (as at 31 December 2011: £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 £3.3 million in H1 2012, compared to £3.5 million in H1 2011. Group borrowings as at 30 June 2012 have slightly increased to £135.1 million compared with £134.1 million as at the end of 2011. The net gearing ratio (after deduction of cash) for the Group was 31.6 per cent as of 30 June 2012 and 2.9 per cent as of 31 December 2011.

The Group's tax charge for the period ended 30 June 2012 was £3.0 million (H1 2011: £3.2 million) representing an effective tax rate of 18.1 per cent compared with 18.6 per cent in H1 2011. Since 2008, the PRC 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. The overall effective tax rate for Fortune Oil has gradually increased as most of the previous tax privileges have fallen away.

Foreign Exchange

The revenues and expenses of the Group are mainly denominated in China's renminbi (RMB). The remaining expenses are denominated either in pound sterling (£) or in Hong Kong dollars (HK$), which is pegged to the US dollar (US$), or in United States dollars (US$). On average for the six months ended 30 June 2012, the RMB appreciated against the US$ by 3.1 per cent and the pound sterling depreciated by 2.3 per cent against the US$, hence there was an overall 5.3 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 with our Armenian investment being denominated in US$. The balance, which represents a small proportion of the assets and liabilities, are denominated in pound sterling and HK$. Differing from the average annual rates, the closing pound sterling exchange rate appreciated against the RMB by 1.8 per cent and 0.9 per cent against the US$ when comparing the rate on 31 December 2011 with the rate on 30 June 2012.

The Group 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 People's Republic of China and are held through Fortune Oil PRC Holdings Limited, a 100%-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 Group's interests in Armenia are held through a separate investment structure. The Group's UK operations consist only of local representation as a direct expense to the Company.

Dividend

It is not the Company's policy to pay interim dividends. A final dividend of 0.18p per ordinary share was paid to shareholders on 27 June 2012, in respect of 2011 financial year.

PRINCIPAL RISKS AND UNCERTAINTIES

Our business is supplying China with energy and resources, principally oil and natural gas with a recent expansion into iron ore mines in Armenia. There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to different materially from expected and historical results. These risks have not changed since the date of Annual Report 2011, where the principal risks and uncertainties are detailed on pages 24 and 25.

The principal risks and uncertainties facing Fortune Oil's operations include: concentration risks, pricing risks, regulatory and relationships risks, health, safety and environment (HSE) risks, attraction and retention of key employees, development risks, uninsured risks and investment risks.

GOING CONCERN STATEMENT

The Group's business activities and associated opportunities and risks are set out above in the "Business Review" and "Principal Risks and Uncertainties". The financial position of the Group, its cash flows and liquidity position is described in the Financial Review. In the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group's operation and mitigate the effects of fluctuations in cash flows. The Group meets part of its capital expenditure requirements from medium term loan facilities.

The current economic conditions may create uncertainty over:

(a) The level of demand for the Group's products and services;

(b) International exchange rates that affect commodity prices and hence the Group's revenues in China as denominated in US dollars or sterling;

(c) The availability of bank or equity finance in the foreseeable future; and

(d) Counterparty credit risk.

As at 30 June 2012, the Group had a cash balance of £71.9 million and a net borrowing position of £63.3 million. The Group's current forecasts and projections, adjusting for reasonably possible changes in trading conditions, show that the Group will be able to repay the interest and principal payments in a timely manner in accordance with loan agreements and to operate within the required covenants.

The Directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, Fortune Oil continues to adopt the going concern basis in preparing the half year report and accounts.

RESPONSIBILITY STATEMENT PURSUANT TO DTR 4.2 

The names and functions of the Directors of Fortune Oil are listed in the Company's Annual Report for 2011. We confirm that, to the best of each person's knowledge:

1) The condensed set of financial statements, which have been prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R;

2) The interim management report includes a fair review of important events that have occurred during the first six months of the financial year, and their impact on the half yearly financial report and a description of the principal risks and uncertainties for the remaining six months of the financial year in accordance with DTR 4.2.7R; and

3) The interim management report includes a fair review of disclosures of related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or the performance of the Group during that period and any changes in the related party transactions described in the last annual report that could have a material effect on the financial position or performance of the Group in the first six months of the current financial year in accordance with DTR 4.2.8 R.

These interim results have not been audited.

By order of the Board

Tee Kiam Poon

Chief Executive

FORTUNE OIL PLC

Half Year Financial Statements

Consolidated Income Statement

FORTUNE OIL PLC

Half Year Financial Statements

Consolidated Statement of Comprehensive Income

FORTUNE OIL PLC

Half Year Financial Statements

Consolidated Statement of Financial Position

FORTUNE OIL PLC

Half Year Financial Statements

Consolidated Cash Flow Statement

FORTUNE OIL PLC

Half Year Financial Statements

Consolidated Statement of Changes in Equity

Notes to the condensed set of financial statements

Six months ended 30 June 2011

1. Basis of preparation

The condensed financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, as adopted by the European Union.

The financial information for the six months ended 30 June 2012 and 30 June 2011 was neither audited nor reviewed by the auditors. The information for the year ended 31 December 2011 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on these accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of no less than twelve months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements. Detail of the factors that which have been taken into account in assessing the Group's going concern status are set out on page 12 of the Business Review.

2. Significant accounting policies

The condensed financial statements have been prepared under the historical cost convention, except for the revaluation of certain properties and financial instruments.

The same accounting policies, presentation and methods of computation have been followed in these condensed financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 December 2011.

3. 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.

4. Income tax charge

Interim period income tax is accrued based on the average effective income tax rate of 18.1 per cent (6 months ended 30 June 2011: 18.6 per cent).

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

Please refer to the financial review for discussion on the tax charges during the period.   

5. Dividends

The Directors do not recommend the payment of an interim dividend in respect of the 6 months ended 30 June 2012.

6. Earnings per share

Earnings per share has been calculated by dividing earnings attributable to the shareholders by the weighted average number of shares in issue during the respective periods, as indicated below:

7. Property, plant and equipment

During the period, the Group spent approximately £7.9 million on assets in the course of construction, single point mooring buoy facility and fixtures and fittings.

The Group also disposed of certain parts of its single point mooring buoy and fixtures and fittings with a carrying amount of £0.6 million.

The depreciation charge for the period was £3.5 million (6 months ended 30 June 2010: £2.9 million).

8. Other intangible assets

During the period, the Group spent approximately £3.0 million on exploration and evaluation assets in Armenia.

The amortisation charge for the period was £0.2 million (6 months ended 30 June 2011: £0.1 million).

9. Investments in jointly controlled entities

The Group established China Gas Group Limited ("CGG"), a 50% jointly controlled equity, during the period. The remaining movements were mainly due to share of profits, share of gain on establishment of new jointly controlled entity, share of reserves and loans to the jointly controlled entities. There have been exchange losses of £0.6 million. Details are as follows:

The advances mainly represents the additional loans to CGG during the period, of which £56.7 million was related to consideration paid in respect of transaction for the acquisition of China Gas Holdings Limited ("CGH") by CGG (see note 14) and  a further £6.5 million was advanced to acquire shares in CGH.

10. Investments in associates

There were no acquisitions during the period and the movement was due to exchange rate differences and shared losses of associates. Details are as follows:

11. Goodwill

There were no acquisitions during the period. The movement represents the exchange loss.

12. Borrowings

Except for the renewal of the bank loan from the Shenzhen Development Bank of £7.0 million and an additional bank loan from the Bank of China of £1.5 million for the issuance of a letter of credit, there were no additional bank loans drawn during the period. The remainder of the movement mainly represents the exchange loss during the period. These loans are being used for general working capital requirements of the Group.

13. Issued capital

Issued capital as at 30 June 2012 amounted to £19.9 million. There were no movements in the issued capital of the Company during the period.

14. Disposal of available for sale financial asset

On 14 February 2012, the Group disposed of its shares in CGH, a listed company in the Hong Kong Exchange. These shares were previously held as an available for sale financial asset, and were sold by a wholly owned subsidiary of the Group to the newly form jointly controlled entity, China Gas Group Limited.

The consideration for these shares together with £25.7 million of cash transferred to the jointly controlled entity was made in a form of a loan £56.7 million. Accordingly a loss on disposal of £1.7 million has been recognised in the income statement.