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Fortune Oil PLCannual report 2012

Fortu

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BankersMorgan Stanley Asia LimitedLevel 46 International Commerce Centre1 Austin Road WestKowloon, Hong Kong

Standard Chartered Bank (Hong Kong) LimitedStandard Chartered Bank Building4 – 4A Des Voeux Road, CentralHong Kong

The Hongkong and ShanghaiBanking Corporation LimitedHSBC Main Building1 Queen’s Road CentralHong Kong

CITIC Bank International Limited80 Fl. International Commerce Centre 1 Austin Road WestKowloon, Hong Kong

DBS Bank (Hong Kong) Limited16th Floor, The Center99 Queen’s Road Central Central, Hong Kong

Shenzhen Development Bank Co., Ltd.Guangzhou BranchNo. 66 Huacheng DadaoZhujiang Xincheng, GuangzhouChina

Barclays Bank plcKnightsbridge Business CentreP.O. Box 32014London NW1 2ZGUnited Kingdom

P R AdviserPelham Bell Pottinger5th Floor, Holborn Gate330 High HolbornLondon WC1V 7QDUnited Kingdom

Financial Adviser & Stockbroker Oriel Securities Limited150 CheapsideLondon EC2V 6ETUnited Kingdom

Corporate ConsultantS.Goschalk Limited41 MeadwayLondon NW11 7AXUnited Kingdom

Corporate AdviserVSA Capital LimitedFourth FloorNew Liverpool House15-17 Eldon StreetLondonEC2M 7LD

Investor Relations ConsultantScott Harris Victoria House1–3 College HillLondon EC4R 2RAUnited Kingdom

SolicitorsJun He Law OfficesSuite 2208, 22/F., Jardine HouseOne Connaught PlaceCentral, Hong Kong

Reed Smith LLPThe Broadgate Tower20 Primrose StreetLondon EC2A 2RSUnited Kingdom

DirectorsQIAN BenyuanChairman (Non-executive)

Daniel CHIUExecutive Vice-Chairman

TEE Kiam PoonChief Executive

LI Ching (Ms)Executive Director

Frank ATTWOODSenior Independent Director

LIN XizhongMAO TongDennis CHIULouisa HO (Ms)Ian TAYLORWANG JinjunZHI YulinNon-executive Directors

Company SecretarySandi CHOI (Ms)

Registered Office6/F., Belgrave House76 Buckingham Palace RoadLondon SW1W 9TQUnited Kingdom

Registered Number2173279

AuditorsDeloitte LLP2 New Street SquareLondon EC4A 3BZUnited Kingdom

company informationVisionTo be a leader in China’s energy and resources supply

StrategyTo invest and operate long term cost competitive assets supplying oil, gas and resources to China

1 Fortune Oil PLC annual report 2012

company profile

Fortune Oil PLC, a company listed on the London Stock Exchange focussing on the supply of crude oil, transportation fuels including petrol, diesel, aviation fuel, and natural gas in the People’s Republic of China and development of resources to capitalise on China’s growing demand for energy and resources.

Oil business; operates an off shore crude oil import terminal, refined products jetty and storage terminal, and aviation refuelling.

Trading Business; focuses on the supply and trading of oil and petrochemical products, LPG and LNG.

Natural gas business; includes the exploration, production, distribution and supply of natural gas to residential, industrial and commercial customers and the operation of natural gas vehicle refuelling stations.

Resources business; develops overseas investment opportunities to capitalise on China’s growing demand for energy and resources.

contents

1 company profile

2 operational locations

4 business highlights

4 five year summary

5 key performance indicators

6 chairman’s statement

9 chief executive’s review

12 business review • ourorganisation • ourdevelopment • ourmarket • oilbusiness • tradingbusiness • naturalgasbusiness • resources • corporatesocialresponsibility • environmentalreview • glossary

24 principal risks and uncertainties, their effects and our management strategy

26 financial review

28 board of directors

30 directors’ report

40 corporate governance

50 remuneration report

63 directors’ responsibilities statement

64 independent auditor’s report on the group financial statements

66 consolidated income statement

67 consolidated statement of comprehensive income

68 consolidated statement of financial position

69 consolidated cash flow statement

70 consolidated statement of changes in equity

71 notes to the group financial statements

113 five year summary

114 independent auditor’s report on the company financial statements

116 company statement of financial position

117 notes to the company financial statements

121 shareholder information

3027

2829

9

1011

12

16 2321

18

3

4

2

5

625

78

32

3331

2426

2014152217

1913

1

West-East Gas Pipeline

Shaanxi-Beijing Pipeline No. 1


Chang-Hu Pipeline

Se-Ning-Lan Pipeline

Zhong-Wu Pipeline

Huai-Wu Pipeline

Ji-Ning Pipeline

North-East Pipeline connectingto Russian Gas Pipeline

Southern Pipeline

West Siberia East SiberiaSakhalin

Tashkent


operational locations

Beijing municipality 1. Tongzhou

Shanxi province 2. Liulin 3. Shuozhou 4. Jinshatan 5. Changzhi 6. Jincheng

Henan province 7. Xinyang 8. Minggang

Tianjin municipality 9. Jinghai10. Daqiuzhuang11. Tuanbo

Hebei province 12. Quyang 13. Luquan 14. Jingxing 15. Luancheng 16. Xingtang 17. SJZ Airport Industrial Zone18. Wuji19. Shenze20. Gaocheng21. Xinji22. Lingshou23. Jinzhou

Shandong province 24. Qufu 25. Jining (new district)

26. Sishui

Liaoning province 27. Shenyang 28. Dashiqiao 29. Jianping

Jilin Province 30. Fusong

Chongqing Municipality 31. Ba-nan

Hubei province32. Zigui33. E-Zhou

Fortune Gas

Maoming SPMWest Zhuhai

Oil Terminals

Bluesky Airports

Baise AirportBeihai AirportChangde AirportChangsha AirportChaoshan AirportEnshi AirportGuangzhou AirportGuilin AirportLiuzhou AirportMeixian AirportNanning AirportWuhan AirportWuzhou AirportYichang AirportZhangjiajie AirportZhanjiang AirportZhengzhou Airport

3027

2829

9

1011

12

16 2321

18

3

4

2

5

625

78

32

3331

2426

2014152217

1913

1

West-East Gas Pipeline



Chang-Hu Pipeline

Se-Ning-Lan Pipeline

Zhong-Wu Pipeline

Huai-Wu Pipeline

Ji-Ning Pipeline

North-East Pipeline connectingto Russian Gas Pipeline

Southern Pipeline

West Siberia East SiberiaSakhalin

Tashkent



Financial £ million 2012 2011 Change %

Revenue including share of jointly controlled entities* 739.4 624.6 18

Profit after tax* 20.5 24.9 (18 )

Profit attributable to owners of the parent* 15.7 18.2 (14 )

Net assets 246.8 196.5 26

Net assets attributable to owners of the parent 188.4 141.1 34

Shareholders

Issued Shares, millions of shares 1,987 1,987 nil

Basic earnings per Share (pence)* 0.82 0.96 (14 )

Dividend per Share (pence) 0.16 0.18 (11 )

business highlights

five year summaryBlueskySales, million tonnes

2009 2010 201120080.0

0.40.81.21.6

2.02.4

2.83.2

2012

Profit attributable to owners of the parent* £ million

2008 2009 2010 2011 2012024

1086

1214161820

Maoming SPM ThroughputThroughput, million tonnes

2010 2011 2012200920080

2

4

6

8

10

12

West ZhuhaiThroughput, million tonnes

2010 2011 2012200920080.0

0.5

1.0

1.5

2.0

2.5

Natural GasSales, million cubic metres

0

90

180

270

360

450

540

630

2010 201120092008 2012

Connected Natural Gas customersThousands

2009 2010 20112008 20120306090120150180210240270300

* from continuing and discontinued operations.


Key Performance Indicator Target Commentary

key performance indicators

Revenues including share of jointlycontrolled entities*£ million

2008 2009 2010 2011 20120

100200300400500600700800

To increase the Group’s revenues (including share of jointly controlled entities) by 10 per cent per year over the long term.

Target met:18 per cent increase over 2011.

Profit Attributable to Equity Shareholders*(Before other gains)£ million

2008 2009 2010 2011 20120

2

4

6

8

10

12

To achieve a growth of above 15 per cent per year over the long term in profit attributable to equity shareholders.

Target not met: 2 per cent increase over 2011.

Basic earnings Per Share*Pence

2008 2009 2010 2011 20120.0

0.2

0.4

0.6

0.8

1.0

To increase earnings per share (EPS) by 15 per cent per year over the long term.

Target not met year-on-year from 2011 to 2012 (there was a 14 per cent decrease).

Increase in Gas Sales %

and Gas Volume million m3

% million m3

-600

60120180240300360

0100200300400500600700

20102009 2011 20122008Target

increase in gas sales % gas volume million m3

To increase the volume sales of gas by over 30 per cent per year.

Target not met: 6 per cent increase over 2011.

2008 2009 2010 2011 2012

Lost Time Injury Frequency Rate for SubsidiariesLost time injuries per million man hours

0.0 0 0 0 0 00.5

1.0

1.5

2.0

2.5

To ensure safe operation for our personnel, as measured by Lost Time Injury Frequency Rate (LTIFR) for our subsidiary companies.

Target met as LTIFR was zero in 2012. Safety at work is critical to our business.

To minimise the accidental release of hydrocarbons to the environment from all our operating companies.

Target met as there were no significant spillages or releases. The Company is committed to environmental protection.

* from continuing and discontinued operations.


chairman’s statement

Fortune Oil continued to perform strongly in 2012 and made significant progress across all core businesses, delivering on its strategy in the face of the prevailing uncertain global economic conditions.

IntroductionI am pleased to report that Fortune Oil continued to perform strongly in 2012 and made significant progress across all core businesses, delivering on its strategy in the face of the prevailing uncertain global economic conditions.

Results and OperationsThe Group’s revenues increased by 18 per cent to £739.4 million (2011: £624.6 million), and operating profits were £28.5 million, 4 per cent higher than 2011 (£27.4 million). Profit attributable to owners of the parent decreased by 14 per cent to £15.7 million (2011: £18.2 million) however, profits attributable to owners of the parent before other gains increased to £11.0 million (2011: £10.8 million).

During the year, we entered into a strategic joint venture arrangement with a view to investing in China Gas Holdings Limited (“CGH”), one of the largest independent natural gas businesses in China. This culminated in the decision, announced at the end of 2012 to enter into a transaction with CGH in relation to the Company’s natural gas business. Once complete, this will significantly strengthen the Company’s balance sheet, through the receipt of cash proceeds of US$170 million as half of the consideration for our 85% share of the natural gas business. The CGH transaction remains conditional on approval by the Anti-Monopoly Bureau of the Ministry of Commerce of the PRC and the Hong Kong Takeovers Executive or Takeovers and Merges Panel, which is expected mid-year 2013.

The Board is evaluating several options on how to best utilise the proceeds from the transaction including the potential for strategic acquisitions in the energy and resources sector that are synergistic to the Group’s strategy, and exploring other investment opportunities and gas supply options that can help to strengthen the supply of resources for the combined gas business with CGH.

Fortune Oil’s strength lies in its relationships with its joint venture partners in developing growth opportunities. This is clearly demonstrated with the CGH transaction which further strengthens our position in the Chinese natural gas market. As a result of the CGH transaction, Fortune Oil should own an enlarged stake and exercise significant influence in CGH, which will have natural gas operations in 200 cities across China. CGH recognised the complementary skills and assets of our natural gas business which ideally positions the company for success in what we expect to become an increasingly competitive market.

In 2012 we also made significant progress in a number of other key areas:

• We are in the final stages of negotiating a replacement structure for the Maoming SPM partnership.

• We obtained the government approvals to progress the construction of the gas gathering system for our CBM block in Liulin. This is a critical step towards commercialisation of gas from this block.

• We achieved a major first for China in obtaining the regulatory approvals for the commercial operation of our dual fuel LNG ship. This gives us first mover advantage in the development of a major new market for gas in China.

As a Group we will pursue attractive growth opportunities in our target markets.



DividendThe Board recommends the payment of a dividend to shareholders for 2012, of 0.16p per share (2011: 0.18p per share). The dividend will be payable on 15 August 2013 to shareholders on the register as at 12 July 2013.

Management and GovernanceGiven the importance of the CGH transaction, continuity across the Board and Management team is critical during this period. We are determined to manage a smooth and efficient transition to a new combined natural gas organisation. The continued performance of all of our businesses during this period is critical and we will ensure that there is no disruption to our operations.

As a result of the CGH transaction and the proposed change of the status of the Maoming SPM joint venture, we were no longer able to maintain our Premium Listing on the London Stock Exchange but have become a Standard Listed company, with effect from 20 March 2013. Nevertheless, following this move we are committed to maintaining the high standards of corporate governance and the same reporting standards as are required for a Premium Listed company.

We will continue to evaluate options such that Fortune Oil’s listing status meets the best interests of the Company and our shareholders.

Review of China EconomyChina’s economy slowed to 7.8 per cent in 2012, its lowest annual growth rate since 1999, as a result of restrictions the Chinese government had put in place to cool China’s property market and as a result of the lower demand for Chinese goods from Europe and the United States. However, unlike in 2009, the Chinese government did not step in with a stimulus plan. The outcome is a general recognition that the days of double-digit growth in the Chinese economy have come to an end. The ten yearly transition of the Chinese leadership in 2012 is expected to lead to a wholesale revamp of government ministries aimed at reducing bureaucracy.

Energy price mechanisms are also being reformed and are moving to a more market based approach. Fortune Oil pays close attention to short-term economic conditions but also takes a long term strategic view of the Company’s development, balancing growth opportunities and investment returns whilst continuously looking to improve our competitiveness.

OutlookFortune Oil’s growth is underpinned by China’s ongoing economic growth and the associated increase in demand for energy. Although China’s GDP grew at only 7.8 per cent in 2012 the OECD is predicting growth of 8.5 per cent in 2013 and 8.9 per cent in 2014. The OECD also predicts that China will over take the United States and become the world’s biggest economy in 2016.

In line with the slowdown in China’s economic growth rate, Chinese oil demand grew by 4.2 per cent in 2012, or at about 387,000 barrels of oil per day, down from 6.3 per cent growth in 2011 and the double-digit growth in 2010. In line with signs that the economy started to expand in Q4 2012, China’s crude oil demand hit a record high of 44.8 million tonnes and refinery throughput also reached an all time high of 10.15 million bpd in December 2012.

Consumption of oil-derived products such as diesel and petrol will continue to grow to fuel the rapid expansion of the automotive and aviation sectors. Maoming SPM, West Zhuhai Terminal and the Bluesky businesses are well positioned to participate in this growth.

Looking to the future, the projects that will help drive Fortune Oil’s growth are advancing well.

In the natural gas business we anticipate completion of the gas gathering system by the middle of 2013 and this will enable commercial gas sales from our CBM block in Liulin. With the approval of our LNG ship design we will progress the development of our construction of LNG refuelling stations along the Yangtze and conversion of ships to dual fuel LNG technology.


In the Oil business we are planning to increase the capacity of the SPM terminal once the replacement partnership structure is in place to meet the growing demand at Sinopec’s Maoming refinery and our Trading business is expanding into the supply and trade of other commodities including diesel, LPG and LNG.

Guangzhou airport started construction of its third runway and second terminal in August 2012, as passenger traffic has exceeded its design capacity. The airport handled 48 million passengers in 2012 but this is projected to increase to 80 million in 2020. This bodes well for the Bluesky business which supplies the aviation fuel to this airport.

The Resources business completed the feasibility study and obtained a JORC compliant resource estimate for the Hrazdan iron ore mine in Armenia and is in the process of completing a final set of studies required to obtain the regulatory approvals which are now expected in 2014.

As a Group we have clear priorities, direction and focus. I remain confident of the continued success in the coming years and see great opportunities ahead. In shaping our portfolio, our priority is to create value for our shareholders and enable them to share in China’s

growth, one of the most exciting markets in the world. I would like to thank them for their continued support and loyalty. We remain very optimistic about the future growth prospects for Fortune Oil. With its solid foundation across the oil and gas sectors in China and the anticipated rising demand for energy, the Group anticipates an even better future for its businesses in the years to come.

Finally, I would like to thank all of our employees for their efforts. This has been another demanding year and they have shown admirable dedication. Special thanks are due to management for the successful execution of the CGH transaction, the most significant in the Company’s history.

QIAN BenyuanChairman24 April 2013


Guangzhou airport started construction of its third runway and second terminal in August 2012.


chief executive’s review

all operations for the year amounted to £15.7 million, a decrease of 14 per cent compared to £18.2 million in 2011 mainly as a result of an exceptional one off profit in 2011 of £7.3 million arising from the deemed divestment of the CBM business. Group profit from operations, excluding gains on disposals and deemed disposal increased by 4 per cent to £28.5 million (2011: £27.4 million). Earnings per share for the year decreased to 0.82 pence compared to 0.96 pence in 2011, a decrease of 14 per cent. Operating profit growth in 2012 was driven by a strong contribution from our Bluesky aviation and natural gas businesses. The net borrowing position stayed low at £61.1 million as at 31 December 2012 (2011: £5.7 million). During the year we invested £59.9 million which primarily consisted of the injection into China Gas Group (“CGG”) for shares acquisition purpose of £35.6 million and capital expenditure of £15.7 million, mainly to continue development of our integrated natural gas business.

I continue to be greatly encouraged by the Group’s performance. Our focus is on continuous improvement and to drive efficiency in our operations.

StrategyFortune Oil has a clear and focussed strategy: 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 our portfolio of assets with the intention of:

• Becoming a leading integrated natural gas supplier across our selected regions in China via our equity investment in CGH;

• 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.

2012 ResultsFortune Oil continued to make good progress in 2012. We have achieved a series of key milestones and remain on course with our growth strategy, making great strides forward across our core businesses of oil, gas and resources.

Through our transaction with CGH we will be cooperating with one of the largest natural gas companies in China supplying gas to over 200 cities with a strong platform for future growth. Fortune Oil shareholders will continue to be exposed to China’s considerable natural gas growth, through our shareholding and management position in CGH.

In our Oil business we also continue to make good progress. We are close to finalising the replacement structure to expand the Maoming SPM joint venture with Sinopec and the Bluesky aviation fuel joint venture also turned in another solid performance.

In the Resources business, we have completed the feasibility study and JORC resource statement on the Armenian iron ore asset and made good progress on other technical and environmental studies required to fulfil the necessary regulatory approvals.

In terms of financial performance, 2012 was another good year for the Company. Higher sales volumes drove a 18 per cent increase in revenues from all operations to £739.4 million in 2012 from £624.6 million in 2011. Group profit after taxation attributable to owners of the parent from

I continue to be greatly encouraged by the Group’s performance. Our focus is on continuous improvement and to drive efficiency in our operations.


chief executive’s review

Our focus has resulted in the creation of the SPM, Bluesky, West Zhuhai Terminal and the natural gas business which have provided strong and consistent cash flows and most recently the potential for a significant cash inflow and the opportunity to build upon the strategic relationship with CGH.

Key Performance IndicatorsWe continue to apply the six principal 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 2012 we met or exceeded three out of the six KPIs (see page 5).

2012 Key AchievementsIn 2012 the Group had four priorities. First, to conclude the renewal of the Maoming SPM joint venture; second, to reinforce the strategic direction of the natural gas business; third, to progress the commercialisation of gas from the CBM project in Liulin; and finally, progress the Armenian iron ore project towards the final investment decision point. Substantial progress has been made in meeting these priorities as detailed in this report.

The Maoming SPM was one of the original investments on which Fortune Oil was founded. The SPM arrangements with the Company’s partners were due to expire on 5 February 2013 but have continued pending completion of an alternative partnership structure. The Company is now in the final stages of concluding a replacement structure for the Maoming SPM partnership which will include the development of a new pipeline and buoy. We expect that under the new structure, the Company will no longer hold a controlling equity stake in the joint venture although the scope of the joint venture with Sinopec will be expanded.

Natural gas continues to play an increasing role in meeting the government targets in energy conservation and environmental protection and we have steadily expanded this business with our focus on growth in the higher margin sectors of LNG and CNG refuelling and gas supply to industrial zones. In 2012 our natural gas sales exceeded 500 million cubic metres and we connected an additional 67,907 new customers.

We have also become the first company in China to secure the regulatory approvals for an LNG dual fuel ship. This is a very significant milestone and demonstrates that our technology is at the leading edge of this important new market. We are already constructing our first LNG refuelling station in Chongqing and our plans for a network of stations along the Yangtze are progressing to plan. In LNG vehicle refuelling, our projects in Liaoning and Hebei province are

well advanced and our first mover advantage will ensure we access the prime locations to capture the rapidly expanding LNG fuelled bus and truck fleets in these provinces.

In Liulin our total field production from the Fortune Liulin Gas CBM wells exceeded 27,000 cubic metres per day, the Production Sharing Contract (“PSC”) was extended a further two years until March 2014, and we commenced construction of the gas gathering system which will collect the gas from the various wells and transport it to the wholesale station we have built. We are on track for commercial production of gas from Liulin in 2013.

The Company also took the strategic step to enter into the CGH transaction described in more detail below, as this was seen as the most efficient avenue to accelerate the growth and strengthen our position in China’s rapidly expanding natural gas market. Through this transaction, we will hold a significant position in a nation-wide natural gas supplier to over 200 cities with significant growth potential, positioning the combined natural gas businesses as amongst the largest natural gas companies in China.

The transaction allows Fortune Oil to become part of a much stronger business platform well positioned to capture a disproportionate share of the China natural gas market. Moreover, we anticipate this market will see more consolidation and greater competition from the major state owned gas companies. Following the completion of the transaction, we will be one of the largest shareholders in CGH, with a founder and managing director of CGH as our joint venture partner in our investment vehicle. Under the terms of the transaction, we have the right to nominate two directors to the board of CGH, one to be the managing director, thus enabling us to have significant influence in the development and strategic direction of CGH.

Outlook for 2013In 2012 we continued to put in place the solid foundations on which to build our future. Although China’s economic growth cooled from the double digit growth of previous years, there are signs that the economy has turned and with the new Chinese administration taking control, we expect to see significant steps being taken to maintain China’s strong and sustained growth as well as a continued strong demand for energy.

We constantly assess the potential impact of these factors on the Group’s plans, ensuring that the Company’s interests are protected and that our investment strategy is appropriate to the prevailing market conditions. We believe our solid foundations and strategy will enable us to continue to grow in the volatile and challenging markets.


China crude oil demand reached a record high in December 2012 and we expect demand in the oil sector to remain strong. This will mean continued demand for our Oil business “engines” of Bluesky, Maoming SPM and West Zhuhai Terminal, which, although mature businesses, generate much of our cash flow. We will continue to invest to keep them running smoothly and efficiently and to extract additional value.

The news in China over the past few months has highlighted the poor air quality in several of the major cities in China, including Beijing, due to coal consumption. Natural gas will be the cornerstone to improve local air quality. Our involvement with CGH will be the ideal platform to increase our share of this rapidly expanding market. Through CGH, we are creating scale and critical mass, which are key in an increasingly competitive market. We expect to complete the transaction with CGH around the middle of 2013 and we will then work closely with CGH to enhance the development of the combined natural gas business.

The resource business made good progress on the development of the Hrazdan mine. We completed the JORC compliant mineral resource statement and the feasibility study and are working through various technical and environmental studies required to obtain the necessary regulatory approvals. Whilst it remains difficult to be definitive about the long term iron ore cost of production

curve, China Metallurgical Mines Association (“CMMA”) estimates that 42 per cent of iron ore supply to China is unprofitable at prices less than US$100/tonne, providing us a clear target for the cost of production we need to achieve to ensure the commercial success of this project.

Our EmployeesFinally I would like to join the Chairman in thanking our employees for their dedication, hard work and focus. We are very much judged on our results and our employees are responsible for helping us achieve this. Throughout the year, their commitment, talent and integrity have led to the delivery of our strong performance.

On behalf of the Board, I would also like to thank our shareholders as their continued support for Fortune Oil which has helped us achieve such a good performance in 2012.

TEE Kiam PoonChief Executive24 April 2013

The commitment, talent and integrity of our employees helped us achieve such a strong performance.


business review

CAUTIONARY STATEMENTThe purpose of the Annual Report is to provide information to the shareholders of the Company. The Annual Report contains certain forward-looking statements with respect to the operations, performance and financial condition of the Company and the Group as a whole. By their nature, these statements involve uncertainties since future events and circumstances can cause results and development to differ from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of the Annual Report. Nothing in the Annual Report should be construed as a profit forecast.

OUR ORGANISATION

Our activities span across northern, central and southern China and include the following operations:

• The Bluesky aviation refuelling business supplies jet fuel to 17 major airports which handled 107.7 million passengers in 2012;

• The Maoming Single Point Mooring Facility supplied 11 million tonnes of crude oil to Sinopec’s Maoming Refinery in 2012, one of the largest refineries in China;

• The West Zhuhai import and distribution terminal supplies petrol and diesel to Petrochina’s downstream refuelling markets across southern China;

• The natural gas business is focussed on ten key provinces and, in 2012, supplied approximately 280,000 customers with fuel for transportation, the energy to heat their homes, and the power to drive their industries;

• The introduction of LNG dual fuel ships and associated LNG refuelling infrastructure for river borne cargo operations;

• The development and commercialisation of coal bed methane in Liulin, Shanxi Province; and

• The supply and trading of oil, gas and petrochemical products.

OUR DEVELOPMENT

Fortune Oil has always sought to exploit opportunities in the oil products and natural gas industry as the Chinese market continues to expand. In summary our aims are to:

• Work with CGH to become a leading integrated gas supplier across selected regions in China via our equity investment in CGH;

• Bring Liulin CBM to commercialisation and to integrate it with downstream markets;

• Develop opportunities for the supply and trading of fuels to China, in particular exploiting our unique position in oil products supply and terminal operations;

• Develop overseas high growth rate commodities such as oil, natural gas, coal and metals with linkage to China and the ability to generate cash flows within three years.

This Operational Review details our performance in 2012, assesses the changing economic and business environment in China, the performance of the major operating businesses, and our responsibilities to the community.

Fortune Oil PLC, a London Stock Exchange listed company with operational headquarters in Hong Kong, has supplied oil products and natural gas in the People’s Republic of China for almost twenty years. We have done this reliably and, importantly, safely.


OUR MARKET

In 2012 China imported 271 million tonnes of crude oil, representing a 6.8 per cent increase on 2011, with crude oil demand reaching an all time high of 44.8 million tonnes in December 2012. The NDRC’s Energy Research Institute is predicting that China will consume over 500 million tonnes of oil products in 2013, of which 60 per cent would be imported. Oil products demand is projected to increase to 540 million tonnes by 2015, driven by increasing demand for transportation fuels such as petrol, diesel and jet fuel.

Auto vehicle sales in China, rose 4.3 per cent in 2012 to 19.3 million, a modest increase over the previous year’s pace, according to the China Association of Automobile Manufacturers (“CAAM”). CAAM is predicting an improved picture for 2013, forecasting a 7 per cent rise in total vehicle sales for the year. China is also expected to produce more cars than Europe in 2013 for the first time, a milestone in the country’s industrial history. Annual car sales growth of between 5 and 8 per cent is predicted over the next decade.

The volume of air passenger traffic reached 319 million person-trips in 2012, an increase of 9.2 per cent year- on-year, according to the Civil Aviation Administration of China (“CAAC”). Passenger traffic growth in 2012 was almost the same as in 2011. Total air passenger and freight transport increased by 6.1 percent year-on-year in 2012 to 60.8 billion ton-km, according to CAAC. The International Air Transport Association (IATA) remains optimistic about the industry’s prospects; globally air-line passenger numbers are set to rise by over a quarter in the coming years to hit 3.6 billion in 2016, with China accounting for nearly one in four new travellers.

Fortune Oil’s operations in the oil sector are primarily in infrastructure facilities for the import and supply of oil and oil derived products. Continued growth in demand for transportation fuels will ensure strong utilisation of Fortune Oil’s facilities.

According to NDRC, China saw its consumption of natural gas rise 13 per cent to 147.1 billion cubic metres in 2012. China produced 107.7 billion cubic metres of natural gas, an increase of only 6.5 per cent on 2011 production. To meet this accelerating demand, China has had to increase significantly the amount of gas it imports. In 2012 China’s natural gas imports surged 31.1 per cent from the previous year to 42.5 billion cubic metres with imports now accounting to 29 per cent of the country’s total consumption.

Although demand for natural gas continues to grow dramatically, China still lags behind developed countries in terms of infrastructure development and per capita consumption of natural gas. In Japan for example power produced from natural gas makes up 28 per cent of the country’s total domestic power generation. That percentage in the U.S. and Europe is more than 20 per cent and 30 per cent respectively, while in China, it is still under 3 per cent.

China’s rapid economic development and the growth of the predominantly coal-based energy production have resulted in a drop in the air quality in many of China’s major cities. In response, the Chinese government implemented the Ambient Air Quality Standard in February 2012 which sets to improve air quality and limit the levels of key pollutants. The introduction of this standard and the existing supportive Government policies are expected to enhance the prospects of natural gas as the energy source of choice in the urban market.

To support this expansion of the natural gas market China continues to invest heavily to increase natural gas supply with the West to East Gas Transmission pipelines constructed to bring natural gas from the Xinjiang Autonomous Region to the coastal regions of China. Construction of the second phase of the West to East Gas Transmission pipelines from Central Asia and the Sichuan to East pipelines from the gas rich Sichuan Province to coastal regions have been completed. The West to East Gas Transmission Phase 3, the Myanmar to Yunnan gas pipeline, as well as additional LNG terminals in the coastal cities of China are actively being developed to meet the anticipated growth in natural gas demand which the International Energy Agency predicts will grow by 17 per cent each year through to 2017.

China is also driving the expansion of its indigenous gas production to limit its dependency on gas imports. China’s National Energy Administration announced that it will allocate more funds and encourage private capital to exploit the country’s large reserves of coal bed methane gas and encourage the inflow of private capital into the sector. China plans to complete construction of two major coal bed methane production bases in the central and western regions by 2015 and increase the number of production bases up to five in the next 10 years. The Ministry of Land and Resources announced plans in February 2013 to produce 16 billion cubic meters per annum of coal bed methane increasing to 30 billion cubic meters by 2015. Success for Fortune Oil in the Liulin block will position us well for the future development of opportunities in CBM.

Natural gas price reforms to close the price gap between imported and local gas prices are also gradually being implemented. Once realised, these measures are expected to more than double the supply of natural gas in China in the next few years and will result in increases in the price of natural gas throughout the supply chain from the well head to the ultimate customer.

China’s demand for all the main commodities such as coal, iron ore and copper continues to grow. China imported a record 743.6 million tonnes of iron ore in 2012, up 8.4 per cent from 2011, exceeding previous projections, and many of the major iron ore companies are predicting that iron ore demand will continue to grow beyond 2020 as increased urbanisation drives construction and hence steel demand. This bodes well for the prospects of our Resources business.


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West Zhuhai Jetty and Storage Terminal supplies gasoline and diesel to Petrochina’s retail business in southern China and part of Petrochina’s strategic oil products reserve.

China’s only off-shore oil import terminal supplying 4 per cent of China’s crude oil imports. The Maoming single point mooring (SPM) acts as a delivery point for imported crude oil and can handle Ultra Large Crude Carriers (300,000dwt) supplying the Sinopec Maoming Refinery in Guangdong Province.

We have a unique portfolio of oil activities in partnership with the leading Chinese State owned enterprises including Petrochina, Sinopec and China National Aviation Fuel Company.

South China Bluesky Aviation (Bluesky) is one of the largest aviation fuel storage, supply and logistic operations in China which owns and operates the aviation fuel storage terminals, pipelines and aviation refuelling services for 17 major airports in central and southern China.

OIL BUSINESS The oil business continues to be a strong cash generator for the Group. In 2012 we continued to expand our supply of crude oil, oil based products and jet fuel.

Aviation Refuelling (South China Bluesky Aviation Oil Company)In 2012, Bluesky’s sales of jet fuel continued to increase, rising by 15 per cent to 3.0 million tonnes, compared with 2.6 million tonnes in 2011. Joint venture revenues increased to £2,021.4 million (2011: £1,647.9 million). Bluesky achieved a net profit of £47.2 million (2011: £47.4 million) with a Fortune Oil share of £11.6 million, matching the previous years record profit (2011: £11.6 million).

Air travel demand is still expanding across China and Bluesky continues to evaluate opportunities to extend its operations to new airport developments with China National Aviation Fuels Ltd in Central and Southern China covering Guangdong, Guangxi, Hubei, Hunan and Henan provinces.In 2012 Bluesky started supplying fuel to two more airports (Wuzhou and Baise) bringing the total number of airports Bluesky supplies to 17.

Maoming Single Point Mooring (SPM)In 2012 Maoming SPM throughput matched the record performance of 2011 of 11.0 million tonnes (2011: 11.0 million tonnes) handling 57 tankers just one delivery less than last year’s record. Throughput revenues in 2012 were maintained at £16.4 million (2011: £16.3 million) with a net profit of £4.1 million, (2011: £4.0 million). Fortune Oil’s share of net profit in 2012 was £1.7 million (2011: £1.6 million).

The original SPM joint venture period expired in February 2013 and continues pending completion of the new arrangements. Fortune Oil and Sinopec are currently in discussions regarding the future cooperation on the SPM and additional developments to serve the Maoming refinery. Management is optimistic of a satisfactory outcome to such discussions and, although under the new structure, the Company will no longer hold a controlling equity stake in the joint venture, the scope of the joint venture with Sinopec will be expanded with the potential development of a new pipeline and buoy.

Products Terminal and SupplyThe West Zhuhai Products Jetty and Storage Terminal (South China Petroleum Company) performance was maintained over 2012 although the terminal is not operating at full capacity due to lower utilisation of the facility by Petrochina. The throughput increased slightly to 2.5 million tonnes (2011: 2.3 million tonnes), with a slight increase in company revenues of £7.2 million (2011: £7.0 million). The profit contribution to Fortune Oil decreased to £0.8 million compared to £1.1 million in 2011.

West Zhuhai Oil Products Terminal is now part of Petrochina’s “Strategic Oil Products Reserve facilities” underlining the strategic importance of the Company’s unique storage facility in Southern China. This will help to limit the possibility of oil products supply disruption in Southern China. More importantly it will also help to generate new revenue streams from the recently expanded facilities at West Zhuhai. Options to diversify the customer base are currently being evaluated in order to help address declining volumes.


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The trading business continues to focus on the supply and trading of oil and petrochemical products.

TRADING BUSINESS The trading business continues to focus on the supply and trading of oil and petrochemical products.

In 2012 we traded 157,000 tonnes of petroleum products and petrochemicals, compared to 144,000 tonnes in 2011. Revenues generated by these activities increased by 2 per cent to £123.4 million (2011: £121.5 million) with an earnings contribution of £1.0 million compared to £1.0 million in 2011. The trading business continues to explore options for the expansion of products that it trades.

Fortune Oil obtained in 2012 one of the first licences issued to enable the supply and trade of diesel and other refined products. Previously this area was limited to the major state owned enterprises. Fortune Oil has completed 5 shipments with a total inventory of 23,200 tonnes of diesel in 2012.

During our negotiations with CGH we have also identified the opportunity to support their LPG supply requirements and are currently in discussions with various suppliers to develop this option further.

Fortune’s licenses will enable the Trading business to support CGH’s LPG supply requirements and this is also a clear demonstration that the Company’s strategy of developing relationships with key JV partners is allowing the Company to access markets generally closed off to the competition.

The carbon asset investment fund established with Huaneng Carbon Asset Ltd and Vitol S.A. is progressing several

carbon emission projects. During 2012 25 “Specific Project Investment Agreements” have been developed and submitted to NDRC for approval. Among these projects, 14 projects have acquired letters of approval and 3 projects have been submitted for UN registration.

Fortune Oil has established a joint venture with Tianjin Gas that will be responsible for the supply of 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. This joint venture will not form part of the CGH transaction and will remain within Fortune Oil’s trading business.

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.


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We have natural gas operations in over 30 cities across 10 provinces and municipalities with approximately 280,000 connected customers where we supply gas to households, industries and clean vehicle refuelling.

NATURAL GAS BUSINESS

The natural gas business continues to benefit from China’s robust economy and thriving natural gas demand. We have been steadily expanding our upstream and midstream operations as well as our downstream city-gas and refuelling operations. Through our transaction with China Gas Holdings, we will have an ideal platform to accelerate this expansion.

PerformanceThe natural gas business strategy has built, and in combination with CGH, will continue to build an integrated natural gas business linking upstream gas production to supply our chosen downstream markets.

Fortune Oil’s natural gas business develops and operates natural gas supply and distribution infrastructure to supply natural gas to industrial, commercial, residential and transportation sectors. We are working with CGH on a combined gas strategy that will encompass the development of both upstream and downstream assets, further investment in existing city networks and selective acquisitions where these can be acquired on economically sensible terms. Pending completion of the CGH transaction we are continuing with our development plans for the natural gas business.

Revenue including the share of jointly controlled entities in the gas division in 2012 increased 30 per cent to £91.8 million (2011: £70.6 million). The operating profit for the gas business increased 51 per cent to £15.8 million (2011: £10.5 million). The natural gas business net profit

contribution to Fortune Oil increased by 76 per cent to £8.8 million (2011: £5.0 million), after taking in to account the minority interest held by Wilmar.

In 2012 Fortune Gas sales volumes increased 6 per cent to 502 million cubic metres (2011: 472 million cubic metres) and 67,907 new customers were connected in 2012 an increase in new connections by 79 per cent bringing the total number of customers up to approximately 280,000 (2011: 212,000) a 32 per cent increase.

In 2012 Fortune Oil increased its shareholding, via the CGG joint venture in CGH, the largest independent natural gas company in China in terms of city network, supplying natural gas to over 170 cities. The strategic objective of forming this joint venture was to develop cooperative opportunities combining CGH’s strengths with those of Fortune Oil and to accelerate the growth rate of Fortune Oil’s natural gas business in China.

The two companies’ natural gas businesses are highly synergistic and the proposed transaction will be the most effective means of cooperation. Through this transaction Fortune Oil and its associates will become one of the largest shareholders in and be involved in the management of CGH. As a result, Fortune Oil will continue to create value for our shareholders from the rapid growth in China’s natural gas market. This enhanced business platform will be better able to capture an increased market share in the rapidly expanding China natural gas market and create value for the shareholders of both companies. This investment advances our stated strategic objectives of developing Fortune Oil into a leading business in the Chinese natural gas supply market.

Upstream CBM ProjectOur state pilot project is deploying cutting edge in-seam drilling and advanced hydraulic fracturing technology to commercialise coal bed methane in Shanxi.


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Natural gas will continue to be one of the growth engines of the Group. Fortune Oil and CGH have identified a number of specific expansion opportunities for the combined gas business which they will accelerate through their new partnership with the aim of CGH becoming one of the top three gas companies in China. Fortune Oil will also continue to develop new projects together with CGH.

As at April 23 2013 the Company’s joint venture CGG and its associates (including shares held directly by Mr. Liu Minghui, the Managing Director of CGH) held 911,550,000 shares in CGH representing 20.0 per cent of CGH total issued shares making the joint venture and its associates (including shares held directly by Mr Liu Minghui, the Managing Director of CGH), the second largest shareholder of CGH.

Upstream CBM ProjectThe CBM project in Liulin covers 183 square kilometres and is located in the eastern part of the Ordos basin 500km south west of Beijing. Fortune Liulin Gas Company (“FLG”) is the foreign contractor in the Production Sharing Contract (“PSC”) with China United Coal Bed Methane Corporation (“CUCBM”). 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 PSC for the Liulin CBM block to 29 March 2014.

Fortune Oil continues to make good progress in the development of the Liulin CBM block and first commercial gas sales are expected in 2013 following completion of the gas gathering system. Total field production from the FLG horizontal wells now exceeds 27,000 cubic metres per day with the most successful well to-date (H3) currently

producing over 12,000 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 2 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 RMB 1.58 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). These inseam wells have been designed to optimally drain two independent coal seams from the same production well. These wells have been designed and supervised by FLG ensuring the intellectual property and technical experience remains within the FLG project team.

CUCBM have drilled a total of 145 vertical wells and 4 horizontal wells across the Liulin block. To date 40 of the vertical wells have been “fracked” to put into test production. These wells will enable reserves certification for additional coal seams across the block and development of the Overall Development Plan (“ODP”) and together with the gas produced from the lateral wells on the northern section, gas produced from the CUCBM wells will also be used to meet the gas sales agreement. The data from these wells will be used in conjunction with existing data to review the reserves estimates for Liulin in 2013.

Refuelling with GasThe Group continues to expand vehicle gas refuelling business which is core to the growth of the natural gas business.

City gas businessesOwns and operates the city networks connecting and supplying natural gas to apartment complexes and commercial buildings.

Wholesale Gas DistributionOur spur pipelines and wholesalestations connect the gas from the main transnational pipelines to our cities and supply gas to the downstream customers.


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Fortune Oil received the regulatory approvals for the installation of the gas gathering system and construction is in progress. The gas gathering system consists of over 20 km of gas gathering pipeline which will collect the gas from the wells and transfer it to the nodal compression station. Here the gas will be purified, compressed and dispatched by an 8 km pipeline to the Shanxi CUCBM wholesale CNG station. The gas from the Liulin block will be marketed by Shanxi CUCBM, a joint venture between Fortune Oil and CUCBM and the parties have an initial gas sale agreement for 33 million cubic metres per annum. Fortune Oil is also progressing the design and planning to install the gas pipeline from the wholesale station to connect Liulin to the main national gas network. This will allow both the export of gas from Liulin as well as import gas from the national grid to the Fortune Gas wholesale station.

The ODP has been prepared for submission in 2013 and a summary ODP has been submitted to FLG’s Chinese partner CUCBM. 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 commercial production of gas from Liulin.

Midstream Wholesale Gas DistributionThe wholesale gas distribution business continued to expand the natural gas pipeline network and wholesale gas stations. Our gas pipeline network increased to 1059km in 2012 (2011: 771km) and one new natural gas wholesale station was opened, bringing the number of natural gas wholesale processing stations to 5 with a daily natural gas supply capacity of 600,000 m3. In 2012 Fortune Oil supplied over 87.5 million cubic metres through its wholesale stations.

Shanxi CUCBM has completed the Liulin CNG wholesale station. This wholesale gas station will compress and distribute natural gas produced from the Liulin CBM block and supply Shanxi CUCBM refuelling stations and industrial customers across Shanxi province further demonstrating the effectiveness of Fortune Gas’s integrated natural gas business model.

Fortune Gas continues to make good progress in developing the local gas pipeline network in Dashiqiao. This includes the completion of the first phase of the development comprising the connection of the pipeline to the industrial zone of the city, where a major magnesium industry has significant gas demand.

TOP Wholesale CNG trailers distribute gas.

BOTTOM LEFT Filling a CNG trailer with high pressure gas.

BOTTOM RIGHT Producing gas from our CBM block in Liulin.

Finding, producing and distributing natural gas to serve our customers.


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City Gas BusinessOne new city gas project was launched in Quyang, Hebei province in 2012 bringing the number of our city-gas businesses to over thirty cities in ten provinces and municipalities. This extensive city-gas network forms the core of our gas business portfolio.

During the year the Group continued to focus on boosting connections in existing projects. A further 67,907 new customers were connected in this period (2011: 38,014), representing a 79 per cent increase in the rate of connections, demonstrating the continued growth post the divestments as new city gas networks are connected to a gas supply bringing the total of connected customers to approximately 280,000 representing an increase of 32 per cent (2011: 212,000 customers). Market penetration rates remain low; typically around 25 per cent of the connectable urban populations have been added to the city network highlighting the continued opportunity for growth in this business.

The Group also provided natural gas connections for 200 new commercial/industrial (“C/I”) customers (2011: 156) an increase of 28 per cent. We continued to focus on growing this higher margin sector and at the end of 2012, we had 1,000 C/I customers covered by the Group’s projects (2011: 800).

Gas Vehicle RefuellingThis year we completed two new vehicle CNG refuelling stations, in Sishui and Mingzheng, bringing our total to 11 refuelling stations located in seven cities. In 2012 Fortune Oil supplied over 35.3 million cubic metres of CNG to refuel buses and taxis representing an increase of 22 per cent (2011: 28.8 million cubic meters). Shanxi CUCBM commenced operation of the Changzhi retail station which will sell CBM gas to refuel natural gas vehicles. The rapid expansion in the use of natural gas as a fuel for the transportation sector provides Fortune Oil an opportunity to invest in vehicle refuelling stations to supply natural gas to these vehicles.

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 underway to supply LNG fuel on the inter city bus routes between Shenyang, Liaoyang and Chaoyang across Liaoning province.

Fortune Gas has also established a joint venture in Quyang, Hebei province which will develop the city gas infrastructure and also install LNG refuelling stations along the key highway in the area. This route carries a large volume of coal through the province and the operators are looking to switch to LNG fuel to reduce their fuel costs. The initial phase will involve building five LNG stations along the main highway.

As we expect demand for LNG as a fuel for the transport sector in China to continue to grow we will continue to evaluate opportunities to increase our exposure to this market. First mover advantage will enable Fortune Oil together with our collaboration with CGH to capture the prime refuelling site locations for these vehicles.

In our joint venture to bring natural gas as a fuel for ships on the Yangtze River, the first dual fuel ship successfully completed the required river trials and we obtained the first full licence for a commercial dual fuel ship of its kind from the Chinese authorities. This will enable the start of the full scale commercialisation of this technology. 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. Other major companies including the major state owned companies are also planning to develop LNG refuelling for ships so first mover advantage is critical to access the prime refuelling locations along the river front.

Negotiations are progressing with a leading shipping company to commence conversion of its ships to dual fuel technology and the LNG fuel supply arrangements for these ships. Fortune Oil is uniquely placed to expand its LNG operations and develop a major, high margin and sustainable business in the important rapidly expanding gas market in China. Other provinces across China are also looking to introduce LNG ships and Fortune Oil is pursuing a number of potential opportunities.


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Hrazdan, Armenia

RESOURCES

Fortune Oil is pursuing overseas investment opportunities to capitalise on China’s growing demand for energy and resources.

As its first move into resources Fortune Oil acquired a 77.34 per cent effective interest in three Armenian iron ore mining and exploration licenses. Fortune Oil completed a drilling programme and assay test work on the first of these, the Hrazdan mine, to develop the optimised pit design and mining plan. SRK Consulting (UK) completed the mining plan and has issued the JORC compliant Mineral Resource Statement for the Hrazdan iron ore mine. The Resource Statement confirmed a total Resource of 21.4 million tonnes consisting of 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.

Design work has continued for a 2.5 million tonnes per annum iron ore concentration plant producing in excess of 590,000 tonnes of concentrate of approximately 66 to 68 per cent iron.

Design work has continued for a 2.5 million tonnes per annum iron ore concentration plant producing in excess of 590,000 tonnes of concentrate of approximately 66 to 68 per cent iron. Sinosteel completed the feasibility study including the flow sheet, preliminary design for the iron ore processing plant. Our in-house technical team are optimising the process design, tailings dam and waste rock site with a view to determining the viability of developing the Hrazdan mine by the end of 2013. Fortune Oil is in negotiations with a number of potential customers for the iron ore off-take from the Hrazdan mine including customer evaluations to ensure the product from the planned facility meets the customer requirements.

Fortune Oil is actively engaging and has had constructive dialogue with the local environmental groups and non-government organisations to address their concerns in relation to the mining development. Fortune Oil will continue to work closely with these organisations and the local communities throughout the project development.


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Corporate social responsibility is at the cornerstone of all of our activities.

CORPORATE SOCIAL RESPONSIBILITY

Our EmployeesFortune Oil employed around 2,000 people in 2012, over 99 per cent of whom are citizens of the PRC. Our people are recruited, trained and recompensed according to our employment policy of attracting, developing and retaining talented people and to provide attractive long term career prospects for our employees. We have a long standing commitment to create a culture that embraces diversity and fosters inclusion. Our goal is to provide equal opportunities, career development, promotion, training and reward for all employees including those with disabilities.

All senior management of the Company are required to adhere to the Company’s code of ethics in relation to areas such as supervisory rules, insider dealing, market malpractices, whistle blowing policy, conflicts of interest, proper use of the Company’s assets and reporting requirements for listed companies. The Company ensures that all its staff follow internationally recognised governance practices in its business dealings and if staff break these rules they will face disciplinary action up to and including termination of employment. There is also a process that enables employees to report any breaches of our Company’s code of ethics confidentially.

Our CommunityThe Company’s operations are currently principally in the PRC although the Resources business has activities in Armenia. We ensure that the Company’s operations are in compliance with national and local laws and practices. Our ongoing success relies on the maintenance of excellent relationships and trust of the communities where we operate.

Fortune Oil has a proven track record of safe and reliable operation. The Company remains one of the few international companies with both oil and gas operations based onshore in China. Many of the Company’s businesses are amongst the largest foreign-invested enterprises in that area and they provide a benchmark for other local companies. As part of their social responsibility programmes in China, our companies support community activities and provide training to customers regarding the safe use of fuels. We also interact with local and national government and associations to further the development of better policies. The Company follows the same principles and practices as it develops operations elsewhere in the world.

Health and SafetyWe consider the safety of our staff and the communities that we operate in as our top priority. We manage safety risk across our businesses through rigorous controls and compliance systems combined with a safety-focused culture. We regularly inspect, test and maintain our facilities to ensure they are meeting our standards. We continue to

build our safety culture among our employees and contractors. We expect everyone working for us to intervene and stop activities that may be unsafe. We expect employees to comply with our safety regulations and if any employees break these rules they will face disciplinary action up to and including termination of employment.

In 2012 there were no Lost Time Injuries or fatal accidents in the Company’s subsidiaries (where we have operational control).

Environmental PolicyFortune Oil has a policy of minimising the impact of its operations on the environment. We aim to apply best industry practices wherever we operate to improve environmental performance and to foster close relationships with the local community. The requirements of our environmental and sustainability policy are incorporated through the planning, operations and closure of projects and this will also cover the new Resources developments outside of China.

Oil and Gas EmissionsOur primary environmental focus is to prevent the release of hydrocarbons, whether they occur through leaks in pipelines, spills or leaks during transfers, the venting of tanks or tank overflows. Fortune Oil has clear requirements and procedures to prevent spills and programmes in place to maintain and improve our facilities and pipelines to reduce the risk of any potential leak or spill. We have a number of recovery methods in place to minimise the impact in the event of any spill or release. In 2012 there were no significant spills or releases from our operations.


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Finding, producing and distributing the gas to serve our customers.

Drilling for gas in Liulin next to the Yellow River.

Climate ChangeThe Group’s direct emissions of greenhouse gases are small, mainly being methane releases when equipment is maintained, flaring of gas from our Liulin wells (as required under NDRC guidelines for reserves certification), the combustion of gas for power production and the use of diesel and gasoline for vehicles.

Fortune Oil was one of the first operating companies in the oil and gas sector in China to measure its own emissions with the aim of bringing about awareness among staff and customers of the importance of minimising emissions, and increase the efficiency of our operations.

Equity Share of EmissionsThese are categorised in accordance with UK government (DEFRA) guidelines and the 2006 Intergovernmental Panel on Climate Change (“IPCC”) Guidelines for National Greenhouse Gas Emissions and exclude secondary emissions by customers through utilisation of our fuels:

2012 2011

Methane to Air (tonnes) 75.0 78.2Greenhouse Gases to Air (tonnes CO2 equivalent) 14,498 9,298Local Air Quality pollutants (such as NOx, SOx) Negligible NegligibleVolatile Organic Compounds to Air (tonnes) 125 129Smog Precursors (such as particulates) Negligible NegligibleChemical Waste Negligible NegligibleMetals Emissions Negligible Negligible

The increase in greenhouse gas emissions to air (14,498 tonnes CO2 equivaler) is associated with flaring at the Liulin CBM project. FLG is managing the flowing rate and dewatering of the wells to minimise greenhouse gas emissions.

Other Environmental ImpactsAvailability of water in China is an area of increasing environmental concern. The Group’s operations’ use of water is primarily for office use and cleaning vehicles. Fortune’s CBM development programme has consent levels for its water discharge from the CBM wells and the discharge is monitored to ensure we remain within the consents. We also recycle water in these operations to minimise water use.


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GLOSSARY

bcmBillion cubic metres (1,000,000,000 m3), when converted to normal conditions of 0.1 MPa (Mega Pascal) pressure and 20 degrees Celsius temperature.

CBMCoal Bed Methane, refers to methane deposits in coal seams. CBM is generated during coal formation and adsorbed in the natural fracture surfaces in coal. CBM can be extracted by drilling prior to coal mining and can normally be utilised as natural gas (commonly referred to as an unconventional source of gas).

CMMCoal Mine Methane which is extracted during coal mining operations. It has a lower methane content than CBM because of air ingress.

Coal Seam Gas Methane gas trapped in coal seams, which may be extracted as CBM or CMM.

CNGCompressed Natural Gas, gas which has been compressed to between 4 MPa and 25 MPa of pressure, and is transported in tanks as a gas.

CO2 equivalentThe quantity of greenhouse gases emitted in million tonnes, when expressed as though it was carbon dioxide (CO2), so as to indicate the potential impact on global warming.

CUCBMChina United Coalbed Methane Corporation Ltd, the principal PRC government entity responsible for entering into PSCs with foreign companies for development of CBM fields.

dwtDead-weight tonnage, the carrying capacity of a ship.

Gas“Natural gas” for domestic supply contains over 90 per cent methane (CH4). Conventional gas is sourced from petroleum gas fields but the same quality gas could also come from unconventional sources such as coal bed methane.

GDPGross Domestic Product.

HSEHealth, Safety and Environment.

HydrocarbonsOrganic compounds sourced from crude oil or gas

JORCJoint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia. The JORC code is an internationally recognised reporting code as defined by the Combined Reserves International Reporting Standards Committee.

KPIKey Performance Indicator, a measure of the Company’s performance.

LNGLiquefied Natural Gas, gas which has been liquefied by cooling to approximately 160 degrees Celsius below zero, and is transported in tanks as a liquid.

LPGLiquefied Petroleum Gas, a mixture of propane and butane (whereas natural gas is mostly methane). Supplied to customers under pressure in bottles as a liquid or via a pipeline network as a gas, sometimes mixed with air.

LTIFRLost Time Injury Frequency Rate. An LTI is any work-related injury or illness which prevents a person working the following day. Calculated as LTIs per million working hours.

m m3/aMillion cubic metres per year, when converted to normal conditions of 0.1 MPa (Mega Pascal) pressure and 20 degrees Celsius temperature.

NDRCNational Development and Reform Commission, the principal government entity in China for economic and energy policy.

ODPOverall Development Programme for an oil & gas field.

PRCThe People’s Republic of China.

PSCProduction Sharing Contract, an agreement between the government and a foreign company for exploration and development of a natural resource block.

RMB/m3

Renminbi per normal cubic metre of gas.

SPMSingle Point Mooring buoy, which allows an oil tanker to moor at its bow and through which oil is discharged to a sub-sea pipeline. The MKM subsidiary operates the only SPM in China for import of crude oil.


principal risks and uncertainties, their effects and our management strategy

Our business is supplying China with energy and resources, principally oil and natural gas. We face many risks and whilst we can manage some, we have to accept others as part of doing business. We face the usual economic risks – prices, interest rates, supply and demand for the products we produce and deliver which we cannot control. Outlined below are the principal risk factors that may affect the Group’s business. Any of these risks, as well as the other risks and uncertainties discussed in this document, could have a material adverse effect on the business. In addition, the risks set out below may not be exhaustive, and additional risks and uncertainties may arise or become material in the future including those associated with achieving completion of the CGH transaction and the Maoming SPM cooperation.

Concentration riskOur principal assets and operations are located in China and we sell all our products and services to China. Any adverse change in the economic or political environment in China would seriously affect the profitability and possibly viability of our entire business. We seek, through maintaining high level contacts and through providing high quality services, to minimise any adverse consequences.

Pricing risksOur business sells products where we have little or no control over the price we achieve. The price we pay for product we on-sell is also largely out of our control. The interest rate we pay for debt and the interest we receive on surplus cash, and the exchange rates applying to transactions where we need to exchange currencies, are all set by international markets or by governmental regulation. Adverse movements in prices, interest rates or exchange rates can result in actual losses on transactions, increased costs or decreased revenues or losses on translation into our reporting currency. We seek to mitigate the effects of these risks through management of stocks of product in storage or transit, through currency matching of the costs of products sold to revenue produced and through holding cash in the currencies where expenditure is expected. We do not carry out hedging transactions in respect of these risks.

Regulatory and relationships risksThe energy sector in China is subject to a variety of regulatory regimes covering many of the Group’s operations, both at the national and local government levels. The regulatory environment continues to evolve but includes restrictions on foreign ownership and participation in certain activities; land use and industry permitting; and

health, safety and environmental obligations. Our operations are often carried out in joint ventures or through associated companies or, through production sharing contracts (PSC), or under mining and exploration licences, or rely on medium term and long term supply agreements with State owned enterprises. If regulations change, or we or our partners fail to abide by regulations or meet the requirements of PSC, or mining and explanation licences or supply agreements, then we may lose rights or suffer fines or other penalties. Our management aims to be aware of any prospective changes in regulation and to ensure we comply, and to seeks to maintain a positive and constructive working relationship with our partners and with State owned companies so that decisions can be taken together to ensure compliancy with regulation and PSC and supply agreements.

A significant proportion of our business is conducted through joint ventures or investment arrangements where we do not have board control or control of day-to-day operations. We are therefore dependent upon the decision making processes and internal controls, put in place by our investment partners and operated by the staff of the joint ventures or investments. If incorrect business decisions are taken or, through lack or overriding of internal controls, assets and/or revenues are lost, the value of and income from such joint ventures and investments may be materially reduced. We seek through involvement in these decision making processes, using our rights to appoint directors and/or managers, monitoring the results of internal controls, and using our rights to access trading information to reduce the risk associated with such non-controlled joint ventures and investment structures.

Health, Safety and the Environment (HSE)The Group operates facilities in the oil and gas industry where there is an inherent risk of accidents that may harm employees, assets, the community or the environment. Such accidents may have an adverse impact on the ongoing operations, revenues and profits of the Group. We seek through the Group’s HSE policies to observe all local and national legal and regulatory requirements. We also carry out pre-project and regular review risk assessments to ensure where possible that processes and procedures are in place to reduce and manage such incidents.

Attraction and retention of key employeesWe rely heavily on a small number of key individuals, in particular the Executive Directors at Group and subsidiary levels, for the operation of Group`s day-to-day activities and implementation of its growth strategy. If a key


principal risks and uncertainties, their effects and our management strategy

employee left we could suffer disruption to projects or a business area until a replacement was recruited. We seek to set remuneration policies which will attract and retain suitably qualified employees but also seek to facilitate succession planning and ensure that there is a sharing of knowledge and contacts to minimise the impact of any one person’s departure.

Development risksAs we grow the business we need to take on new developments of a long-term nature; these can be exploring and developing new reserves of gas or minerals, building pipelines, storage and delivery facilities or converting existing transport equipment to use gas. All these require national and/or local government consents and need to obtain finance, to source appropriate equipment and services and to build the necessary infrastructure. Whilst we seek to take the investment decision based on the best available information, the actual process will be affected by delays or changes in regulation, reserves proving smaller or more complex than predicted, delays in delivery or construction, or facilities or technology not reaching expected performance. This may extend the completion of projects and delay the start of their income production beyond that planned or even make them uneconomic. To mitigate this we seek not only at the start but during project implementation to work with regulators, financiers, partners and contractors to ensure that delays are minimised and projects are kept economically viable.

Uninsured risksWe operate with hazardous products and we are not in control of all operations in which we participate. In the event of an accident, substantial damages may be claimed against us due to our actions or omissions or those of a partner or sub-contractor. Any indemnities the Group may receive from such partners or sub-contractors may be difficult to enforce if they lack adequate resources or have themselves not put in place adequate insurance cover. We seek to manage this risk by selecting good quality, financially secure partners and sub-contractors and ensuring they confirm that they have appropriate safety procedures and insurance cover, and by seeing that our insurance cover is reasonable based on the costs of cover and the risks associated with our business and industry practice.


financial review

Disposal group held for sale and discontinued operationsThe assets and associated liabilities of the Group’s natural gas business that are expected to be transferred in 2013 upon completion of the China Gas transaction have been classified in the balance sheet as held for sale as at 31 December 2012. As a consequence of this classification, the results of the Group’s natural gas business are presented as a discontinued operations in the income statement and cash flow statement for 2012, and the result for 2011 have been presented on the same basis.

In order to provide a comprehensive review of all of the Group’s operations, on a basis comparable with that provided to shareholders in previous years, the discussion of financial results below relates to continuing operations and discontinued operations combined. The income statement distinguishes the results of discontinued operations from those of continuing operations.

Revenue and ExpenditureRevenues from all operations including the Group’s share of jointly controlled entities increased by 18 per cent to £739.4 million in 2012 from £624.6 million in 2011. This was largely driven by the rapid growth in the Group’s aviation refuelling, and the natural gas businesses. Group revenue from all operations excluding jointly controlled entities has also increased by 7 per cent in 2012 to £214.6 million from £199.8 million in 2011. This is primarily due to organic business growth in the natural gas business.

On 14 February 2012, the Group disposed of its available for sale investments in respect of shares held in China Gas Holdings Limited (“CGH”), a listed company on the Hong Kong Stock Exchange. The shares were held by a wholly owned subsidiary and were sold to China Gas Group Limited (“CGG”), a jointly controlled entity. The Group has realised a gain on disposal of £4.6 million (2011: £7.3 million). The gain in 2011 arose from the deemed disposal of Fortune Liulin Gas Limited and the disposal of a gas business subsidiary.

Operating profit from all operations combined, before the gains on disposals and deemed disposal, improved to £28.5 million in 2012, compared with £27.4 million in 2011, an increase of 4 per cent. The increase was mainly due to the steady growth in the natural gas business.

The net profit from all operations attributable to owners of the parent was £15.7 million in 2012, a decrease of 14 per cent compared with £18.2 million in 2011. Nonetheless,

the net profit from all operations attributable to owners of the parent before gains on disposals and deemed disposal was £11.0 million, an increase of 2 per cent compared with £10.8 million in 2011. Earnings per share from all operations decreased to 0.82 pence in 2012, compared with 0.96 pence in 2011.

Net profit from continuing operations was £8.0 million in 2012, increased from £6.5 million in 2011. Earnings per share from continuing operations increased to 0.42 pence, compared with 0.34 pence in 2011.

Other comprehensive incomeOther comprehensive income from all operations was £32.6 million in 2012, compared with £10.4 million in 2011. This is mainly due to the net gain of £40.3 million in fair value of available for sale investments in respect of CGH shares held by CGG, less the combined effect of exchange differences arising on translation of foreign operations of the Group and the sale of its investments in respect of CGH shares to CGG during the year.

Capital expenditure and acquisitionsDuring the year, we invested £59.9 million which primarily related to the acquisition of available for sale investments (CGH shares) for £30.6 million, along with a loan to CGG for £5.0 million. In addition to this, other significant investing cash flows relate to capital expenditure of £15.7 million, to continue to fund the development of our integrated natural gas business, and expenditure on exploration & evaluation assets of £4.6 million relating to the iron ore projects. Expenditure on acquisitions in the year of £3.8 million related to the acquisition of Quyang Province Dafung Natural Gas Company.

Financial PositionThe net assets of the Group at 31 December 2012 were £246.8 million, compared with £196.5 million in 2011. Investments in jointly controlled entities of the Group at 31 December 2012 were £175.4 million (including the investments in jointly controlled entities of £39.8 million in the natural gas business), compared with £71.6 million in 2011. The increase was mainly due to the revaluation of CGH shares (£40.3 million) disclosed within “other comprehensive income” above; the acquisition of CGH shares for £30.6 million, along with a loan to CGG for £5.0 million; and the sale of CGH shares from the Group to CGG of £27.9 million.


financial review

The Group had a net borrowing position of £61.1 million (after excluding a net cash of £13.1 million in the natural gas business) as at 31 December 2012, compared with £5.7 million as at 31 December 2011. However, with a cash balance of £50.7 million (after excluding a cash balance of £23.1 million in natural gas business), the positive operating cash flow and the expected cash consideration receivable from the China Gas transaction, the Group envisages no difficulties in meeting both current loan repayment obligations and investment commitments. The net gearing ratio (after deduction of cash) for the Group was 25 per cent as of 31 December 2012 and 3 per cent as of 31 December 2011.

Financial Costs and TaxFinance expenses for the Group from all operations were £6.1 million in 2012, compared with £5.3 million in 2011, mainly due to the increase in the weighted average Group borrowing throughout the year.

The Group’s total tax charge in 2012 from all operations was £8.2 million (2011: £6.8 million) representing an effective tax rate of 29 per cent compared with 21 per cent in 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 increased as most of the previous tax privileges have fallen away.

Foreign ExchangeThe revenues and expenses of the Group are primarily denominated in China’s renminbi (RMB). The remaining expenses are denominated either in pounds sterling (£) or in Hong Kong dollars (HK$), which is pegged to the US dollar, or United States dollars (US$). On average from 2011 to 2012, the RMB appreciated against the US$ by 2.2 per cent and the pounds sterling depreciated by 1.0 per cent against the US$, hence there was an overall 3.2 per cent depreciation of the pounds sterling against the RMB. This currency movement has had the effect of increasing our profits as measured in pounds sterling.

The assets and liabilities of the Group are also primarily denominated in RMB, with our Armenian investment being denominated in US$. The balance, which represents a small proportion of the assets and liabilities, are denominated in pounds sterling and HK$. Differing from the average annual rates, the closing pounds sterling exchange rate appreciated against the RMB and US$ by 3.0 per cent and 4.0 per cent, respectively.

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 which are presented in pounds sterling.

Capital StructureMost 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 per cent-owned Hong Kong based subsidiary of the Company. To facilitate potential future inter-company restructuring most of the investments in China are held through subsidiary Hong Kong registered companies. The Group’s interest in Armenia is held through a separate investment structure. The Group’s UK operations consist only of local representation as a direct expense to the Company.

Dividend PolicyThe directors recommend a final dividend of 0.16p per ordinary share (2011: 0.18p per ordinary share) to be paid on 15 August 2013 to ordinary shareholders on the register on 12 July 2013.


board of directors

Executive Directors

Mr Daniel CHIU, aged 52, is Executive Vice-Chairman and has been a Director since 9 August 1993. Mr CHIU was Fortune Oil’s Chief Executive prior to becoming Vice Chairman in October 1994. He is Chairman of Federal Asia Company Limited, a private trading company with extensive operations in China. He is a founder of Harrow International School in Bangkok, Beijing and Hong Kong. He is also a Non-executive Director of Far East Consortium International Limited, a company listed on the Hong Kong Stock Exchange, which together with its subsidiaries, are principally engaged in property development and hotel investment and operation, car park investment and management and property investment. He is also a director of Fortune Max Holdings Limited, a private company controlled and beneficially owned by him.

Mr TEE Kiam Poon, aged 62, became Chief Executive on 24 June 2010 and was a Business Development Director since 1 July 2009. He has over 30 years of experience working for BP and developed many of BP’s joint ventures in Asia including BP’s first Chinese LNG Joint Venture. His last position, prior to joining Fortune Oil, was as President for the Coal Venture Development. During his career in China, he has been awarded “Friendship Awards” from the Fuzhou Municipal government and the Fujian Provincial government. He has also been actively involved in Guangdong’s Governor Advisory conference since its inception in 1999. Mr TEE was educated in Malaysia and obtained a BSc (honors) degree majoring in Chemistry and an MBA.

Ms LI Ching, aged 55, Executive Director and previously Chief Executive of the Company between 16 April 2001 and 24 June 2010 and, Joint Chief Executive (Operation) on 30 March 1999. Ms LI, a Non-executive Director of Fortune Oil between 9 August 1993 and 15 June 1998 became an Executive Director on 16 June 1998. She was appointed in 1990 as Executive Director of Kingsleigh Petroleum Limited, nominated by the PRC minority shareholders in the Kingsleigh Group. Previously she was Deputy Director of China North Industries Corporation (NORINCO), which she joined after graduating from the Economic and Financial Institute of Beijing.

Non-executive Directors

Mr QIAN Benyuan*, aged 68, Non-executive Chairman since 18 May 1997. Mr QIAN was President and CEO of China National Electronics Import and Export Corporation (CEIEC) between May 1995 and April 2005. He formally joined Fortune Oil PLC after retiring from CEIEC and continues to serve as Non-executive Chairman based in Beijing. Between 1996 and 2006, Mr QIAN was also Chairman of China Hewlett-Packard Co., Ltd, and between 2004 and 2007 he was a Director of Shenzhen Development Bank. Until 2009, he was a Director of the International Chamber of Commerce, China, a Committee Member of the China Council for Promotion of International Trade (CCPIT). He is currently a Vice-Chairman of China Association of Energy, a Vice-Chairman of the Coal Bed Methane Industry Association of Shanxi Province, China, and a Director of China Society of State-owned Assets Administration and a Director of China Environment Culture Promotion Association. His hard work and exceptional contribution earned him a number of honorary titles.

Mr Frank ATTWOOD†, aged 70, is Senior Independent Director and Chairman of the Audit Committee. He was appointed as Non-executive Director of Fortune Oil on 24 June 2009. He is a chartered accountant and was Deputy Chairman of the International Ethics Standards Board for Accountants until 31 December 2009. Mr ATTWOOD was formerly a member of the UK Auditing Practices Committee. For 30 years until 2004 he was an audit partner in RSM Robson Rhodes, during which time he was also CEO of RSM International and chairman of the UK member firm. Since retirement from that firm he has been a consultant and expert witness on accounting and auditing matters. Mr ATTWOOD is also a Non-executive director and chairman of the audit committee of Medical Protection Society and of Ridgeon Group, and is Chairman of Urenco UK Pension Trustee Company Ltd.

Mr WANG Jinjun*, aged 56, Non-executive Director, was appointed on 26 November 2003 and is Chairman of the Remuneration Committee. Mr WANG is based in Hong Kong and was Deputy Managing Director of Top Glory International Holdings Limited, a leading hotel management and real estate business which was listed on the Hong Kong Stock Exchange until September 2003, when it was privatised. He is also a director of China National Cereals, Oil and Foodstuffs Import & Export Corporation, The Gloria International Hotels Limited and has served as a senior official at China’s Ministry of Foreign Trade.


board of directors

Mr Dennis CHIU*, aged 54, has been appointed as a Non-executive Director of Fortune Oil since 9 August 1993. He is also an Executive Director of Far East Consortium International Limited and a non-executive Director of Far East Hotels and Entertainment Limited in Hong Kong. Far East Group of companies is listed on the Hong Kong Stock Exchange Limited and is principally engaged in property development and hotel operations in China, Singapore and Malaysia. Since 20 March 2005, he has been a Director of Agora Hospitality Group Co. Ltd (formerly TOKAI KANKO Co., Ltd) listed on the Tokyo Stock Exchange. Mr CHIU received a BA degree from the University of Sussex.

Ms Louisa HO†, aged 48, was formerly Finance Director and has become a Non-executive Director since 1 September 2006. Ms HO joined Fortune Oil as Financial Controller in 1993 and was appointed as Deputy Chief Executive on 15 August 2001 and became Finance Director on 29 April 2004. Ms HO is a certified public accountant of Hong Kong Institute of Certified Public Accountants (HKICPA) and a fellow member of Association of Chartered Certified Accountants (FCCA). She has an MSc in Data Processing from the University of Ulster and a B Soc Sc from the University of Hong Kong. Before joining Fortune Oil, she worked in a range of positions in controller and operations departments at Esso Hong Kong Limited. She is now the Chief Financial Officer of the Harrow group of international schools.

Mr Ian TAYLOR†*, aged 57, Non-executive Director, was an Executive Director of Fortune Oil between 9 August 1993 and 23 June 1996. He relinquished his executive role and became a Non-executive Director on 24 June 1996. He is President and Chief Executive of the Vitol Group of companies. Vitol is a leading international petroleum trading company. He joined Vitol S.A. in 1985 from Shell where he held various positions in shipping, operations and trading. He was Managing Director of Vitol Asia Pte Limited between 1992 and 1994. Mr TAYLOR received an MA degree in Politics, Philosophy and Economics from Oxford University in 1978.

Mr ZHI Yulin, aged 47, Non-executive Director since 30 November 2000, graduated from Beijing Institute of Technology in 1985, Nanjing Institute of Technology in 1987 and received an EMBA at China Europe International Business School in 2000. He joined NORINCO in 1987 and has held various positions since then. He is currently the Vice President of NORINCO.

Mr MAO Tong†, aged 55, is Independent Non-executive Director since 30 November 2010. He is a partner at Squire Sanders LLP, an international law firm. Prior to rejoining Squire Sanders LLP as a partner on 16 February 2012, Mr MAO was the Managing Partner of the Hong Kong office of Bryan Cave LLP, a law firm. He has over 25 years’ experience of advising Fortune 100 companies, major Chinese state and private enterprises, private equity funds, technology companies and Chinese banks and financial institutions. He has been involved in more than 100 Chinese / foreign joint ventures and foreign owned enterprises operating in China.

Mr LIN Xizhong, aged 67, Independent Non-executive Director since 30 November 2010, has over 35 years of working for state owned mining and natural resources business in China and is an experienced financier. He was former Senior Vice President of China Minmetals Corporation, Chairman of Axa-Minmetals Assurance Company, Director of AXA APH Holdings and Vice Chairman of First Pacific Bank, Hong Kong. Retired from Minmetals, Mr LIN is the head of Audit & Risk Management Commission of China National Building Materials Group; Vice Chairman of General Nice Development Ltd., a Hong Kong company and also the Executive Vice Chairman of Abterra Ltd., a Singapore-listed company. In 1990s, Mr LIN served as China’s representative for the APEC Business Advisory Council (ABAC) for several years. He is currently a member of China’s PECC (Pacific Economic Cooperation Council) and is also appointed as an external director of China National Building Materials Group, China Shipping (Group) Company and State Development and Investment Corporation, all three companies are directly under SARSAC of China.

† Member of the Audit Committee

* Member of the Remuneration Committee


directors’ report

The Directors present their Directors’ Report and the audited Group financial statements for the year ended 31 December 2012 (“financial statements”).

Principal ActivitiesFortune Oil PLC (the “Company”) is the ultimate holding company of a group of companies (the “Group”) whose principal activities focus on oil, natural gas and resource supply, operations and investments in China. The Group has also started in late 2010 pursuing opportunities outside China securing resource projects to meet the growing demands of the China market.

Details of the principal subsidiary undertakings, associated and subsidiary undertakings of the Company are listed in note 14 to the Group financial statements on page 92.

Business ReviewThe Company is required by the Companies Act to set out in this report a fair review of the performance and development of the Group’s business during the year, its position at the end of the year and a description of the principal risks and uncertainties facing the Group (“business review”).

The information that fulfils the business review requirements can be found in the following sections of this report. All the information detailed in these sections is incorporated by reference into this report and deemed to form part of this report:

• Key Performance Indicators on page 5;• Chairman’s Statement on pages 6 to 8;• Chief Executive’s Review on pages 9 to 11;• Business Review on pages 12 to 23, including a Corporate Social Responsibility and Environmental Review;• Principal risks and uncertainties, their effects and our management strategy on pages 24 and 25; and• Financial Review on pages 26 to 27.

The Group has a number of essential counterparties with whom it has contracts or arrangements in respect of its business activities. For Bluesky the joint venture partners are BP and China National Aviation Fuel Supply Company Limited (CNAF); jet fuel is sourced from other state oil companies and sold to airlines under short-term contracts. For Maoming SPM the Sinopec Group is the major joint venture partner and the sole provider of revenue under the term of joint venture contracts. For the West Zhuhai Terminal, PetroChina (CNPC) is the major joint venture partner and provider of contracted revenue.

The Group’s gas distribution business has a variety of joint venture partners who bring expertise and relationships in ensuring successful business operations. These are principally state-controlled entities such as city governments and PetroChina affiliates. Gas is purchased from state-controlled companies such as PetroChina, Sinopec and China United Coal Bed Methane Company (CUCBM) under short or long term contracts such as a joint venture agreement entered with Shenyang Zhonglian Enterprise Development Ltd and Able Field International Limited is to provide LNG to public transit vehicles in Liaoning province. For Liaoning Jianping Fortune Gas Co. Ltd, it is the Liaoning provincial government and CNPC to secure for the supply of natural gas. For supplying natural gas in 17 cities within Shijiazhuang Municipal Region, CNPC and Xinao Gas are the major joint venture partners. Tianjin Gas Group Company Ltd is the largest natural gas supplier in Tianjin City and responsible for operations to 18 districts and counties in Tianjin City. It is one of the main shareholders in the Tianjin LNG Import and Regasification terminal, which is expected to start operations in 2013.

The Group’s CBM project at Liulin, in joint venture with Dart Energy Limited (previously Arrow Energy Limited), is governed by a term Production Sharing Contract with CUCBM. Since November 2008 Wilmar International Limited has owned 15 per cent in the Group’s gas business but has no operational involvement. The Group has entered into a cooperation agreement with the Everthriving Investment Group, a privately owned Chinese LNG and the joint venture agreement with the Yangtze Shipping Group to refit ships using LNG dual fuel technology.

For Armenia Iron Ore project, Bounty Resources Armenia Limited controls three iron ore mining licences through Fortune Resources Armenia LLC and Spice Steel Armenia CJSC and have made a strategic alliance with seven Chinese and international organisations to develop the project.

Further details of the Group’s joint ventures are in the note 14 to the Group financial statements on page 92.


directors’ report

Subsequent EventsDetails of subsequent events are listed in note 34 to the Group financial statements on page 112.

Principal Risks and Uncertainties, their effects and our management strategyThe principal risks and uncertainties, their effects and our management strategy are given on pages 24 to 25.

Going Concern StatementThe Group’s business activities and associated opportunities and risks are set out in the business review on pages 12 to 23. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review set out on pages 26 to 27. In addition, note 27 to the Group financial statements includes the Group’s objectives, policies and processes for its capital; its financial risk management objectives; details of its financial instruments; and its exposure to credit risk and liquidity risk.

As explained in note 27 to the Group financial statements, the Group meets part of its capital expenditure requirements from medium term loan facilities. On 4 April 2011, the Group signed a US$180 million (£112 million) loan agreement and the proceeds were used to repay the 3-year US$80 million (£52 million) loan facility arranged by Standard Chartered Bank (Hong Kong) in April 2010 and the balance of US$100 million (£60 million) has been providing further capital for development.

The Group faces a number of risks and uncertainties as described on page 24.

As at 31 December 2012, the Group had a cash balance of £50.7 million (excluding cash balance of £23.1 million in the natural gas business), and a net borrowing of £61.1 million (after excluding the net cash balance of £13.1 million in the natural gas business). Nevertheless, the Group expects to generate positive cash flow from operations and receive cash consideration from China Gas Holdings Limited for the transaction in relation to the Group’s natural gas business. The Group’s current forecasts and projections, adjusting for reasonably possible changes in trading conditions, show that the Group will be able to meet its obligations under the loan agreements and to operate within the required covenants for the foreseeable future.

Following the decision to enter into the Gas Division disposal transaction, detailed in note 20 to the Group financial statements on page 98, notice of the proposed sale was given to the providers of the US$180 million medium term loan facilities. A waiver was received, in advanced of the transaction, in respect of the condition for the immediate repayment of these facilities upon such a transaction occurring. Subject to the payment of US$18 million (£11.4 million) as an initial accelerated repayment, the existing terms of the medium term loan remain unchanged.

After making enquiries, the Directors therefore have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and accounts.

Results and DividendsThe audited results for the year ended 31 December 2012 are set out in the Group income statement on page 66.

The Group’s net profit for the year ended 31 December 2012 attributable to owners of the parent amounted to £15.7 million (2011: £18.2 million). No interim dividend was paid during the year 2012 (2011: nil).

Dividend PolicyThe Board, continuing the policy adopted since April 2011 and considering the level of net post tax profits for the year ended 31 December 2012, has determined that it would be appropriate to pay a dividend to shareholders. The Board has determined that the dividend should be 0.16 pence per share (2011: 0.18 pence) which represents the same pay-out ratio as last year, being approximately 20% of net post tax profits attributable to shareholders.

Subject to shareholders approval at the Annual General Meeting, the dividend will be paid on 15 August 2013 to shareholders on the register on 12 July 2013.

The Board considers that it is appropriate given the irregularity of earnings over the year that one dividend payment will be made per year.


directors’ report

Key Performance IndicatorsDetails of the Key Performance Indicators (KPIs) monitored by the Board are included on page 5.

Corporate, Social and Environmental ResponsibilityThe Group is committed to complying with the Health, Safety and Environmental regulations and requirements of China and elsewhere in the world where it is operating and to protecting the health, safety, welfare and security of its employees and all personnel affected by and involved in its operations and activities. The Group has a primary and continuing commitment to minimise the impact of its activities on the environment. Details are set out on pages 21 and 22. A Health, Safety and Environment Policy Statement and Code of Ethics Principles approved by the Board have been posted on the Company’s website, www.fortune-oil.com

These apply to the Company and to all its managers, employees and contractors. Details are given in the Corporate Governance section.

Charitable and Political ContributionsNo political donations or contributions were made or expenditure incurred by the Group during the year (2011: nil).

No charitable donations were made or expenditure incurred by the Group in 2012 (2011: nil).

Research and DevelopmentThere were no significant Research and Development activities by the Group in 2012 (2011: nil).

Corporate Governance Statement and Remuneration Report under the Disclosure and Transparency Rules (DTR) 7.2.5R and 7.2.7RThe corporate governance statement on pages 40 to 49 forms part of this Directors’ Report.

The report on Directors’ remuneration (the “Remuneration Report”) is set out on pages 50 to 62.

An ordinary resolution to approve the Remuneration Report on pages 50 to 62 of the Annual Report will be put to the shareholders at the Annual General Meeting (AGM) on 18 June 2013.

DirectorsAll the Directors named below served throughout the year:

Executive Directors

1. Daniel Tatjung CHIU (Vice-Chairman)2. TEE Kiam Poon (Chief Executive)3. LI Ching

Non-executive Directors

1. QIAN Benyuan* (Chairman)2. Frank Albert ATTWOOD† (Senior Independent Director)3. WANG Jinjun*4. Dennis Tatshing CHIU*5. Ian Roper TAYLOR*†

6. Louisa Yuk-king HO†

7. ZHI Yulin8. MAO Tong† (Independent Director) 9. LIN Xizhong (Independent Director)

* Member of the Remuneration Committee† Member of the Audit Committee

Brief particulars of the Directors in office at the date of this report are on pages 28 and 29.


directors’ report

Directors’ election and rotationTEE Kiam Poon and LI Ching having been appointed since the 2010 AGM, are required by the Articles of Association to stand for election at the forthcoming AGM.

Dennis CHIU, Ian TAYLOR, QIAN Benyuan, ZHI Yulin and WANG Jinjun as Non-executive Directors with more than nine years service, will retire under the provisions of the UK Corporate Governance Code, and, being eligible, will offer themselves for re-election at the forthcoming AGM.

With the exception of TEE Kiam Poon, an Executive Director who has a service contract, none of other Executive Directors have a Directors’ service contract. Each such Executive Director has letter of appointment and they are available for inspection.

The Board has given consideration to the balance of skills, knowledge and breadth of experience on the Board and the manner in which each of the retiring Directors contributes to that balance. Following the performance evaluation of the Board, its Committees, individual Directors and Chairman, conducted shortly after the 2012 year end, the Board is satisfied that all the Directors including the Chairman continue to contribute effectively and demonstrate commitment to their roles on the Board and the Board Committee. The remaining Directors unanimously recommend the re-appointment of each Director standing for re-election.

Directors’ Interests in SharesThe interests of Directors and their connected persons in the issued capital of the Company are given in the Remuneration Report on page 58. Other than as disclosed therein, none of the Directors had any material interest in any contract of significance to which the Company or any of its subsidiaries were a party during the financial year ended 31 December 2012.

Following the implementation of the EU Takeover Directive into UK law, the following description provides the required information for shareholders where not already provided elsewhere in this report.

Articles of AssociationThe Company adopted new Articles of Association (the “New Articles”) at the AGM in 2010. These were adopted primarily to take account of changes in English company law brought about by certain provisions of the Companies Act 2006, which came into force on 1 October 2009 and the implementation in the UK of the Companies (Shareholders’ Rights) Regulations 2009 on 3 August 2009. The following information is given pursuant to section 992 of the Companies Act 2006 and reflects the Articles as they currently stand.

Amendment of the Company’s Articles of Association Any amendments to the Company’s Articles of Association may be made in accordance with the provisions of the Companies Act 2006 by way of special resolution.

1) Structure of the Company’s share capital and rights and obligations attaching to shares

As at the date of this Report, 1,987,466,715 ordinary shares of 1p each are fully paid and being the total number of Fortune Oil PLC shares with voting rights. The Company currently has only one class of shares and the shares are listed on the London Stock Exchange.

The Companies Act 2006 abolishes the requirement for a company to have an authorised share capital and the New Articles reflect this. Directors will still be limited as to the number of shares they can at any time allot because allotment authority continues to be required under the Companies Act 2006, save in respect of employee share schemes.

Details of changes to share capital as at 31 December 2012 and of options under the Group’s employee share schemes are shown in notes 24 and 25 to the Group financial statements.

The rights attaching to the ordinary shares are detailed in the Company’s Articles of Association (the “Articles”).

The Articles may be changed with the agreement of the shareholders by the passing of a special resolution at a general meeting.


directors’ report

Subject to the provisions below, shareholders may attend any general meeting of the Company and, on a show of hands, a qualifying person (being an individual who is a member of the Company, a person authorised to act as the representative of a corporation or a person appointed as a proxy of a member) who is present at a general meeting shall have one vote on each resolution and, on a poll, every shareholder who is present or by proxy shall have one vote on each resolution for every ordinary share of which they are the registered shareholder.

A resolution put to the vote of a general meeting is decided on a show of hands unless before, or on the declaration of the result of, a vote on show of hands, a poll is demanded by the chairman of the meeting, or by at least five shareholders (or their representatives) present in person or by proxy and having the right to vote, or by any shareholders (or their representatives) present in person or by proxy and having at least 10% of the total voting rights of all shareholders, or by any shareholders (or their representatives) present in person or by proxy and holding ordinary shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

There are no restrictions on the transfer of shares, or limitations on the holding of shares. No ordinary shares carry any special rights with regard to control of the Company. Major shareholders have the same voting rights per share as all other shareholders. There are no known arrangements under which financial rights are held by a person other than the holder of the shares and there are no known agreements on restrictions on share transfers or on voting rights.

Shares acquired through the employee share schemes and the Senior Executive Incentive Plan (the “Plan”) rank equally with other shares in issue.

As at 1 January 2012, 12,562,702 ordinary shares were held in the Company’s Employee Benefit Trust subject to option granted to employees (none of whom are Directors). During the year:

i. options over 493,421 ordinary shares exercisable at 6.08 pence per share between 8 June 2008 and 7 June 2015 under the 2004 Approved Scheme were exercised on 8 February 2012;

ii. options over 110,000 ordinary shares exercisable at 6.32 pence per share between 8 June 2008 and 7 June 2015 under the 2004 Unapproved Scheme were exercised on 8 February 2012;

iii. options over 1,000,000 ordinary shares exercisable at 6.32 pence per share between 8 June 2008 and 7 June 2015 under the 2004 Unapproved Scheme were exercised on 10 May 2012; and

iv. options over 186,605 ordinary shares exercisable at 9.41 pence per share between 4 October 2014 and 3 October 2021 under the 2004 Unapproved Scheme were lapsed due to the cessation of employment.

As at 31 December 2012, 10,772,676 ordinary shares were held in the Company’s Employee Benefit Trust subject to options granted to employees (none of whom are Directors) as follows:

(1) 2,166,579 ordinary shares with respect to the options exercisable at 6.32 pence per share which are exercisable between 8 June 2008 and 7 June 2015 under the 2004 Unapproved Scheme;



(4) 5,444,982 ordinary shares with respect to the options exercisable at 9.41 pence per share which are exercisable between 4 October 2014 and 3 October 2021 under the 2004 Unapproved Scheme;

(5) 302,115 ordinary shares with respect to the options exercisable at 9.93 pence per share which are exercisable between 4 October 2014 and 3 October 2021 under the 2004 Approved Scheme,

or, in each case, if earlier, exercisable on the date of cessation of employment with a Participating Company as defined in the rules of the 2004 Unapproved Scheme or the 2004 Approved Scheme, as relevant (as detailed in the Remuneration Report). The share options referred to in (1) to (5) were granted by the Trustees of the Company’s Employee Benefit Trust on the recommendation of the Remuneration Committee of the Board.


directors’ report

In (4) and (5), there is a financial performance condition attaching to the exercise of options which is a growth of 15% per year on average over the 3 year period in profit attributable to equity shareholders (“Attributable Profit”) by the Group.

Employee Benefit Trust (the “EBT” or “Trust”)The EBT is capable of acquiring shares, by purchase or by subscription, at a price not less than the nominal value of an ordinary share of 1p each in the Company and of using any such shares for the purposes of satisfying options under the Company’s 2004 Approved Scheme, 2004 Unapproved Scheme and of the Senior Executive Incentive Plan (the “Plan”), or as otherwise determined by the Trustees. No shares were acquired by the EBT during the year.

Four Long Term Incentive Plan (“LTIP”) participants (none of whom are directors) in the 2007 awards who had not withdrawn their 819,336 shares from the EBT in 2011 would have been entitled to a further top of shares equal to 20% of the original award without any further performance conditions as of 26 June 2012. However, due to the failure to achieve two out of the six KPIs in respect of the profit attributable to equity shareholders (before other gains) for the financial year 2011 and the lack of share price performance, the Remuneration Committee decided that no further increases in 2012 in the number of shares under the 2007 Option unless certain further conditions would be satisfied, in particular that:

(1) LTIP participants remain employed until at least 26 June 2013; and(2) the KPI target which the Company set for the profit attributable to equity shareholders (before other gains) being

met for the financial year ended 31 December 2012, i.e. a growth of 30 per cent above the results for the year ended 31 December 2010.

In June 2012, one of the participants chose to withdraw his 208,044 shares to which he was beneficially entitled. The other three LTIP participants chose not to remove their 611,292 shares from the EBT so as to be entitled to benefit from another possible increase in the number of awarded shares on or after 5th anniversary of the initial award subject to the further conditions stated above.

Of the shares awarded pursuant to the Plan in 2009, there were 3,984,594 shares vested unconditionally in 2012; of which 478,338 shares were transferred out of the EBT by the beneficial owner and five LTIP participants (two of whom are Directors) had not withdrawn their 3,506,256 shares from the EBT in 2012. A further 1,603,421 shares were transferred out of the EBT during 2012 for the purposes of satisfying options granted under the Company’s 2004 Approved Scheme and 2004 Unapproved Scheme which were exercised.

As at 31 December 2012, the EBT held 85,496,806 shares of which 10,772,676 were the subject of options granted to employees (none of whom are Directors), 4,117,548 shares have unconditionally vested but have been left in the EBT and a further 6,252,446 shares have conditionally vested. Details of Directors interest in these shares are set out in the Remuneration Report on page 60.

The Trustees of the EBT is free to exercise the voting rights attributable to all shares held by the Trust as they think fit. Neither the Board nor the Remuneration Committee have indicated to the Trustees whether or how they would wish the Trustees to vote on any matters.

A shareholder whose name appears on the Company’s register of members can chose whether his shares are evidenced by share certificates (i.e. in certificated form) or held in electronic (i.e. uncertificated) form in CREST (the electronic settlement system in the UK).

The holders of ordinary shares are entitled to: (i) receive dividends (when declared); (ii) receive copies of the Company’s reports and accounts; (iii) to attend and speak at general meetings of the Company; (iv) to appoint proxies; and (v) to exercise voting rights.

Any form of proxy sent by the Company to shareholders in relation to any general meeting to be effective having been correctly completed and returned must be delivered to the Company, whether in written form or in CREST proxy form, not less than 48 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the appointment of a proxy proposes to vote. Calculation of any such time periods shall not take account of any part of a day that is not a working day.


directors’ report

No shareholder is, unless, the Board decides otherwise, entitled to attend or vote (either personally or by proxy) at a general meeting or at any separate meeting of the holders of the class of shares, or to exercise any other right arising by virtue of his shareholding in relation to any such meeting if he or any person who appears to have an interest in the shares has been sent a notice under s.793 of the Companies Act 2006 which confers upon public companies the power to require information with respect to interests in their voting shares and he or any interest person failed to supply the Company with the information requested within the prescribed period of time as stipulated in Article 40.

The Board may refuse to register a transfer of a share which is not fully paid or the transfer of a share on which the Company has a lien. The Board may also refuse to register a transfer of a certificated share unless: (i) the instrument of transfer is lodged, duly stamped, at the registered office of the Company or at such other place as the Board may appoint and is accompanied by the certificate for the share to which it relates and such other evidence as the Board may reasonably require to show the right the transferor to make the transfer; (ii) is in respect of only one class of share, and (iii) is in favour of not more than four transferees.

Transfers of uncertificated shares must be carried out using CREST and the Board can refuse to register a transfer of an uncertificated share providing that the refusal is in accordance with the regulations governing the operation of CREST. The Board may at its discretion suspend the registration of transfers, for up to 30 days in any one year. The Board cannot suspend the registration of transfers of any uncertificated shares without first gaining the consent of CREST. There are no other limitations on the holding of ordinary shares in the Company.

If at any time the capital of the Company is divided into different classes of shares, the special rights attaching to any class may be varied either while the Company is a going concern or during or in contemplation of a winding up:

i. in such manner (if any) as may be provided by those rights; orii. with the written consent of the holders of at least 75% in nominal value of the issued shares of the class, oriii. with the sanction of an extraordinary resolution passed at a separate general meeting of the holders of the shares

of the class.

2) Significant holders of the Company’s shares

Other than as stated below, as far as the Company is aware, there are no persons with significant direct or indirect holdings in the Company.

As at 31 December 2012, the Company had been informed of, in accordance with the DTR issued by the FSA, the following notifiable voting rights in the Company’s issued share capital:

Number of ordinary Percentage of issued shares held share capital/voting rights

First Level Holdings Limited1 647,244,897 32.57Goldman Sachs Securities (Nominees) Limited ILSEG ACCT2 79,706,331 4.01HSBC Global Custody Nominee (UK) Limited3 84,828,800 4.27JTC Trustees Limited4 85,496,806 4.30Vidacos Nominees Limited5 147,108,505 7.40


directors’ report

Each ordinary share carries one voting right.

1 First Level Holdings Limited is a company in which the majority of shares are owned by Daniel Chiu and the remainder by Dennis Chiu.

2 First Level Holdings Limited has the ultimate beneficial interest in 78,390,715 shares registered in the name of Goldman Sachs Securities

(Nominees) Limited ILSEG ACCT, representing 3.94 per cent of the issued share capital.

3 Kerry Holdings Limited, the main investment holding company of the Kuok Group in Hong Kong, has the ultimate beneficial interest in

84,828,800 ordinary shares registered in the name of HSBC Global Custody Nominee (UK) Limited. The Kuok Group is a strategic investor of

Fortune Oil PLC. In 2008 Wilmar International Limited, in which the Kuok Group also has interests, also invested US$36 million (£22.3 million)

and owns a 15 per cent in Fortune Gas Investment Holdings Limited.

4 JTC Trustees Limited is the Trustees for the Company’s Employee Benefit Trust under the Senior Executive Incentive Plan.

5 Vitol Energy (Bermuda) Limited has the beneficial interest in Vidacos Nominees Limited.

Save for the above, no person has notified any interest of 3 per cent or more or any non-material interest equal to or more than 10 per cent of the issued ordinary share capital or in the voting rights of the Company.

3) Appointment and replacement of Directors

The rules in relation to the appointment and replacement of Directors are contained in the Articles.

The Articles provide that Directors may be appointed by an ordinary resolution of the shareholders or by a resolution of the Directors, provided that, in the latter instance, a Director appointed in this way retires at the first AGM following his appointment and may be re-appointed.

The Articles require that every Director submit himself for re-appointment every three years and will retire and seek re-appointment at the next AGM. The Company’s shareholders may remove a Director before the expiration of his period of office by passing an ordinary resolution of which special notice has been given. The office of a Director shall be vacated if:

i. he ceases to be a Director by virtue of any provision of the Act or he becomes prohibited by law from being a director; orii. he becomes bankrupt or makes an arrangement or composition with his creditors generally; oriii. he is, or may be, suffering from a mental disorder; oriv. he resigns by notice in writing to the Company; orv. he has missed Directors’ meetings for a continuous period of six months without permission and the other Directors

resolve that he shall cease to be a Director; orvi. all other Directors require him to resign by notice in writing.

The Articles may be amended by a special resolution of the members.

4) Power of Directors

The powers of the Directors are determined by English law and the Articles provide that the Directors may exercise all the Company’s powers provided that the Articles or applicable legislation do not stipulate that any such powers must be exercised by the shareholders. The Directors have been authorised to issue and allot ordinary shares and have authority to make purchases of its shares (subject to provisions in the Companies Act).

5) Change of control

There are no significant agreements to which the Company is a party that take effect, alter or terminate upon a change of control following a takeover bid.

The Company does not have agreements with any Director or Officer that would provide compensation for loss of office or employment resulting from a takeover, except that provisions of the Company’s share schemes may cause options and awards granted under such plans to vest on a takeover.


directors’ report

Directors & Officers Liability InsuranceThe Company has purchased and maintained appropriate insurance cover for its Directors and Officers and those of its subsidiary companies under a Directors’ and Officers’ liability insurance policy, as permitted by the Companies Act 2006.

Directors’ Interests and Indemnity At no time during the financial year ended 31 December 2012 did any Director have a material interest in any contract of significance with the Company or any of its subsidiary undertakings other than the service contract and letters of appointment between each of the Directors and the Company.

As at the date of this Report, qualifying third party indemnity provisions under the Companies Act 2006 are in force under which the Company has agreed to indemnify the Directors, to the extent permitted by s.234 Companies Act 2006 as applicable, against any claims from third parties in respect of certain liabilities arising out of, or in connection with, the execution of their powers, duties and responsibilities, as Directors of the Company or any of its subsidiaries.

Neither the insurance nor the indemnity provides cover in the event that the Director is proved to have acted fraudulently or deceitfully.

No claims have been made either under the indemnity or the insurance policy.

Directors’ conflicts of interestProvisions in the Articles permit the Board to consider and, if thought fit, to authorise situations where a Director has an interest that conflicts, or may possibly conflict, with the interests of the Company. Directors are required to give advance notice of any conflict issues to the Board via Company Secretary to declare situational conflicts that can be considered for authorisation by the remaining members of the Board. Directors are excluded from the quorum and the vote in respect of any matters in which they have an interest.

Policy for Payment of CreditorsThe Company’s policy with respect to any contracts with its suppliers is to: (i) fix terms of payment when agreeing the terms of each business transaction; (ii) ensure that the supplier is aware of those terms; and (iii) to abide by the agreed terms of payment. As at 31 December 2012, trade creditors of the Group were equivalent to 70 (2011: 88) days’ purchases, based on the average amount of creditors and the cost of sales.

Financial Instruments and Risk ManagementNote 27 to the Group financial statements on pages 102 to 107 include information on the Company’s use of financial instruments.

Details of the Group’s financial risk management objectives and policies are included in note 27 to the Group financial statements.

AuditorDeloitte LLP provide non-audit services to the Group, which are set out in note 4 to the Group financial statements. The Directors are satisfied, and will continue to ensure, that Deloitte’s services are in compliance with the relevant ethical guidance of the accountancy profession and do not impair the judgement or independence of the auditor.

The Audit Committee continues to review the auditor’s independence and effectiveness. The auditor is subject to re-appointment on an annual basis.

Deloitte LLP have expressed their willingness to continue in office as auditor of the Company and an ordinary resolution reappointing them as auditor and authorising the Directors to set their remuneration will be proposed at the forthcoming AGM on 18 June 2013.


directors’ report

Annual General Meeting (AGM)The AGM will be held at 11am on Tuesday, 18 June 2013 at the Oriental Club, Stratford House, Stratford Place, London W1C 1ES, United Kingdom. At the 2013 AGM, resolutions will be proposed, amongst other matters, to: (i) declare a final dividend (ii) receive the Annual Report and Financial Statements; (iii) approve the Remuneration Report; (iv) elect and re-elect Directors; (v) re-appoint Deloitte LLP as auditor; (vi) renew both the general authority of the Directors to issue shares and to authorise the Directors to issue share without applying the statutory pre-emption rights; (vii) to approve the renewal of the Fortune Oil PLC Approved Employee Share Scheme; (viii) to approve the renewal of the Fortune Oil PLC (Unapproved) Employee Share Scheme; and (ix) to authorise the Directors to hold general meetings at 14 clear days’ notice (where this flexibility is merited by the business of the meeting and is thought to be in the interest of shareholders as a whole).

The Notice convening the AGM is being sent to shareholders separately with this Annual Report. The resolutions for the AGM are set out in detail in the Notice of Annual General Meeting, which is also available on the Company’s website, www.fortune-oil.com

Electronic communicationsThe Company provides documentation and communication to shareholders via its website, except to those shareholders who elect to receive paper copies by post. Electronic copies of the 2012 Annual Report and the Notice of Annual General Meeting will be posted on the Company’s website, www.fortune-oil.com The Company’s announcements to the Stock Exchange are also available on line through the website.

Shareholders wishing to change their election and receive documents in hard copy form can do so at any time by contacting the Company’s Registrar or by logging on to www.capitashareportal.com

Electronic proxy votingThe Company provides electronic proxy voting for this year’s AGM. Shareholders who are not CREST members can appoint a proxy and vote online for or against the resolutions to be proposed at the AGM by visiting www.capitashareportal.com The onscreen instructions will give details on how to complete the appointment and voting process.

Paper proxy forms will be distributed with the Notice of Annual General Meeting to all shareholders other than those who have elected for notification by email.

Statement on disclosure of information to AuditorEach of the Directors who held office at the date of approval of this Directors’ Report confirms that:

• so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and• the Directors have taken all the steps that they ought to have taken as a Director to make themselves aware of any

relevant audit information and to establish that the Company’s auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with the requirements of section 418 of the Companies Act 2006.

For these purposes, relevant audit information means information needed by the Company’s auditor in connection with preparing their Audit Report on the Group financial statements, set out on pages 64 and 65.

A Directors’ Responsibilities Statement for preparing the Group and the Company financial statements and a responsibility statement as required by the Disclosure and Transparency Rules is set out on page 63.

By order of the Board

Sandi CHOICompany Secretary24 April 2013


corporate governance

The UK Corporate Governance Code complianceListed companies with a Premium Listing of equity shares in the UK are required under the Listing Rules to describe how they have complied with the Main Principles of the UK Corporate Governance Code published by the Financial Reporting Council in June 2010 (“the Code”) which applies for the period covered by this report. Despite having transferred to Standard Listing on 20 March 2013 the Company intends to continue to provide this report in the same format as for a Premium Listing.

The Directors consider that the Company has complied with the Main Principle requirements of the Code throughout the year ended 31 December 2012 and to the date of this report. The Board believes the Company has been in compliance with the provisions set out in the Code with the following exceptions, which the Directors do not consider to be fundamental to the practice of good corporate governance.

Areas of Non-ComplianceProvision B.1.1 provides that the Board should determine whether a Non-executive Director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the Director’s judgement. The Company acknowledges that six Non-executive Directors are not considered to be independent as defined in the Code.

Provision B.2.1 states that the Board should establish a Nomination Committee comprising a majority of independent Non-executive Directors to make recommendations to the Board on all new Board appointments. The Board has not established a separate Nomination Committee, but as a vacancy occurs a Nomination Panel comprising appropriately qualified directors and independent non-executives is constituted to conduct the initial search process and to present the whole Board recommendations such that the whole Board performs the function of selecting and appointing new directors. The Nomination Panel is instructed to produce recommendation on merit, against objective criteria set for the particular position, with due regard to the benefits of diversity, including gender, of the Board. The Board considers that the diverse requirements for the recruiting of executive directors and senior management involve materially different skills and backgrounds. The Board considers that a Panel constituted specifically for each recruitment process enable the appropriate Board members to be involved in the initial setting of the requirements and employment terms for the prospective employee and to the initial screening of candidates to provide the whole board with a short list.

The Company has not complied with provision D.2.1 which requires the Remuneration Committee to comprise only independent Non-executive Directors. The Remuneration Committee comprises three Non-executive Directors and the Chairman although he does not chair the Remuneration Committee. None of the three Non-executive Directors is considered independent as defined by the Code. The Chairman was considered independent when he was appointed as Chairman, but was thereafter considered to be considered independent by virtue of holding the position of Chairman. The Board considers that the Non-executive Directors have the right knowledge of international business and the specific conditions in which the Group operates to properly manage the setting of remuneration and other benefits and that the reasons why they are not independent are not such as to cause them to be ineffective in performing the remuneration and benefit setting function.

The Company has not complied with provision D.2.2 which requires the Remuneration Committee to be responsible for setting the Chairman’s remuneration. The setting of the Chairman’s remuneration is the responsibility of the Executive Committee which the Board believes to be more appropriate.

This report, together with the Directors’ Report and the Remuneration Report on pages 30 to 39 and 50 to 62, describes how the Board applied the principles of good governance and complies with the Code.

The Board and Board compositionAs the date of this Report, the Board comprises 12 directors: three Executive Directors and nine Non-executive Directors.

The three Executive Directors are Daniel CHIU (Vice-Chairman), TEE Kiam Poon (Chief Executive) and LI Ching.

QIAN Benyuan is the Non-executive Chairman.

There are three independent Non-executive Directors, Frank ATTWOOD, MAO Tong and LIN Xizhong. Frank ATTWOOD is the Senior Independent Director.

The Non-executive Directors who take a role in Board Committee meetings are QIAN Benyuan, Frank ATTWOOD, WANG Jinjun, Dennis CHIU, Louisa HO, Ian TAYLOR and MAO Tong. Frank ATTWOOD is the Chairman of the Audit Committee and WANG Jinjun is the Chairman of the Remuneration Committee.



MAO Tong and LIN Xizhong are members of the Risk Monitoring Panel of which Frank ATTWOOD is also a member.

The other Non-executive Director is ZHI Yulin, Vice-president of NORINCO, which currently owns 1.7% of the issued shares of the Company.

No shareholder has the right to request the appointment of a Director.

Given their knowledge of the business and industry and their integrity, the Board strongly believes all Non-executive Directors continue to make a valuable contribution to the Company.

Biographical details of the Directors currently in office are shown on the board of directors on pages 28 to 29 of this Annual Report.

DiversityThe Board’s focus remains on attracting the right talents and skills irrespective of gender or ethnicity. The Board has a good record of gender diversity such that women comprise 17% of the Board. Within senior management women represent approximately 23% (2011: 20%) of managers. The composition of the Board also reflects a diversity of nationalities such as to reflect the operating locations of the Group. The Board includes increasing diversity among its Directors and senior executives as a criterion for new appointments.

Board responsibilities and proceduresThe Board is collectively responsible for promoting the success of the Company and for providing entrepreneurial leadership within a framework of prudent and effective controls that enable risk to be assessed and managed. The Directors’ biographies demonstrate that the Directors have a range of experience and are of sufficient calibre to bring independent judgment on issues of strategy, performance and resources.

The Board has adopted a formal schedule of matters, which are required to be brought to it for decision, thus ensuring that it maintains full and effective control over appropriate strategic, financial, organisational and compliance issues. These matters include:

• The adoption of new Group strategy including major acquisitions and financing considerations;• The adoption and regular monitoring of the annual Group business plan;• Major capital expenditure, acquisitions and divestments that diverge from the adopted Group strategy or business plan;• Approval of the publication of the annual and half-year financial results and interim management statements;• Supervision of the internal control system and risk management;• Approval and monitoring of the Health, Safety and Environment policies;• Board appointments and removals and the related terms;• Company Secretary appointment and removal;• Senior management structure, responsibilities and succession plans;• Consideration of Directors’ conflicts of interest; and• Dividend Policy.

To enable the Board to discharge its duties, all Directors are provided with relevant information in a timely manner by means of briefing papers distributed in advance of Board meetings and on an ad hoc basis where necessary. The Board meets both physically and by teleconference and at these meetings the Board reviews business performance, ensures adequate financing, sets and monitors strategy, examines investment and acquisition opportunities. Authority for implementing the strategy and decisions taken by the Board is delegated to the Executive Directors and senior executives of the Group (the Executive Committee). The Executive Committee is responsible for the day-to-day running of the Group’s business and reports the performance of the Group to the Board and provides timely and accurate information to enable the Board to make decisions. Other responsibilities are delegated to the Audit Committee and the Remuneration Committee, which operate within defined terms of reference.

The Board as a whole rather than a Nomination Committee considered new Board appointments. In making appointments the Board considers the recommendation from a Nomination Panel comprising Directors selected from time to time to pre-vet potential appointees and to set parameters as regards the particular skills, knowledge and experience that would most benefit the Board and may use external recruitment consultants to provide a shortlist of potential interviewees and recommendations for the Board to consider. The Board is responsible for considering succession planning and the appointment and removal of its own members.



The Nomination Panel will continue to identify and recommend candidates for the position as independent Non-executive Directors.

Chairman and Chief ExecutiveThe roles of Chairman (Non-executive) and Chief Executive are separate, ensuring a clear division of responsibility. The Chairman, assisted by the Vice-Chairman, is responsible for the leadership of the Board, while the Chief Executive is responsible for the development and implementation of policy and strategy and for the day-to-day operations of the Group.

Board supportAll Directors have access to the advice and services of the Company Secretary (whose appointment or removal is a matter for the Board as a whole) who is responsible for ensuring Board procedures are followed and that all applicable rules and regulations are complied with. All Directors, including Non-executive Directors, are able to take independent professional advice if necessary, at the Company’s expense, in the furtherance of their duties as Directors.

Induction and professional developmentOn appointment, new Directors receive a comprehensive induction to the Group’s business including site visits, meetings with senior management across the business and Group functions and meetings with major shareholders. As an ongoing process, Directors visit operating divisions and local management on a regular basis. Directors are briefed and kept informed of changes and developments in the business and on legislative and regulatory issues, as appropriate.

The training needs of Directors are periodically discussed at Board meetings and additional training requirements are identified through an annual performance evaluation process. During 2012, Directors attended an in-house training session on “Resources; Decisions by regulators on Dealing; Bribery and Accounts; Corporate Governance” in London. Training plans for Directors were implemented in a more personalised approach with a specific budget allocation, taking into account their individual professional development.

Executive Directors’ external non-executive directorshipsThe Board has not imposed a formal policy in relation to the number of external directorships that an Executive Director may hold. However, as part of their on-going development, the Executive Directors may seek an external Non-executive role on a non-competitor board, for which they may retain the remuneration in respect of the appointment. In order to avoid any conflict of interest, all appointments are subject to the Board approval and the Board monitors the extent of Directors’ other interests to ensure the effectiveness of the Board is achieved. Mr CHIU is non-executive director of a Hong Kong listed company and also the founder of Harrow International School in Bangkok, Beijing and Hong Kong. The fee retained for his non-executive directorship of the Hong Kong listed company in the Far East Group in 2012 was £2,000 per annum (HK$25,000) for Far East Consortium International Limited. The Board is satisfied that the Executive Vice-Chairman’s other commitments would have no material effect on the time which he would have available to commit to the Company.

Independence/Non-Executive DirectorsNon-Executive Directors are appointed for specified terms of two years, subject to a maximum of up to 1 month’s notice within that period and also subject to re-election and to Companies Act provisions relating to the removal of Directors. Each of the Non-executive Directors, including the Chairman, currently has a letter of appointment with the fixed time commitments of not less than 36 days a year. The terms and conditions of appointment of Non-executive Directors are available for inspection and a sample letter of appointment is available on the Company’s website, www.fortune-oil.com. The Board is also kept informed of the Directors’ other significant commitments and is satisfied that these do not conflict with their duties as a Director of the Company.

As required by Code provision B.3.1, the Board has considered Chairman’s other significant commitments, which are his directorships of China Society of State-owned Assets Administration, China Environment Culture Promotion Association and his vice-chairmanships of China Association of Energy and the CBM Industry Association of Shanxi Province, China. The Board is satisfied that these appointments do not conflict with the Chairman’s ability to carry out his duties and responsibilities and to perform his role as Chairman effectively.

All new Directors are required by Company’s Articles of Association to be elected by shareholders at the first Annual General Meeting after their appointment by the Board. Subsequently they are subject to re-election by shareholders every three years. A Non-executive Director who has served on the Board longer than nine years is subject to annual re-election in accordance



with the Code. The Board is satisfied that all the Directors standing for re-election continue to perform effectively and to demonstrate commitment to their role. The Directors seeking re-election at the 2013 Annual General Meeting are noted in the Directors’ Report on page 33 of this Annual Report and in the Notice of AGM.

IndemnitiesIn accordance with the Company’s Articles of Association, Directors have been granted an indemnity permitted by law in respect of liabilities incurred as a result of their office. The indemnity would not cover where the relevant director or officer has acted fraudulently or dishonestly. Throughout the year the Company has also maintained Directors’ and Officers’ liability insurance cover in respect of legal action against the Directors and other officers of the Group.

Board Performance Evaluation The Board completed an internal performance evaluation of its own performance and of its Committees and Directors for the year 2012. The performance evaluation was primarily based upon answers to questionnaires, which had been updated since the previous year’s evaluation. A Review Panel comprising a Non-executive Director, the Chairman and the Senior Independent Director discussed their views and gave feedback based on individual questionnaires. The results of the evaluation were reported to the Board and where areas for improvement have been identified, actions have been agreed. Relevant matters considered in discussion with Directors and Board performance included:

• Size, composition and independence of the Board• Strategy• Risk management and internal controls• Relationships with stakeholders• Time management• Communication• Effectiveness of the Board/Committees/Panels• Corporate governance

The Directors concluded that the performance evaluation identified areas where some Non-executive Directors felt that they required further management input or exposure to the operating businesses and these matters are being addressed in 2013. The Board and its Committees operated effectively and the individual Directors were each contributing to the overall effectiveness of the Board.

The evaluation of the Chairman encompasses the general management and conduct of Board meetings, the quality of discussion and the extent to which Board meetings are focusing on the right issues. The Senior Independent Director and a Non-executive Director reviewed and evaluated the performance of the Chairman. They concluded that the Chairman continues to perform effectively and demonstrated commitment to the role of Chairman.

Succession PlanningThe Board has determined that a structured focus on succession planning as part of the Group’s overall business development strategy is necessary with consideration being given to both the Board and senior management. The current developments in the Group’s business and the range of possibilities that exist for growth and methods of financing make this a complex exercise and, whilst careful consideration of the developing management requirements of the Group will be considered early decisions in this area are unlikely pending clarification of some opportunities The Board is satisfied that the individuals currently fulfilling key senior management positions in the organisation have the requisite depth and breadth of skills, knowledge and experience.

Directors’ conflicts of interestDirectors are required to notify the company secretary of any potential conflicts of interest when they are appointed to the Board and, following appointment, as new potential conflicts arise. These notifications are then considered and where appropriate authorised by the Board. The Board considers the extent to which such notified conflicts should be authorised and such authorisation can only be done in advance.

These procedures have been applied during the year and are now included as a regular item for consideration by the Board at its meetings.



Directors Duties in relation to s.172 of the Companies Act 2006The provisions of the Companies Act 2006 relating to the duties of Directors create a statutory obligation to act in good faith and to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard to certain matters set out in s.172 of the Companies Act 2006. These matters include having regard to the interests of the Company’s employees, the need to foster the Company’s business relationships with supplier and others, the impact of the Company’s operations on the community and environment and the desirability of the Company maintaining a reputation for high standards of business conduct. In reaching decisions on the operations and development of the Group the Directors recognise these factors in their decisions as follows:

1. Employees

The Company is committed to equal opportunities in recruitment, training and career development and in the fair treatment of all employees regardless of their nationality, age, ethnic group, race, religious beliefs or gender, with selection only subject to satisfying the operational requirements in the country of deployment.

The Company believes that health and safety for our staff and our community are paramount. The Company’s policies and philosophies for Health, Safety and the Environment (HSE) are incorporated in the Staff Handbook and are available on the Company’s website, www.fortune-oil.com

2. Ethical and community business practice

The Company expects employees to have high ethical standards in all activities and the Staff Handbook details the Company’s code of conduct and anti-corruption measures including that for business gifts. Offering or receiving bribes is not permitted and all employees are required to maintain fair commercial behaviour with good judgment and a whistleblowing policy is in place for any concerns.

The Code of Ethical Principles approved by the Board is available on the Company’s website, www.fortune-oil.com for the operations where the Group has direct management control. They are:

• Obeying the laws and regulations in the countries which the Group operates;• Conducting operations in accordance with accepted principles of good corporate governance;• Managers and employees respect the dignity of the individual and follow the ILO Core Conventions;• Business dealings should respect the Group’s business principles;• Open communications within the bounds of commercial confidentiality and regulatory constraints;• Business integrity;• Full disclosures in any circumstances that could give rise to a potential conflict of Interests;• Promoting and defending the Company’s legitimate business interests;• Operations in accordance with the principles of fair competition; and• Making a positive social contribution to the community.

Employees are made aware that obligations apply to them as a Group, whether working in China, Hong Kong, UK or elsewhere. These include maintaining confidentiality of the Company’s operations, precluding insider trading and acting in an ethical manner and avoiding conflicts of interest. The Group’s operating companies also provide assistance to their local community, for example through organising safety training programmes for gas customers and promoting local cultural activities.

Where the Group does not have direct management control it seeks to ensure that equivalent ethical standards are adopted and maintained at least to the level required in the relevant country of operation.

3. Relationship with customers and suppliers

Long-term business relationships are always built on trust, quality, innovation and flexibility. The Company recognises its responsibilities and carries out its business with high integrity with both customers and suppliers. For almost twenty years Fortune Oil has been developing and operating projects for the safe and reliable supply of fuels to business and households; the joint venture partners in these businesses typically include state-controlled companies who are long-term suppliers of fuels to the projects.

4. Environment

The Company assesses its impact on the environment as part of its operational controls, for example through assessment of greenhouse gas emissions. Environmental impact studies and permits are required for certain projects, which have to be agreed with regulatory authorities.



Board CommitteesThe Board may delegate any of its powers to any committee consisting of at least two Directors. The Board has established an Executive Committee, a Remuneration Committee and an Audit Committee with delegated duties and responsibilities. Whilst only Committee members are entitled to attend meetings, other Directors are invited to attend from time to time to ensure the Committees’ responsibilities are undertaken with access to the Board’s full breadth of knowledge and experience. The Company Secretary is the Secretary for all these Committees. The terms of reference of the Audit Committee and Remuneration Committee are available on the Company’s website, www.fortune-oil.com.

Board and Committee meetingsThe Company’s Non-executive Directors are considered as either “management Non-executive” or “investment partner Non-executive.” While the management Non-executives are encouraged to take an active role in the management of the Company, the investment partner Non-executive was appointed to the Board for his connections in China which assist the Group’s business operations. The investment partner Non-executive does not normally attend Board meetings of the Company and is not a member of Board Committees of the Company.

The Board meets regularly during the year as well as on ad hoc basis, as required by the business need. The Board determines the Company’s business strategy and monitors achievement of strategic aims and overall performance. The Board has delegated principal responsibility for the implementation of its objectives to the Executive Committee.

The Executive Committee Directors meet informally with individual Non-executive Directors on a regular basis to obtain their views on Board and business matters. In addition, when Directors are unable to attend a meeting, they are advised of the matters to be discussed and given an opportunity to convey their thoughts and make their views known to the Vice-Chairman prior to the meeting. It should be noted that the time commitment expected from Non-executive Directors is not limited to attendance at Board meetings. Their time is spent visiting the Group’s businesses and attending Company events. Meetings between the Non-executive Directors, without the presence of Executive Directors are scheduled and held during the year. Such sessions help to give a balanced overview of the Company. The Executive Directors and Non-executive Directors also meet outside formal meetings to discuss business issues. The investment partner Non-executive is also available for consultation on specific issues falling within his particular fields of expertise. The Board is satisfied that all the Directors are able to devote sufficient time to their duties to the Group.

As required by Code provision A.1.2, the total number of Board and Committee meetings held during the year to 31 December 2012 and individual attendance by Directors are shown below:

Executive Audit Remuneration Board Committee Committee Committee (maximum 6) (maximum 3) (maximum 3) (maximum 2)

Executive DirectorsDaniel CHIU 6 1 N/A N/ATEE Kiam Poon 5 3 N/A N/ALI Ching 6 3 N/A N/A

Non-executive Directors:(i) Management Non-executive Directors:QIAN Benyuan 6 N/A N/A 2Frank ATTWOOD 6 N/A 3 N/AWANG Jinjun 0 N/A N/A 1Dennis CHIU 3 N/A N/A 2Louisa HO 6 N/A 3 N/AIan TAYLOR 4 N/A 1 2MAO Tong 4 N/A 1 N/ALIN Xizhong 4 N/A N/A N/A(ii) Investment partner Non-executive Director: ZHI Yunlin – N/A N/A N/A

N/A = not applicable (where a Director is not a member of the Committee, although he or she may attend meetings at the invitation of the Chairman of that Committee).



The Board has delegated day-to-day operational development, implementation of its objectives for the Group and business management control to the Executive Committee, which comprises the Executive Directors and the senior managers of the Group. The Executive Committee is responsible for implementing Group policy, monitoring performance of the business and reporting to the Board thereon.

The Remuneration Committee is chaired by WANG Jinjun and additionally comprises Dennis CHIU, QIAN Benyuan and Ian TAYLOR. The names and qualification of each of the members are set out on pages 28 to 29. It determines on behalf of the Board the remuneration and benefits of the Executive Directors of the Company and Senior Executives of the Group. It also ensures that the annual review of the levels of awards remain appropriate in light of the Group’s current performance and prospects and aligned with the strategy and objectives of the Group. The Board as a whole determines the level of fees of the Non-executive Directors.

The Remuneration Committee adopted terms of reference as required by Code provision D.2.1. The Remuneration Committee’s full report appears on pages 50 to 62. The Audit Committee is chaired by Frank ATTWOOD, a chartered accountant, also the Senior Independent Non-executive Director, and additionally comprises of Ian TAYLOR, Louisa HO and MAO Tong. Each member for the committee brings relevant expertise and financial experience at a senior executive level. The names and qualifications of each of the members are set out on pages 28 to 29. The Audit Committee meets at least three times a year and its agenda is linked to events in the Company’s financial calendar. Additional meetings are called whenever it is considered appropriate. The Committee invites relevant Executive Directors and management to attend the meetings as considered appropriate for the matters being discussed. The Board is satisfied that the Committee has the resources and expertise to fulfil effectively its responsibilities, including those relating to risks and controls. Further training can be provided to the members of the Committee as and when required.

Frank ATTWOOD is considered by the Board to have the significant, recent and relevant financial experience required for the provisions of the Code and the DTR7.1R of the Listing Rules.

The members of the Audit Committee are expected to have an understanding of the principles of and developments in applicable accounting standards as well as key aspects of the Group’s policies. They must use judgement in the presentation of annual accounts and any potential audit adjustments or the level of errors identified.

In discharging its responsibilities the most significant issues addressed by the Audit Committee in respect of the financial year included:

– reviewing the half year and full year financial results and announcements made to the London Stock Exchange;– the scope and cost of the external audit;– considering the independence of the external auditor;– considering any material matters affecting the Company and its financial reporting and reviewing significant financial

reporting judgments;– reviewing the accounting presentation and carrying values for all material investments; – reviewing internal financial control and internal audit activities;– overseeing the relationship with external auditor;– considering the external auditor’s year end report and the findings of their work and confirmation that all significant

matters had been satisfactorily resolved;– reviewing and updating the Company’s complaints and whistle blowing policy, which allows staff to raise concerns in

confidence about possible improprieties which would be addressed with appropriate follow-up action;– meeting with external auditor to review planning of the nature and scope of the audit and update on relevant accounting

developments; and– reviewing the outcomes of the work performed by the external auditor, any recommendations arising therefrom and the

response of management.

To assess the effectiveness of the external auditor, the Audit Committee reviewed:

– the external auditor’s fulfilment of the agreed audit plan and any subsequent variations; and– the robustness of the auditor in its handling of key accounting and audit judgements.



Representatives of the Company’s auditor is given the opportunity to speak to the Committee members without the presence of any executive staff. The Audit Committee considers Deloitte LLP, the Company’s auditor, to be independent of the Company and it may be permitted to undertake certain non-audit services under the approval of the Board and Audit Committee. The Board does not regard these non-audit services to threaten the auditor’s independence, given that the external auditor’s knowledge of the Group’s affairs provides significant advantages which other service providers would not have. The provision of non-audit services is assessed on a case-by-case basis to safeguard audit objectivity, and may involve a partner other than the audit engagement partner when appropriate.

The Audit Committee set the following policy in respect of non-audit work to be undertaken by the auditor:

(1) non-audit work costing less than £50,000 total in a year may be approved by management;(2) where non-audit work will exceed this amount such excess shall be approved only after consultation with the Chairman

of the Audit Committee; and(3) any non-audit service in excess of £100,000 is to be subject to consideration of competitive tender and the appointment

should be approved by the CFO and the Audit Committee.

The on-going level of such fees will be monitored by the Finance Department, in consultation with the Chairman of Audit Committee.

The types of non-audit services to be performed by the external auditor may include assurance services, tax services – planning and compliance, due diligence and accounting consultations and support. No other services, e.g. selection, design or implementation of major financial systems, maintaining or preparing financial account; provision of out-sourced financial system or operational management function; valuation services, litigation support, any other services specifically prohibited by UK or other relevant legislation or regulation may be performed by the auditor.

The objective is to ensure that the provision of such services does not impair or is not perceived to impair, the external auditor’s independence or objectivity.

It is recognised that the external auditor has a significant understanding of the Group’s business and finances and that this knowledge and experience can be utilised to the Group’s advantage in many areas. The external auditor also has a professional code of conduct, which deals with managing any conflicts of interest.

However, there is a need to balance these advantages against the need to maintain safeguards in those areas where there could be an external perception that the external auditor independence and judgment may have been impaired through the award of non-audit work.

The total fees paid to Deloitte LLP in the year ended 31 December 2012 were £355,000 (2011: £302,000). During the year ended 31 December 2012 non-audit fees were £5,000 (2011: £5,000). In 2012 non-audit services represented the agreed upon procedures on interim financial statements. Non-audit services related to corporate finance services in respect of reporting accountants for the Class 1 transaction on the disposal of the Company’s natural gas business to China Gas Holdings Limited, the final fees for which are subject to negotiation and will be billed and reported as non-audit fees in 2013. Further disclosure of the non-audit fees paid during the year ended 31 December 2012 can be found in note 4 to the Group financial statements.

The Audit Committee has recommended to the Board that Deloitte LLP is reappointed as external auditor. In making the recommendation it has taken into consideration the independence matters noted above and the past service of the auditor, who was first appointed in 2008 for the 2007 audit.

In considering the year-end planning, the Audit Committee is satisfied that the Board has monitored and responded to changes in external risks. The external auditor conducted an audit planning meeting with the Audit Committee to discuss key audit matters and any concerns from either side. Impairment tests have been performed where necessary and due care and diligence has been applied in evaluating key judgement. These tests have been reviewed as part of the audit process.

The Audit Committee adopted terms of reference as required by Code provision C.3.2.



Internal Controls and Risk ReviewIn accordance with the principles of the Code, the Board has overall responsibility for the internal control system of the Group with an ongoing process for identifying, evaluating and managing the significant risks. The risk management system in place is regularly reviewed by the Board and accords with the Code guidance. The system is designed to manage rather than eliminate the risks of failing to achieve business objectives and can provide reasonable but not absolute assurance against material misstatement or loss.

Risk management and corporate governance continue to be a priority on the corporate government agenda. The Group has an on-going risk management process for identifying, evaluating and managing the significant risks faced and continues to embed a risk awareness and management culture throughout the Group. Risk Assessment and evaluation take place as an integral part of the Group’s annual cycle and this includes identification and consideration by senior management of major business risks.

A Risk Monitoring Panel comprises 3 Non-executive Directors: Frank ATTWOOD, MAO Tong and LIN Xizhong. It monitors management’s reviews covering material risk controls including governance, strategic, operating, regulatory, financial and funding for each of the Group’s business segments, which are classified into 10 areas. These did not cover the Group’s associate undertakings. Risk assessment scores based on standardised methodology were used at each of these segments. They provide guidance to the Group’s businesses in risk management and control systems. Mitigation plans were required to be in place to manage the risks identified. The assessments provide a mechanism for identifying any controls which may require strengthening and the Risk Monitoring Panel will support implementing and monitoring action plans to address any control weaknesses. These risk assessments are also to be reviewed as part of the Group’s internal audit process.

By these means a review of the effectiveness of the Group’s system of internal controls is conducted at least annually. During the course of its review of the system of internal control for the year ended 31 December 2012 and the period to the date of this Annual Report, the Board has not identified or been advised of any failings or weaknesses which it has deemed to be significant. Therefore a confirmation in respect of necessary actions is not required.

The Group has monitored its position in relation to volatility in the financial markets, including its exposure to liquidity risk and counterparty default risk. Cash flow forecasts for the Group are prepared for the ensuing 18 months and key risks assessed, such as the ability to meet bank loan payments and covenants. Reporting arrangements seek to ensure that high-quality, well-controlled and timely management data is available together with regular management reports. With the cash resources of the Group and the undrawn borrowing facilities currently in place, the Committee is satisfied that management has put in place necessary arrangements reasonably to cover unexpected funding needs.

The Group has a proven system of internal financial controls and reporting procedures, which integrate the financial reports of the joint ventures and associate companies. The Board has established a process to examine and update these controls and procedures on an ongoing basis. There was no actual fraud or suspected fraud or alleged fraud found during the year or to the date of this Annual Report. The Executive Committee meets regularly to review the budgets, financial reports and forward cash flow projections for the Group, including its principal joint ventures and associate companies. The joint venture companies prepare monthly, six monthly and annual accounts. The Executive Committee is responsible for examining the formal system of internal controls and reports and modifying the system where changes in business activities and/or the external environment dictate.

The Group has an internal audit function. Internal audit reports are distributed to both Executive Directors and the Audit Committee to enable them to assess the effectiveness of the system of internal control. In addition, management actively participates in and conducts internal audits of joint ventures and associated companies on a periodic basis. Bluesky maintains its own internal audit function which reports to its Board.

The Executive Committee is responsible for establishing guidelines and procedures for the evaluation and development of new investment proposals open to the Group. The Executive Committee formally reviews the financial projections and the risks inherent in new proposals before submitting significant capital expenditure projects to the Board for its approval.

Most of the Company’s activities are conducted through subsidiaries, joint ventures and associated companies which have their own boards of directors, management structures and accounting/reporting procedures. In all the joint ventures, the Company has directors on the boards and its own staff members seconded to key management positions, such that the Company can monitor and has the ability to influence operational decisions.



The Company is developing and implementing new internal systems, risk assessments and controls similar to those already in place somewhere in the Group to support the Group’s move into natural resources outside China.

In view of the sale of the Company’s natural gas business to CGH, we have assessed the risks in various finance functions through a Separation Plan exercise. The finance functions being assessed included organisation, financial reporting, budget and forecast, management reporting, taxation, internal controls and treasury & cash management. The finance function within Fortune Oil will remain unchanged post completion save that additional resources (temporary and/or permanent) may be added to cover the need to maintain a watch on Fortune Gas post completion for profit clawback control. Within Fortune Gas, the finance function will be integrated with that of CGH but the representative directors of Fortune Oil on the Board of CGH will ensure that clean accounts for the Company’s natural gas business for 2013 and 2014 can be prepared in accordance with the Sale and Purchase Agreement. Furthermore, no changes to other existing systems at Fortune Oil are expected.

Accountability and AuditFor the purposes of Code provision C.1.1, the directors’ responsibilities statement for the preparation of financial statements is on page 63 and the going concern statement is included in the Directors’ Report on page 31.

The Independent auditor’s report on the Group financial statements is on pages 64 to 65.

Relations with ShareholdersIn accordance with Code provision E.1.1, the Chairman meets as required with the major shareholders. The Senior Independent Director also attends meetings with some major shareholders to listen to their views. Other Non-executive Directors are also given the opportunity to attend meetings with the major shareholders to discuss their views. The Senior Independent Director is available to shareholders if they have specific concerns that cannot be resolved through normal channels of communication with the Chairman or Chief Executive.

Business presentations are also made for the full year to institutional investors, fund managers and analysts. The Company also held meetings with institutional investors, pension fund managers, retail fund managers and other shareholders; these were arranged by the Company’s corporate broker, corporate adviser and investor relations consultant, who then provided independent feedback. The Non-executive Directors are encouraged to attend presentations to analysts and shareholders.

The Board makes constructive use of the AGM to communicate with private shareholders and investors. A business presentation is given at the AGM.

The Company posts the annual report and notice of AGM at least 20 working days before the AGM. At the AGM, separate resolutions are proposed on each significant business issue. The Company provides for shareholders voting by proxy with the option of withholding their vote on a resolution. Voting is by way of a show of hands by members present at the meeting unless a poll is validly called. At the AGM, the Company discloses the number of proxy voting lodged for each resolution including votes “For”, “Against” and “Withheld”. The details of proxies lodged at general meetings where votes are taken on a show of hands are published on the Company’s website.

The Company’s website is www.fortune-oil.com from which the Company’s financial reports, announcements and other information can be downloaded.

Information required for disclosure by DTR7.2 is as follows:

DirectorsThe information about the appointment and replacement of directors and the powers of directors required to be included in this section can be found on page 33 of the Directors’ Report.

Articles of AssociationThe information about making amendments to the articles of association required to be included in this statement can be found on pages 33 and 35 of the Directors’ Report.

Information on structure of share capital and other mattersThe information about the structure of share capital required to be included in this report can be found on pages 33 and 35 of the Directors’ Report.


remuneration report

The Remuneration Report sets out the policy and disclosures on Executive Directors’ and Senior Executives’ remuneration and has been prepared in accordance with Schedule 8 to the Accounting Regulations under the Companies Act 2006. The report also meets the relevant requirements for the Listing Rules of the Financial Services Authority (now Financial Conduct Authority) and describes how the Board has applied the principles relating to Directors’ remuneration in the UK Corporate Governance Code. This report will be subject to an advisory shareholder vote at the forthcoming AGM.

The Act requires the auditor to report to the Company’s members on certain parts of this report and to state whether in their opinion those parts of the report have been properly prepared in accordance with the Accounting Regulations. The report has therefore been divided into separate sections for audited and unaudited information.

The objectives of the remuneration policy for Executive Directors and Senior Executives are:

• to ensure that the remuneration packages attract, retain and motivate individuals of the highest calibre to further the success of the business;

• to link reward to both individual and business performance, whilst aligning the interests of Directors and Senior Executives with those of shareholders;

• to link the Executives to the long-term success of the Group through incentive share and bonus scheme arrangements linked to appropriate Key Performance Indicators and strategic aims.

In discharging its responsibilities, the Remuneration Committee met its objectives by:

1) reviewing the current Remuneration Structure/Policy and its fitness to achieve the objectives given the change in the economic environment and the greater emphasis on development of resources business by the Group and recommending that the Remuneration Policy for Executive Directors remains unchanged for 2012;

2) the annual review of the Executive Directors’ remuneration;

3) recommending grants of LTIP shares under the Senior Executive Incentive Plan (the “Plan”) in respect of the period 1 June 2012 to 31 May 2013; and

4) approving the Remuneration Report for the Annual Report.

The remuneration policy is designed to reward executives fairly and responsibly for their contribution without the Company paying more than necessary to achieve this objective. Independent reviews have shown that remuneration levels for Fortune Oil management have historically been below average for the oil & gas sector.

The overall structure of the Group’s remuneration policy is subject to review as the Group grows into new business areas and in absolute size with the Committee considering that a successful remuneration policy needs to be sufficiently flexible to take account of future changes in the Group’s businesses and operating environment and remuneration practice.

As part of the consideration of the level of remuneration and other benefits of executive directors the Remuneration Committee takes into account the levels of remuneration and employment conditions of Group employees generally and the graduation of remuneration and other benefits throughout the management structure. This is balanced by the need to recruit and retain senior executives for the increasing complexity and geographical spread of the Group’s operations.

SECTION 1: UNAUDITED INFORMATION

Remuneration CommitteeThe Remuneration Committee members are WANG Jinjun (Chairman), Dennis CHIU, QIAN Benyuan and Ian TAYLOR, all of whom are Non-executive Directors of the Company.

The Board is satisfied that none of the Remuneration Committee members have any personal financial interest, other than as shareholders, in the matters to be decided and no conflicts of interest arising from cross directorship. Each member has been determined by the Board to be independent in character and judgement and no Director plays a role in deciding his own remuneration. No member of the Remuneration Committee has been an executive director or employee of any Group company.


remuneration report

The Remuneration Committee determines the remuneration policy as applied to the Executive Directors of the Company and Senior Executives of the Group. The Remuneration Committee is also responsible for approving changes to the Company’s share option schemes and also for approving share option grants. In determining the executives to participate in share option schemes, the extent of such participation and the conditions attaching thereto the Committee consults with the Executive Vice-Chairman and an appropriate Executive Director and has access to professional advice from appropriate internal and external sources, as considered necessary. The Company has currently not employed any external remuneration consultants.

The Remuneration Committee’s terms of reference are available at www.fortune-oil.com.

Remuneration Policy for Executive Directors and Senior ExecutivesThe policies described in this report have been applied throughout 2012. While these policies are envisaged to be consistently applied in subsequent years, the Remuneration Committee will continue to monitor its policies. The Chairman and Vice-Chairman of the Board maintain contact as required with the Company’s principal shareholders regarding the implementation and effectiveness of the remuneration schemes.

In formulating the remuneration policy and determining the remuneration package for senior executives, due notice has been taken of a number of considerations including appropriate comparators, the Group’s positioning and relative size, geographical variations and recruitment and retention difficulties.

The remuneration package consists of short-term rewards (basic salary, annual bonus and benefits) together with long-term benefits (participations in LTIP share based awards in the Plan). The Committee seeks to strike a balance between fixed and performance related elements of pay. Details of the emoluments to Executive Directors and fees payable to Non-executive Directors are set out on page 60; they are reported in pounds sterling although most emoluments were agreed and paid in HK$ or RMB. The following remuneration components are reviewed to ensure that they are supportive of the Group’s business objectives and in the creation of shareholder value:

Each element of an Executive Director’s remuneration package aligns and supports the achievement of different objectives as below:

Element Objective Performance Period Performance metrics

Base salary To reflect the value of the individual Annual Individual skills, experience and and to recognise individual performance responsibility

Annual bonus To drive achievement of individual Annual Personal performance and and Group annual business goals contribution to business objectives linked to corporate profitability

Special bonus To provide linkage between Discretionary Continuing personal exceptional short-term and long-term performance on a case-by-case incentives

Benefits Based on local market practice Annual N/A and legislation

Long Term To align shareholder interests Annual vesting over Continued employment and Incentive Plan with executives and to incentivise 3 years and possible achievement of profitable and awards in executives to achieve long-term increase of the awards sustainable growth for the Group, Senior Executive performance and commitment between the 3rd and Profit Attributable to Equity Shareholders1 Incentive Plan to the Group. 6th anniversary and Total Shareholder Return

1 Equivalent to Profit Attributable to owners of the parent.

Executive Directors are also eligible to be granted share options under the employee share schemes.


remuneration report

1. Basic SalaryThe basic salary is determined by taking into account an individual’s performance and responsibilities, his/her relevant skills and experience, individual circumstances in relation to the particular post and comparator company information for similar jobs. Salaries are reviewed against the background of both business and individual performance.

2. Annual Bonus SchemeBonuses are awarded at the discretion of the Remuneration Committee and in recognition of the individual’s contribution to the success of the Company and upon the personal achievement of specified objectives. The features are:

i. All Directors, executives and regular employees are eligible to participate in the scheme (Non-executive Directors may not participate in the scheme);

ii. The bonus for achieving on-target performance is a maximum of 25 per cent of basic salary. The maximum bonus is 50 per cent of basic salary for significant over-achievement, except for employees in the Trading Department whose bonus is based on certain percentage of annual trading profits and therefore bears no reference to basic salary. The total amount of all bonuses payable shall not exceed 10% of gross annual profit; and

iii. Two types of performance criteria will be considered in connection with the award of the annual bonus and they are:

• PersonalPerformanceCriteriaThe personal performance criteria of the Executive Directors and Senior Executives are the same as those defined in the Long Term Incentive Plan, the 2004 Share Schemes and their annual work objectives.

• FinancialPerformanceCriteriaThe financial performance criteria are based wholly on challenging financial performance targets. For Executives and employees assigned to business units and joint ventures, the financial performance criteria are tied to the annual budget of their business units or joint ventures, which is approved by the appropriate board.

For Head Office executives and employees, the financial performance criteria are tied to the profit attributable to equity shareholders (“Attributable Profit”). For this purpose, 15 per cent growth per annum is considered the target.

These criteria are used for both short term rewards and the Long Term Incentive Plan which are targeted at both personal and Company performance and align the interests of Directors with those of shareholders by linking share and cash incentive payments to performance.

Payment of a bonus is carefully considered in each individual case and only made when justified by reference to financial and operational yardsticks. A bonus can be in the form of cash or shares.

3. BenefitsBenefits are considered individually and by reference to relevant criteria to ensure the total remuneration package conforms to the aims of the remuneration policy.

4. Special bonus The Remuneration Committee may make discretionary special bonus awards where exceptional performance results in significant benefits to the Group. Such bonuses are considered on a case-by-case basis and the payment of a material part of any such bonus is dependent upon continuing exceptional performance over a pre-determined number of years and/or achievements of key tasks.

During the year, a special bonus has been made for the Director with responsibility for the Company’s natural gas business wherein her bonus is tied to her input to the disposal of the gas business to China Gas Holdings Limited. The specific performance targets selected were non-numeric and related to delivery of key elements of the transaction process in a timely and were compatible with the Company’s strategic aims. A further payment is to be made upon completion of the transaction.

5. PensionThere is no pension provision made for employees of the Group.


remuneration report

6. Share Option SchemesThe Company’s Share Option Schemes are as follows:

Following approval by shareholders at the AGM in June 2004, the Company adopted two new Employee Share Option Schemes, they are intended for staff other than Executive Directors and the Senior Executives. One scheme is approved by the Inland Revenue and the other is operated as an unapproved scheme.

The share options under both the 2004 Approved and Unapproved Schemes were granted by the Trustees of the Company’s Employee Benefit Trust on the recommendation of the Remuneration Committee of the Board.

i. TheFortuneOilPLC2004UKInlandRevenueApprovedEmployeeShareScheme(the“2004ApprovedScheme”)Participation under the 2004 Approved Scheme is open to employees who do not have (or have not had in the last 12 months) a material interest in the Company (i.e. more than 25% of the ordinary share capital). The exercise price is specified at the time the options are granted and must not be significantly less than their market value at that time. An option will normally be exercisable following the third anniversary of grant and before the tenth anniversary of its grant, provided the participant remains in employment and subject to satisfaction of the performance conditions set by the Remuneration Committee from time to time. The market value of shares for which a participant may hold unexercised options is limited to £30,000, calculated at the time the option is granted. In principle, an individual cannot be entitled to shares under option to a value of more than six times his earnings. The total number of shares over which options are granted in any ten year period (whether exercised or not), when added to all such options granted under all other share schemes of the Company including the Senior Executive Incentive Plan, shall not exceed 10% of the fully diluted ordinary share capital of the Company in issue at that time.

The option exercise price set is the market value defined as the average of the quotations on the three dealing days before grant of the option.

The exercise of all options granted under the 2004 Approved Scheme before 2011 was conditional on the achievement of individual performance criteria determined by the Remuneration Committee and there were no financial performance conditions attaching to the exercise of such options.

During the year, 493,421 ordinary shares became beneficially owned by an option holder when options granted at 6.08 pence per share were exercised on 8 February 2012. There were no financial performance conditions attaching to this exercise of options.

There is currently an option over 302,115 ordinary shares to an employee. The options entitle the participant to exercise the option between 4 October 2014 and 3 October 2021 with an exercise price of 9.93 pence per share.

The personal performance conditions applying to this grant are reviewed at the end of the performance period and are not re-tested and there is a financial performance condition attaching to the exercise of options which is a growth of 15% per year on average over the 3 year period in Attributable Profit.

ii. TheFortuneOilPLC2004UnapprovedEmployeeShareScheme(the“2004UnapprovedScheme”)The principal terms of the 2004 Unapproved Scheme are the same as the 2004 Approved Scheme set out above excepted as noted below:

The statutory limit of £30,000 worth of share options per participant does not apply. However, no participant may receive options worth more than one times their annual salary in any one year and no participant may receive an option whereby the number of shares received under this scheme, when aggregated with the shares under any other scheme including the Senior Executive Incentive Plan, exceeds 3.5% of the issued ordinary share capital of the Company, from time to time. The exercise price on grant may be set at a level other than the market value of the shares at the time of grant of the option. In principle, an individual cannot receive options if he would be entitled to shares under option to a value of more than six times of his earnings.

During the year, 1,110,000 ordinary shares became beneficially owned by option holders when options exercisable at 6.32 pence per share were exercised. There were no financial performance conditions attaching to these exercise of options.

During the year, 186,605 ordinary shares ceased to be subject to options exercisable at 9.41 pence per share which were exercisable between 4 October 2014 and 3 October 2021 when the relevant options lapsed on 26 March 2012 due to the cessation of employment. There were financial performance conditions attaching to this exercise of options.


remuneration report

There are currently options over:

a) 2,166,579 ordinary shares granted to 10 employees (none of whom are Directors). The options entitle the participants to exercise them between 8 June 2008 and 7 June 2015. The exercise price is 6.32 pence per share;

b) 1,150,000 ordinary shares granted to 3 employees (none of whom are Directors). The options entitle the participants to exercise them between 25 June 2011 and 24 June 2018. The exercise price is 11.75 pence per share;

c) 1,709,000 ordinary shares granted to 8 employees (none of whom are Directors). The options entitle the participants to exercise them between 8 June 2014 and 7 June 2021. The exercise price is 12.75 pence per share; and

d) 5,444,982 ordinary shares granted to 19 employees (none of whom are Directors). The options entitle the participants to exercise them between 4 October 2014 and 3 October 2021. The exercise price is 9.41 pence per share.

The Company operates the 2004 Unapproved Scheme for all employees and there are financial performance conditions attaching to the exercise of options in d) which is a growth of 15% per year on average over the three year period in Attributable Profit.

Options were granted at the closing price prevailing at the date of grant. The exercise of all options granted under the 2004 Unapproved Scheme is conditional on the achievement of individual performance criteria determined by the Remuneration Committee. The performance criteria set relate to specific job responsibilities. The 2004 Unapproved Scheme is structured to reflect the performance of the employees as well of that of the business area of the Group.

The personal performance conditions applying to all options are reviewed at the end of the performance period and are not re-tested.

Each of the share option scheme’s rules provide for early exercise in certain circumstances, such as disability, sickness, death or where the employee’s employment is ceased and the employee satisfies the requirements for classification as a “good leaver”. Our policy also permits awards, where the performance conditions have already been met, to be retained by the individual. The Remuneration Committee may use its discretion to allow total or a partial exercise on a pro-rata basis for the period of employment. In any other circumstances options would normally lapse.

7. Long Term Incentive Plan (“LTIP”) — The Fortune Oil PLC Senior Executive Incentive Plan (the “Plan”) and Long Term Incentive Plan, collectively the 2009 LTIPConditional nil cost share awards are made by JTC Trustees Limited, as Trustee of the Company’s Employee Benefit Trust (“EBT” or the “Trust”), following recommendations made by the Remuneration Committee of the Board. The awards normally vest at the end of the three-year performance period, subject to the achievement of the performance conditions and continued employment.At the AGM on 24 June 2009, shareholders approved the renewal of the Long Term Incentive Plan, originally adopted in 1999 as a stand-alone share scheme, which was amended to incorporate the Plan at the AGM in 2004 to allow for the award of share options, as envisaged by the Plan. The Plan is subject to the rules of the LTIP, which was designed to operate for a maximum of 10 years from December 1999.

The terms of the 2009 LTIP are similar to those approved by shareholders in December 1999, as revised at the AGM in 2004.

The 2009 LTIP has taken into account of current governance guidelines. The maximum number of shares over which awards may be made is revised to be restricted to 5% of the issued share capital of the Company from time to time and that for the measurement of Company performance for the topping up of awards one of the measures is profit attributable to equity shareholders.

The Plan is operated by the Trustees of the Company’s EBT, subject to the rules of the LTIP approved by the shareholders on 7 December 1999, as amended on 25 June 2004 and 24 June 2009.

The aim of the Plan is to motivate individuals to achieve profitable and sustainable growth for the Company by giving them an opportunity to accumulate a meaningful participation in the share capital of the Company, as a reward for achieving outstanding returns for shareholders. Executive Directors in Fortune Oil PLC and certain Senior Executives of various subsidiaries of the Group are eligible to participate in the Plan, at the discretion of the Remuneration Committee, but the Executive Vice-Chairman does not participate in this scheme. Annual grants are made and for which the performance and vesting periods are three years. Under the Plan, these eligible employees are eligible to receive awards of share options, the vesting of which are contingent on specified performance targets and continued employment with the Group.


remuneration report

The maximum award made to the Executive Directors and Senior Executives was 50% of base salary and the minimum was 25% of base salary. Awards under the Plan were first made in June 2005.

The number of shares, if any, over which the options granted pursuant to the Plan is subject to personal and Company performance criteria being met. If the personal performance criteria are achieved then the share option will give the Director or Executive conditional rights over a certain number of shares. If the Company performance criteria are achieved then the number of shares subject to the option will be increased. Failure to meet the Company performance criteria will not reduce the number of shares over which the Director’s or Executive’s option subsists by virtue of the personal performance targets having been met. Each option is a nil cost option over ordinary shares in the Company.

Other than in exceptional circumstances, options will only be exercisable after three years from the grant. They will lapse after the tenth anniversary of grant if not exercised before that date. When an option is exercised on or after the third anniversary of the grant and the Company’s performance criteria in that three year period have been met then the number of shares under the option will be increased. If the Director or Executive delays exercising the option until four or five years from the date of grant and the Company’s performance criteria in the three year period have been met then the number of shares under the option will be further increased.

The personal performance criteria are an objective measure of productivity of the individual and all people working directly for that Director or Executive. They are set at the time the option is granted and will have 2 thresholds reflecting:

(i) good (significantly above average) performance; and(ii) exceptional performance

The Remuneration Committee determines whether the performance levels have been met, based on personal objectives for the year and in line with the Company’s Key Performance Indicators and strategic aims.

The Company performance criteria are an objective measure of economic performance of the Company. The performance criteria are set at the time the option is granted and will have 2 thresholds reflecting:

(i) good (significantly above average) performance; and(ii) exceptional performance

The Company’s performance criteria chosen by the Remuneration Committee for options granted are weighted 60% in respect of increased Attributable Profit and 40% in respect of total shareholder return (“TSR”). TSR is measured as being the increase in share value plus all dividends paid. In relation to TSR, the performance of the Company is considered to be “good” where TSR increases by 15 per cent or more per annum on average and “exceptional” performance is where TSR increases by 20 per cent or more per annum on average. In relation to Attributable Profit, the performance of the Company is considered to be “good” where Attributable Profit increases by 15 per cent or more on average per annum and “exceptional” performance is where Attributable Profit increases by 20 per cent or more on average per annum.

The Remuneration Committee is not aware of any listed companies of similar size and composition whose main business activities are comparable in nature to that of Fortune Oil PLC. As a result, there were no comparator group of companies or sectors whose performance were considered appropriate to be used to benchmark the performance of management. These performance criteria were chosen by the Remuneration Committee after consultation with the Company’s financial and legal advisers. The Remuneration Committee is satisfied that these criteria represent a challenging and transparent financial measure which can be calculated from published accounting information.

The increase in the number of shares covered by the options as a result of good or exceptional Company performance is calculated as follows:

Increase in number of shares for Increase in number of shares for Date of Exercise Good Company Performance Exceptional Company Performance

On or after 3rd anniversary but before 4th anniversary 20% 40%On or after 4th anniversary but before 5th anniversary 40% 100%On or after 5th anniversary 100% 200%


remuneration report

The Plan is operated in conjunction with an EBT. The LTIP rules provide that the maximum number of shares subject to options granted under the Plan shall not exceed 5% of the issued ordinary share capital of Fortune Oil PLC, from time to time. The LTIP rules also prevent individuals from receiving shares if their cumulative entitlement would exceed 3.5% of the issued ordinary shares of Fortune Oil PLC, from time to time.

The total number of shares held in the EBT for issue is 4.3 per cent of the issued ordinary share capital of the Company.

The LTIP rules provide that in the event of a change of control of the Company as a result of a takeover and amalgamation of the Company, then any award may vest in full or in part, and any option shall become exercisable in full or in part, both subject to the Trustees’ discretion at any time and any condition subject to which the offer is made has been satisfied. The Trustees shall be able to sell all or part of the shares subject to any award or option.

During the year, the Remuneration Committee of Fortune Oil PLC (the “Remuneration Committee”) considered the changes to the Group’s remuneration practices and polices arising from the need to comply with best practice and the new UK legislation relating to remuneration practice and resolved to implement for the 2009 LTIP and the Company’s Share Option schemes, as follows:

(i) In respect of all awards which rely upon future performance, which previously has been in whole or part personalised to the individual, in future such awards shall be made on performance criteria which are either company related or are able to be disclosed publicly and are capable of measurement. In addition, a list of comparable companies against which the performance of the Company can be measured Is to be prepared when the Group’s strategy has been finalised and will be considered by the Remuneration Committee or if less than 4 comparable companies can be identified suggested measures for relative company performance will be prepared; and

(ii) In respect of all future awards which are added to by good company performance an additional term is to be added whereby should company performance be below “good” the top up element of such award is reduced and can be removed in its entirety. In addition, the Company’s existing definition of “bad leavers” will be applied to all awards such that bad leavers do not retain any rights therein.

To simplify administration in respect of all LTIP awards made from 2009 to 2012 which have different vesting dates in June all vesting dates were adjusted to the median of the current dates.

The Remuneration Committee determined that it was administrative more efficient to standardise or modify certain dates and periods in respect to awards made to certain directors and PDMRs. Having consulted with its legal advisor the Remuneration Committee concluded that it could make these changes unilaterally since they were only being made where it had no known beneficial or otherwise effect on any recipient of an award.

In the past awards have been made, generally in June of each year but the actual date in June of the award has varied. This has created an inconvenient set of dates to which calculations must be made or by which date changes in circumstances may have occurred occasioning announcements by the Company. The Remuneration Committee has determined to bring all those awards made in June of any year which have not yet vested (those made for financial years 2009 to 2012) into line by in future applying 20 June or the first business day after 20 June as the relevant date for all vesting and other determination purposes.

In the past awards under the Company’s LTIP in the Senior Executive Incentive Plan had performance conditions for Company performance which ran from and to the dates of the awards. This led to complex calculations and significant delay in knowing whether performance criteria had been achieved. The Remuneration Committee have concluded that in respect of awards where the performance condition calculation cannot yet be made and therefore no conclusion as to whether this change is beneficial or not (those made in 2011 to 2012) and in respect of all future awards:

(i) for awards made in the first half of the year the Company performance period shall be to the last day of the financial year or years ending prior to the relevant award date; and

(ii) for awards made in the second half of the year the Company performance period shall be to the last day of half yearly period or periods ending prior to the relevant award date.

In addition, the Remuneration Committee has determined that in respect of all future awards of benefits under any of the Company’s schemes such awards shall be capable of clawback until unconditionally vested or if partially unconditionally vested to the extent not unconditionally vested if Company performance falls below that expected.


remuneration report

Policy on external appointmentsGenerally Executive Directors may accept external appointments with the prior approval of the Board as non-executive directors of other companies and retain any related fees paid to them. These appointments must not be with a competing company and their duties must not materially dilute or adversely affect the Executive Director’s contribution under the terms of his/her appointment with the Group. Directors may usually retain payments arising from such appointments. Daniel CHIU, the Executive Director, retained fee for external non-executive directorship for the company listed in Hong Kong. The Board is satisfied that the external appointment does not interfere with the performance of Mr CHIU’s duties for the Company.

Service Contracts and Termination PolicyThe Group has a service contract with Mr TEE Kiam Poon. The Company retains the right to terminate his employment by making payment in lieu of notice.

Nature of contract Notice period by Company/Director Compensation provision for early termination

Rolling 3 months None

Mr Daniel CHIU and Ms LI Ching have letters of appointment detailing their employment terms which have been supplemented by letters regarding the termination provisions for their employment. In particular, in each case the termination notice is six months and no payments will be made in excess of any basic entitlement. For these executive directors service contracts are being prepared for signing to replace the existing letters of appointment but without changing the basic terms or termination notice periods.

The Company applies in general the principle of mitigation in the event of early termination on its own particular merit. The Committee expects Directors and Senior Executives to mitigate any losses arising on termination but will tailor its approach to individual cases. In any event under relevant law and regulations applicable to these Senior Executives the notice to be given is less than 12 months and any payment in lieu of notice would be equal to or less than the basic salary for the notice period.

Non-executive DirectorsNon-executive Directors are appointed by letters of appointment and do not have contracts of service or contracts for service. They are appointed for a two year term and may be appointed for further fixed period subject to the articles of association of the Company, after which an appointment may be terminated on one month’s notice by either the Director concerned or the Company with no predetermined compensation amount on termination.

Non-executive Directors had been appointed for a fixed term not exceeding three years and, following the implementation of the Companies Act 2006, those appointments are normally renewable, with the consent of both parties, for terms not exceeding two years.

Date of firstNon-executive appointment to Start of current Notice period byDirectors the Board term of office Expiry Date Company/Director

Dennis CHIU* 9 Aug 1993 28 Oct 2011 27 Oct 2013 1 monthIan TAYLOR*1 9 Aug 1993 28 Oct 2011 27 Oct 2013 1 monthQIAN Benyuan* 28 May 1997 28 Oct 2011 27 Oct 2013 1 monthZHI Yulin* 30 Nov 2000 28 Oct 2011 27 Oct 2013 1 monthLouisa HO2 15 June 2001 1 Sep 2011 31 Aug 2013 1 monthWANG Jinjun* 26 Nov 2003 21 Nov 2011 20 Nov 2013 1 monthFrank ATTWOOD 24 June 2009 24 June 2011 23 June 2013 1 monthMAO Tong 30 Nov 2010 30 Nov 2012 29 Nov 2014 1 monthLIN Xizhong 30 Nov 2010 30 Nov 2012 29 Nov 2014 1 month

* Subject to annual re-election according to the requirement of the Code.

1 Ian TAYLOR became a Non-executive Director on 24 June 1996. He was an Executive Director between 9 August 1993 and 23 June 1996.

2 Louisa HO became a Non-executive Director on 1 September 2006. She was an Executive Director between 15 June 2001 and

31 August 2006.


remuneration report

Policy on Remuneration of Non-Executive Directors and the ChairmanThe policy on remuneration of Non-executive Directors is determined by the Board by reference to practice in companies similar in size to the Company. The fees payable to Non-executive Directors are ratified by the Board after discussion between the Executive Directors. The level of fees is reviewed against market practice and takes into account market rates and the required time commitment. Non-executive Directors receive fixed fees plus reimbursement of expenses for attending Board and other meetings. They are not eligible for performance-related bonuses or awards under the Company’s Plan or any of the Company’s share option schemes.

The setting of the Chairman’s remuneration is the responsibility of the Executive Directors and not the Remuneration Committee in accordance with the Code D.2.2. The fees paid to the Chairman include his time for performing his additional role on the Remuneration Committee.

Pursuant to the Company’s articles of association, the fees payable to Non-executive Directors are limited to £400,000 per annum in the aggregate. This level was established following approval by the shareholders at the AGM held in 2007. The total fees paid to Non-executive Directors were £182,000 in 2012 (2011: £178,000).

None of Dennis CHIU, Ian TAYLOR or ZHI Yulin, Non-executive Directors, received any emoluments as employees or fees as Directors in the financial year ended 31 December 2012.

Directors’ Interests in SharesAs at the end of 2011 and 2012 the Directors’ interests in the share capital of the Company, all of which are beneficial, were as follows:

Ordinary Shares of 1p each Ordinary Conditional right Shares to receive Ordinary Ordinary Ordinary vesting Ordinary Shares held in the Shares Shares under Shares Company’s Employee held at acquired the Plan held at Benefit Trust1

31/12/2011 during 2012 during 2012 1 31/12/2012 31/12/2011 31/12/2012

Executive DirectorsDaniel CHIU2 725,635,612 – – 725,635,612 – –TEE Kiam Poon – – 1,199,580 1,199,580 2,034,364 1,854,374LI Ching3 20,769,224 – 1,185,600 21,954,824 1,847,688 1,578,147

Non-executive DirectorsDennis CHIU2 725,635,612 – – 725,635,612 – –Louisa HO4 2,884,156 – – 2,884,156 – –Frank ATTWOOD5 513,150 110,315 – 623,465 – –

1 These ordinary shares vested upon the completion of three years of employment following the initial LTIP award on 13 October 2009 and

24 June 2009 respectively. TEE Kiam Poon and LI Ching had the vested LTIP shares (Performance period 1 June 2009 – 31 May 2012) kept

In the EBT. Details of movements in interests in conditional rights to receive ordinary shares held in the Company’s EBT pursuant to the Plan

are given on page 60.

2 This figure represents a combined interest in ordinary shares held in the names of First Level Holdings Limited (“First Level”) (647,244,897

ordinary shares) and Goldman Sachs Securities (Nominees) Limited ILSEG ACCT (“Goldman Sachs”) (78,390,715 ordinary shares). First

Level is a company in which the majority of shares are owned by Daniel CHIU, with the remaining shares being held by Dennis CHIU. The

above interest of 725,635,612 ordinary shares relate to the same block of ordinary shares.

3 LI Ching has her 19,349,224 ordinary shares in Morstan Nominees Limited and 1,420,000 ordinary shares in HSBC Global Custody Nominee

(UK) Limited respectively, in both of which she has a beneficial interest.

4 Louisa HO has 2,304,856 ordinary shares held in a nominee account, in which she has a beneficial interest and 579,300 shares certified in

her own name.

5 On 11 May 2012, Frank ATTWOOD acquired 99,000 ordinary shares at 10 pence each and on 29 June 2012, he purchased further 11,315

ordinary shares at a price of 9.5934 pence per share through the Company’s Dividend Reinvestment Plan (“DRIP”). His shares are held in a

nominee account, in which he has a beneficial interest.


remuneration report

31.12.07 31.12.08 31.12.09 31.12.1131.12.10 31.12.12

FTSE All-Share ( Total Return) Fortune Oil PLC

180

Performance Graph

60

80

100

120

140

160

Ian TAYLOR, a Non-executive Director, is the President and Chief Executive of the Vitol Group of Companies. Vitol Energy (Bermuda) Limited is a major shareholder with 147,108,505 ordinary shares (representing 7.40% of the total issued share capital). ZHI Yulin, a Non-executive Director, is the Vice President of China North Industries Corporation (NORINCO) and NORINCO currently owns 33,826,530 ordinary shares (representing 1.7% of the total issued share capital).

None of the other Directors held any interests in ordinary shares in the Company or of those of any other Group company at 31 December 2012 or at 31 December 2011.

In the period between 1 January 2013 and the date of this report, Mr Frank ATTWOOD acquired 115,116 ordinary shares at 10.75 pence each.

Performance GraphThe graph below illustrates the total shareholder return (“TSR”) of Fortune Oil PLC over a five year period in respect of a holding of the Company’s shares and the TSR in respect of a hypothetical holding of shares of a similar kind and number by reference to which a broad equity market index is calculated. The Company is a constituent of the FTSE All-Share index and, as such, this is considered to be the most appropriate comparator group.

Set out below are the closing mid market share price for the Company’s ordinary shares as at 31 December in each of years 2008 to 2012.

Fortune OilCode: FTOYear Share price (pence)

2008 6.252009 7.792010 12.002011 12.002012 10.50


remuneration report

SECTION 2: AUDITED INFORMATION

Directors’ EmolumentsDetails of emoluments of the Executive Directors and fees payable to Non-executive Directors are set out below:

Salary/Fees Bonus in cash Benefits1 Total emoluments

Amount in £’000 2012 2011 2012 2011 2012 2011 2012 2011

Executive DirectorsDaniel CHIU 34 33 6 6 7 6 47 45TEE Kiam Poon 216 211 54 81 44 34 314 326LI Ching 146 137 73 80 17 17 236 234

Total 396 381 133 167 68 57 597 605

Non-executive DirectorsQIAN Benyuan 71 67 – – – – 71 67Frank ATTWOOD 32 32 – – – – 32 32WANG Jinjun 8 7 – – – – 8 7Louisa HO 51 50 – – – – 51 50MAO Tong2 10 11 – – – – 10 11LIN Xizhong2 10 11 – – – – 10 11

Total 182 178 – – – – 182 178

All Directors except Frank ATTWOOD were paid in HK$ and RMB. The average exchange rate used for the year was £1: HK$12.5272 and £1: RMB 10.0741 (2011: £1: HK$12.5088 and £1: RMB 10.3669).

1 The principal benefits are the provision of an accommodation allowance, club membership fees, car park allowance and reimbursed

driver expenses.

2 Decease in amount due to an appreciation of the RMB.

No other Directors received any remuneration. None of the Directors received any pension contributions. No payments were made during 2012 or 2011 in connection with retirement benefits, compensation for loss of office to past Directors and to third parties in respect of Director’s services.

Directors’ Interests in ordinary shares under the LTIP awards in the Plan

Market share Market share Earliest date on No. of Award price at close of Vested Price prior Balance at which an award shares during business prior to during to the date 31 December can become awarded 2012 1 the date of award 2012 of vesting 2012 2 unconditional

TEE Kiam Poon13.10.2010 1,199,580 – 8.10p 1,199,580 8.95p – –18.06.2011 834,784 – 12.50p – – 834,784 18.06.201319.06.2012 – 1,019,590 10.25p – – 1,019,590 19.06.2014

LI Ching24.06.2010 1,185,600 – 6.50p 1,185,600 10.25p – –18.06.2011 662,088 – 12.50p – – 662,088 18.06.201319.06.2012 – 916,059 10.25p – – 916,059 19.06.2014

1 On 20 June 2011 the Company announced the LTIP awards under the Plan to certain Directors and Senior Executives conditional on

performance targets for the Company and for the executives being met for the year up to 31 May 2012. The announcement confirmed

number of ordinary shares the subject of the option in 2012 was made on 20 June 2012.

2 The above awards based on the awards made in 2010 and 2011 following the first anniversary of the grants of the options and were all at

the price which was the market price at close of business prior to the dates of award.


remuneration report

Details of Directors’ interest in shares are set out on page 58 in this Remuneration Report.

Nil cost option awards depend on the satisfaction of personal performance targets measured over a one-year personal performance period. The 2011 notional bonus awards made by the Company’s Remuneration Committee for the performance period 1 June 2011 to 31 May 2012 under the Plan were as follows:

No. of shares awarded in June 2012 based Notional bonus for Notional bonus for on the market share pricePerformance Period Good personal Exceptional personal at close of business(1 June 2011 to performance (G) performance (E) on 19 June 2012, which was31 May 2012) (25% of base salary) (50% of base salary) 10.25 pence per share

TEE Kiam Poon £52,254 £104,508 1,019,590 (E)LI Ching £46,948 £93,898 916,059 (E)

Usually, the right to receive the shares that have not yet vested is conditional upon the individual remaining an employee of the Group for a period of at least two further years from the dates of award. The value of shares may increase depending on whether the Company performance criteria are met and the date on which the individual exercises the option. Performance conditions attaching to awards made under the Plan are detailed earlier in the Remuneration Report.

The LTIP participants had the right to choose whether to exercise their options over share awards under the LTIP granted to them in June/October 2009 (for the personal performance period 1 June 2009 – 31 May 2012). They are nil cost options, remain exercisable and under the Plan the number of awardable shares could increase for participants still employed by the Group, depending on the performance of the Company for the three year period from the date of the initial award in 2009. The market share price at close of businesses for two sets of options prior to the dates of award in 2009 was 6.50 pence per share and 8.10 pence per share respectively prior to the dates of vesting in 2012 was 10.25 pence per share and 8.95 pence per share respectively.

In respect of the 2009 awards the performance period was from 24 June 2009 to 23 June 2012, based upon the parameters for determining the quantum of any additional awards the Remuneration Committee of the Board will advise the Trustees of the EBT the company performance for this period. They will authorise the increase in the number of ordinary shares the subject of relevant options. There is no consideration for this additional award.

LI Ching chose to exercise her right not to withdraw her 1,185,600 shares on 24 June 2012 and for TEE Kiam Poon, it being a close period on 13 October 2012 when a decision was required, took no action and therefore his 1,199,580 shares remained in the Trust. All the other nil cost options still remain exercisable under the Plan and the number of additional shares to be awarded will depend upon the decision taken by each beneficiary as to when they remove their shares from the EBT.

During 2012, the Company also announced awards under the Plan to Executive Directors and Senior Executives conditional on performance targets for the Company and the executives being met for the performance year 1 June 2012 – 31 May 2013. The number of ordinary shares over which the options will be granted is the number of Fortune shares which the notional bonus can buy on the first anniversary of the date of grant of the option, i.e. 20 June 2013.

Performance Period Notional bonus for Notional bonus for(1 June 2012 to Good personal performance (G) Exceptional personal performance (E)31 May 2013) (25% of base salary) (50% of base salary)

TEE Kiam Poon £54,738 £109,475LI Ching £49,180 £98,360

It is currently intended that any ordinary shares required to fulfil entitlements under the Plan will be provided by the EBT. As beneficiaries under the Trust, those Directors on page 60 are deemed to be interested in certain of the shares held by the EBT, which at 31 December 2012, amounted to 3,432,521 ordinary shares.


remuneration report

In connection with the additional award in the 2007 awards, four LTIP participants (none of whom are directors) who had not withdrawn their 819,336 shares from the EBT in 2011 would have been entitled to a further top of shares equal to 20% of the original award without any further performance conditions as of 26 June 2012. However, due to the failure to achieve two out of the six KPIs in respect of the profit attributable to equity shareholders (before other gains) by the Group for the financial year 2011 and the lack of the Company’s share price performance, the Remuneration Committee decided that there would be no further increases in 2012 in the number of shares under the 2007 Option unless certain further conditions would be satisfied, in particular that:

(i) LTIP participants remain employed until at least 26 June 2013; and

(ii) the KPI target which the Company set for the profit attributable to equity shareholders (before other gains) being met for the financial year ended 31 December 2012, i.e. a growth of 30 per cent above the results for the year ended 31 December 2010.

In June 2012, one of the participants chose to withdraw his 208,044 shares to which he was beneficially entitled. The other three LTIP participants chose not to remove their 611,292 shares from the EBT so as to be entitled to benefit from another possible increase in the number of awarded shares on or after 5th anniversary of the initial award subject to the further conditions stated above.

As detailed on page 60 conditional rights to shares under the Plan received by to the Directors have been recognised. As detailed in note 25 to the Group financial statements, an expense has also been recognised in relation to share-based payments.

As at 31 December 2012, a total of 85,496,806 ordinary shares were held by JTC Trustees Limited, the Trustees of the company’s EBT. Of these shares, 6,252,446 ordinary shares have been allocated to options granted under the Plan, 4,117,548 ordinary shares vested and not withdrawn in the Plan and 10,772,676 shares have been allocated to satisfy options granted under the Company’s Share Option Schemes.

The market value of the 85,496,806 ordinary shares held in the Trust at 31 December 2012 was £8,977,165 (31 December 2011: 87,786,609 ordinary shares, £10,534,393). It is intended that these shares are continued to be used to provide bonus shares and any share options exercised under any of the 2004 Approved Scheme, the 2004 Unapproved Scheme and the 2009 LTIP.

The number of unallocated ordinary shares held within the EBT was 64,354,136 (3.24%), (2011: 67,676,761, 3.40%) and this represented less than 5% best practice limit as endorsed by the ABI.

Share PriceThe closing price of the Company’s ordinary shares at 31 December 2012 was 10.50 pence (2011: 12.00 pence). The highest and lowest closing prices for the shares during the year were 12.13 pence and 7.86 pence, respectively.

A resolution will be proposed at the Annual General Meeting on Tuesday, 18 June 2013 to approve the Directors’ Remuneration Report. It is an advisory vote and the Board recommends that shareholders vote in favour of the approval of this Report.

The Remuneration Report was approved by the Board and signed on 24 April 2013 its behalf by

WANG JinjunChairman, Remuneration Committee


The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under Company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing the parent company financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;• make judgments and accounting estimates that are reasonable and prudent;• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and

explained in the financial statements;• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will

continue in business.

In preparing the Group financial statements, International Accounting Standard 1 requires that directors:

• properly select and apply accounting policies;• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and

understandable information; • provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to

understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and

• make an assessment of the Company’s ability to continue as a going concern.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

• the management report, which is incorporated into the directors’ report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

TEE Kiam Poon LI ChingChief Executive Executive Director24 April 2013 24 April 2013

directors’ responsibilities statement


We have audited the Group financial statements of Fortune Oil PLC for the year ended 31 December 2012 which comprise the consolidated income statement, consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated cashflow statement, the consolidated statement of changes in equity and the related notes 1 to 35. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorAs explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statementsIn our opinion the Group financial statements:

• give a true and fair view of the state of the Group’s affairs as at 31 December 2012 and of its profit for the year then ended;

• have been properly prepared in accordance with IFRSs as adopted by the European Union; and• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

Separate opinion in relation to IFRSs as issued by the IASBAs explained in note 1 to the Group financial statements, the Group in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB).

In our opinion the Group financial statements comply with IFRSs as issued by the IASB.

Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Directors’ Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements.

independent auditor’s report to the members of Fortune Oil PLC


Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• certain disclosures of directors’ remuneration specified by law are not made; or• we have not received all the information and explanations we require for our audit.

Other mattersWe have reported separately on the parent company financial statements of Fortune Oil PLC for the year ended and on the information in the Directors’ Remuneration Report that is described as having been audited.

Although not required to do so, the directors have voluntarily chosen to make a corporate governance statement detailing the extent of their compliance with the UK Corporate Governance Code. We reviewed:

• the directors’ statement, contained within the Directors’ report, in relation to going concern; • the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the

UK Corporate Governance Code specified for our review; and• certain elements of the report to shareholders by the Board on directors’ remuneration.

Bevan Whitehead (Senior Statutory Auditor)for and on behalf of Deloitte LLPChartered Accountants and Statutory AuditorLondon, UK24 April 2013



Continuing Discontinued Continuing Discontinued operations operations Total operations operations TotalAmount in £’000 Notes 2012 2012 2012 2011 2011 2011

Revenue including share of

jointly controlled entities 2 647,572 91,830 739,402 554,074 70,560 624,634

Share of revenue of

jointly controlled entities 2 (506,853 ) (17,961 ) (524,814 ) (415,363 ) (9,498 ) (424,861 )

Group revenue 2 140,719 73,869 214,588 138,711 61,062 199,773

Cost of sales (133,904 ) (46,057 ) (179,961 ) (129,787 ) (40,107 ) (169,894 )

Gross profit 6,815 27,812 34,627 8,924 20,955 29,879

Distribution expenses (121 ) (7,046 ) (7,167 ) – (5,528 ) (5,528 )

Administrative expenses (7,171 ) (6,395 ) (13,566 ) (6,569 ) (5,110 ) (11,679 )

Share of results of

jointly controlled entities 14 13,197 1,371 14,568 13,094 1,730 14,824

Share of results of associates 14 – 52 52 – (72 ) (72 )

Profit from operations 12,720 15,794 28,514 15,449 11,975 27,424

Other gains/(losses) 15 4,645 – 4,645 – 7,323 7,323

Finance costs 5 (5,008 ) (1,087 ) (6,095 ) (4,216 ) (1,065 ) (5,281 )

Investment revenue 6 1,079 581 1,660 969 1,217 2,186

Profit before tax 13,436 15,288 28,724 12,202 19,450 31,652

Income tax charge 7 (4,542 ) (3,704 ) (8,246 ) (3,536 ) (3,265 ) (6,801 )

Profit for the year 8,894 11,584 20,478 8,666 16,185 24,851

Attributable to

Owners of the parent 8,013 7,653 15,666 6,463 11,701 18,164

Non-controlling interests 881 3,931 4,812 2,203 4,484 6,687

8,894 11,584 20,478 8,666 16,185 24,851

Earnings per share

Basic 9 0.42p 0.40p 0.82p 0.34p 0.62p 0.96p

Diluted 9 0.42p 0.40p 0.82p 0.34p 0.61p 0.95p

consolidated income statementfor the year ended 31 December 2012


Amount in £’000 Notes 2012 2011

Profit for the year 20,478 24,851

Exchange differences arising on translation of foreign operations (4,545 ) 6,699

Net gain in fair value of available for sale investments 773 3,180

Disposal of available for sale investments 15 (3,953 ) –

Share of net gain in fair value of available for sale investments in

jointly controlled entities 14 40,347 –

Loss on cash flow hedges arising during the year – (111 )

Loss on cash flow hedges transferred to income statement – 675

Other comprehensive income for the year 32,622 10,443

Total comprehensive income for the year 53,100 35,294

Attributable to

Owners of the parent 49,488 27,282

Non-controlling interests 3,612 8,012

53,100 35,294

consolidated statement of comprehensive incomefor the year ended 31 December 2012


Before the Disposal After the reclassification Group reclassificationAmount in £’000 Notes 2012 2012 2012 2011

AssetsNon-current assetsProperty, plant and equipment 10 64,723 60,504 4,219 58,580Goodwill 11 3,007 3,007 – 3,109Intangible assets 12 52,622 14,155 38,467 46,602Prepaid lease payments 13 2,749 2,749 – 1,731Other non-current receivables 17 3,839 1,426 2,413 3,958Investments in jointly controlled entities 14 175,351 39,832 135,519 71,643Investments in associates 14 969 969 – 945Available for sale investments 15 1,948 – 1,948 29,860

305,208 122,642 182,566 216,428

Current assetsInventories 16 9,948 3,564 6,384 9,697Trade and other receivables 17 42,193 19,682 22,511 33,203Cash and cash equivalents 18 73,849 23,123 50,726 128,440

125,990 46,369 79,621 171,340Assets classified as held for sale 20 – (169,011 ) 169,011 –

125,990 (122,642 ) 248,632 171,340

Total Assets 431,198 – 431,198 387,768

LiabilitiesCurrent liabilitiesBorrowings 21 76,956 8,745 68,211 21,905Trade and other payables 19 47,156 23,962 23,194 41,109Current tax liabilities 3,199 2,306 893 3,881

127,311 35,013 92,298 66,895Liabilities directly associated with disposal group classified as held for sale 20 – (38,894 ) 38,894 –

127,311 (3,881 ) 131,192 66,895

Non-current liabilitiesBorrowings 21 44,879 1,298 43,581 112,222Deferred tax liabilities 23 4,069 2,583 1,486 2,767Other non-current liabilities 22 8,129 – 8,129 9,392

57,077 3,881 53,196 124,381

Total Liabilities 184,388 – 184,388 191,276

Net Assets 246,810 – 246,810 196,492

EquityCapital and reservesOrdinary shares 24 19,875 19,875Treasury shares 26 (678 ) (878 )Share premium 10,129 10,129Other reserves 40,347 3,180Foreign currency translation reserve 26 25,189 28,534Retained earnings 93,551 80,241

Equity attributable to owners of the parent 188,413 141,081Non-controlling interests 58,397 55,411

Total Equity 246,810 196,492

The financial statements of Fortune Oil PLC, registered number 2173279, were authorised for issue and approved by the Board on 24 April 2013 and signed on its behalf by:

Li Ching Tee Kiam PoonDirector Director

The notes on pages 71 to 112 form part of these financial statements.

consolidated statement of financial positionat 31 December 2012



Net cash from operating activities 33 16,050 16,922

Interest received 6 1,660 2,186

Dividend received from jointly controlled entities 14 13,020 11,104

Payment for property, plant and equipment (15,704 ) (19,552 )

Payment for intangible assets (263 ) (7,542 )

Payment for exploration and evaluation assets (4,623 ) (3,853 )

Payment for prepaid lease payments (1,130 ) (91 )

Receipt from disposal of subsidiary undertakings – 1,255

Payment for acquisition of subsidiary undertakings 31 (3,765 ) (1,326 )

Receipt from disposal of property, plant and equipment 152 1,135

Government grant received 1,092 –

Acquisition of investments in associates – (1,023 )

Acquisition of available for sale investments (30,562 ) (26,680 )

Loan to jointly controlled entities (10,809 ) (1,623 )

Repayment from jointly controlled entities 5,847 –

Placement of investment deposit (1,620 ) –

Withdrawal of investment deposit 1,620 –

Net cash used in investing activities (45,085 ) (46,010 )

Interest paid (5,855 ) (4,243 )

Dividend payment to owners of the parent (3,424 ) (2,468 )

Net loans (repayment of loans to)/from non-controlling shareholders (259 ) 190

Dividend paid to non-controlling shareholders (4,168 ) (3,873 )

Net capital contribution receipt from non-controlling shareholders – 871

Net proceeds from issue of new borrowings 6,975 113,230

Repayment of borrowings (14,887 ) (50,723 )

Net cash (used in)/from financing activities (21,618 ) 52,984

Net (decrease)/increase in cash and cash equivalents (50,653 ) 23,896

Cash and cash equivalents at beginning of the year 128,440 100,349

Net effect of foreign exchange rate changes (3,938 ) 4,195

Cash and cash equivalents at end of the year 73,849 128,440

Cash and cash equivalents at end of the year-discontinued operation (23,123 ) –

Net cash and cash equivalents at end of the year 50,726 128,440

consolidated cash flow statementfor the year ended 31 December 2012


Foreign Issued capital currency Attributable Non- Ordinary Treasury Share Other Hedging translation Retained to owners controllingAmount in £’000 shares shares premium reserve reserve reserve earnings of the parent interests Total

Balance at 1 January 2011 19,875 (898 ) 10,129 3,422 (564 ) 23,653 60,316 115,933 50,387 166,320

Profit for the year – – – – – – 18,164 18,164 6,687 24,851

Exchange differences arising on translation of foreign operations – – – – – 5,374 – 5,374 1,325 6,699

Net gain in fair value of available for sale investments – – – 3,180 – – – 3,180 – 3,180

Cash flow hedges – – – – 564 – – 564 – 564

Total comprehensive income for the year – – – 3,180 564 5,374 18,164 27,282 8,012 35,294

Payment of dividends to non-controlling interests – – – – – – – – (3,873 ) (3,873 )

Dividend paid to owners of the parent – – – – – – (2,468 ) (2,468 ) – (2,468 )

Movement in treasury shares – 20 – – – – (17 ) 3 – 3

Acquisition of subsidiaries – – – – – – – – 20,211 20,211

Net capital contribution from non-controlling interests – – – – – – – – 871 871

Disposal of subsidiaries – – – (3,422 ) – (493 ) 3,422 (493 ) (10,818 ) (11,311 )

Adjustment arising from changes in non-controlling interests – – – – – – – – (9,379 ) (9,379 )

Issuance of warrants – – – – – – 424 424 – 424

Share-based payments – – – – – – 400 400 – 400

Balance at 31 December 2011 19,875 (878 ) 10,129 3,180 – 28,534 80,241 141,081 55,411 196,492

Profit for the year – – – – – – 15,666 15,666 4,812 20,478

Exchange differences arising on translation of foreign operations – – – – – (3,345 ) – (3,345 ) (1,200 ) (4,545 )

Net gain in fair value of available for sale investments – – – 773 – – – 773 – 773

Disposal of available for sale investments – – – (3,953 ) – – – (3,953 ) – (3,953 )

Share of net gain in fair value of available for sale investments in jointly controlled entities – – – 40,347 – – – 40,347 – 40,347

Total comprehensive income for the year – – – 37,167 – (3,345 ) 15,666 49,488 3,612 53,100

Payment of dividends to non-controlling interests – – – – – – – – (4,168 ) (4,168 )

Dividend paid to owners of the parent – – – – – – (3,424 ) (3,424 ) – (3,424 )

Movement in treasury shares – 200 – – – – – 200 – 200

Acquisition of a subsidiary – – – – – – – – 3,910 3,910

Adjustment arising from changes in non-controlling interests – – – – – – 368 368 (368 ) –

Share-based payments – – – – – – 700 700 – 700

Balance at 31 December 2012 19,875 (678 ) 10,129 40,347 – 25,189 93,551 188,413 58,397 246,810

consolidated statement of changes in equityfor the year ended 31 December 2012


notes to the group financial statementsfor the year ended 31 December 2012

General informationFortune Oil PLC is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is given on the back cover page. The nature of the Group’s operations and its principal activities are set out in the Directors’ Report on pages 30 to 39 and in the Business Review on pages 12 to 23.

1. Accounting policies

Basis of accountingThese financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and related interpretations from the International Financial Reporting Interpretations Committee (IFRIC) and those parts of the Companies Act applicable to companies reporting under IFRSs. The financial statements have also been prepared in accordance with IFRSs adopted for use within the European Union and therefore comply with Article 4 of the EU IAS Regulations.

Adoption of new and revised standardsIn the current year, the Group has applied, for the first time, the following new and revised Standards and Interpretations, which are effective for the Group’s financial year beginning 1 January 2012, but have not had any significant impact on the financial statements.

Amendments to IFRS 7 Disclosures – transfers of financial assets;Amendments to IAS 1 Presentation of items of other comprehensive income; andAmendments to IAS 12 Deferred Tax – recovery of underlying assets.

At the date of authorisation of these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective:

From the year beginning 1 January 2013

IFRS 1 (amended) Government loans;IFRS 7 (amended) Disclosures: Offsetting financial assets and financial liabilities;IFRS 10 Consolidated financial statements;IFRS 11 Joint arrangements;IFRS 12 Disclosure of interests in other entities;IFRS 13 Fair value measurement;lAS 19 (revised) Employee benefits;lAS 27 (revised) Separate financial statements;lAS 28 (revised) Investments in associates and joint ventures; Annual improvements to IFRS 2009-2011 cycle (various standards).


lAS 32 (amended) Offsetting financial assets and financial liabilitieslAS 1 (amended) Presentation of financial statements — other comprehensive income


IFRS 9 Financial instruments Classification and measurement



1. Accounting policies continued

The Group did not early adopt any of these new or revised standards, amendments to standards and interpretations to existing standards. The Group is in the process of assessing the impact of these new or revised standards, amendments to standards and interpretations to existing standards on the Group’s results and financial position in the future. The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in future periods, except as follows:

1. IFRS 9 will impact both the measurement and disclosures of financial instruments;2. IFRS 10 may impact the amounts reported in the consolidated financial statements as it provides a single basis for

consolidation with a new definition of control;3. IFRS 11 may result in changes in the accounting of the Group’s jointly-controlled entities that are currently accounted for

using proportionate consolidation. Under IFRS 11, a joint arrangement is classified as either a joint operation or a joint venture, and the option to proportionately consolidate joint ventures has been removed. Interests in joint ventures must be equity accounted;

4. IFRS 12 will impact the disclosure of interests Fortune Oil has in other entities such as subsidiaries, joint arrangements, associates and/or unconsolidated structured entities; and

5. IFRS 13 will impact the measurement of fair value for certain assets and liabilities as well as the associated disclosures.

Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed.

The financial statements have been prepared on the historical cost basis except for the revaluation of certain properties, available for sale investments and share-based payments and share options written as part of the restructure of interests in Liulin. The principal accounting policies adopted are set out below.

Basis of consolidationThe Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings and include the results of jointly controlled entities and associates. The results and net assets of subsidiary undertakings acquired or disposed of during a financial year are included in the Group income statement and statement of financial position from the effective date of acquisition or to the effective date of disposal, as appropriate. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein.

Subsidiary undertakings have been consolidated using the acquisition method of accounting and jointly controlled entities are included in accordance with the accounting policies noted below. For each business combination, the interests of non-controlling shareholders may be initially measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Where the Group has acquired assets held in subsidiary undertakings that do not meet the definition of a business combination, purchase consideration is allocated to the net assets acquired and the interests of non-controlling shareholders are initially measured at the non-controlling interests’ proportionate share of the net assets value of the acquiree’s identifiable net assets. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initially recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Where the Group increases it’s ownership interest in a subsidiary undertaking, goodwill may arise and is calculated as the difference between the consideration paid for the additional interest and the carrying amount of the net assets of the subsidiary. A gain or loss may arise where the Group decreases its interest in a subsidiary without the loss of control, calculated as the difference between the consideration received and the carrying amount of the interest disposed, including a proportionate share of goodwill.

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.




When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities are disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or jointly controlled entity.

Going ConcernThe Group’s business activities and associated opportunities and risks are set out in the business review on pages 12 to 23. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review set out on pages 26 to 27. In addition, note 27 to the Group financial statements includes the Group’s objectives, policies and processes for its capital; its financial risk management objectives; details of its financial instruments; and its exposure to credit risk and liquidity risk.

As explained in note 27 to the Group financial statements, the Group meets part of its capital expenditure requirements from medium term loan facilities. On 4 April 2011, the Group signed a US$180 million (£112 million) loan agreement and the proceeds were used to repay the 3-year US$80 million (£52 million) loan facility arranged by Standard Chartered Bank (Hong Kong) in April 2010 and the balance of US$100 million (£60 million) has been providing further capital for development.

The Group faces a number of risks and uncertainties as described on page 24.

As at 31 December 2012, the Group had a cash balance of £50.7 million (excluding the cash balance of £23.1 million in the natural gas business) and a net borrowing of £61.1 million (after excluding the net cash balance of £13.1 million in the natural gas business). Nonetheless, the Group expects to generate positive cash flow from operations and receive cash consideration from China Gas Holdings Limited for the transaction in relation to the Group’s natural gas business. The Group’s current forecasts and projections, adjusting for reasonably possible changes in trading conditions, show that the Group will be able to meet its obligations under the loan agreements and to operate within the required covenants for the foreseeable future.

Following the decision to enter into the Gas Division disposal transaction, detailed in note 20 to the Group financial statements on page 98, notice of the proposed sale was given to the providers of the US$180 million medium term loan facilities. A waiver was received, in advanced of the transaction, in respect of the condition for the immediate repayment of these facilities upon such a transaction occurring. Subject to the payment of US$18 million (£11.4 million) as an initial accelerated repayment, the existing terms of the medium term loan remain unchanged.

After making enquiries, the Directors therefore have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and accounts.

Investments in the PRCIn respect of major infrastructure projects, the Group’s investment in an undertaking in the People’s Republic of China (“PRC”) is made with one or more other parties under a “joint venture” arrangement, with the parties involved taking an agreed interest in the issued share capital of the undertaking. The arrangement is intended to provide necessary financial and operational support to the project as well as providing strong local connections and typically an arrangement will include at least one representative from the PRC. The arrangement is supported by a “joint venture agreement” between the parties that specifies the terms of the arrangement, including details regarding the structure and composition of the board of directors and practical working arrangements. The amount of equity interest and the terms of the joint venture agreement will generally determine whether the investment is recorded as a subsidiary or jointly controlled entity, primarily based on the control of the board and the ability to control the strategic financial and operating policies of the undertaking.




Subsidiary undertakingsThe Group’s interest in subsidiary undertakings comprises investments in undertakings where the Group either holds in excess of 50 per cent of the issued share capital of the undertaking and owns more than half of the voting power or where the Group has the power to control the strategic, financial and operating policies of the undertaking concerned.

Jointly controlled entitiesThe Group’s interests in jointly controlled entities comprise investments in undertakings where the Group normally owns between 20 per cent and 50 per cent of the voting power of the undertaking and where the Group exercises joint control of the strategic financial and operating policies of the undertaking concerned by agreement. Jointly controlled entities are accounted for using the equity method of accounting.

AssociatesThe Group’s interests in associates comprise investments in undertakings where the Group normally holds between 20 per cent and 50 per cent of the issued capital of the undertaking and where the Group exercises significant influence, but neither joint control nor control, over the strategic financial and operating policies of the undertaking concerned. Associates are accounted for using the equity method of accounting.

Equity methodUnder the equity method, investments in jointly controlled entities and associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of a jointly controlled entity or an associate in excess of the Group’s interest in that jointly controlled entity or associate are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant jointly controlled entity and associate.

Other investmentsInvestments are recorded at cost less provision for impairment to the extent considered necessary.

Non-current assets held for saleNon-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less cost to sell.

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interests in its former subsidiary after the sale.




Goodwill arising on acquisitionsGoodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of the relevant cash-generating unit, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Goodwill arising on acquisition before the date of transition to IFRS has been retained at the previous UKGAAP amounts subject to being tested for impairment at that date.

Property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciation.

Property, plant and equipment are depreciated as to write off the cost of assets less their residual values over their expected useful lives using the straight-line basis method, as follows:

Motor vehicles, fixtures and fittings 3 to 6 yearsSingle point mooring buoy and related equipment 6 to 18 years (over the term of the contract)Leasehold property/improvements over the leasehold periodLPG tanks and facilities 20 yearsStorage tanks and jetty 3 to 38 yearsPipelines 20 to 30 years (over the term of the contract)

Assets in the course of construction are not depreciated.

Oil and gas development assets

Oil and gas development assets represent the cost of developing the commercial reserves discovered and bringing them into production, together with exploration and evaluation (“E&E”) expenditures incurred in finding commercial reserves transferred from intangible E&E assets.

Depreciation is calculated on the net book values of producing assets using the unit of production method from the date of first commercial production. The unit of production method refers to the ratio of production in the reporting year as a proportion of the proved and probable reserves of the relevant field, taking into account future development expenditures necessary to bring those reserves into production.

Producing assets are generally grouped with other assets that are dedicated to serving the same reserves for depreciation purposes, but are depreciated separately from producing assets that serve other reserves.




Intangible assetsThe intangible assets have definite useful lives. Such intangible assets are amortised on a straight-line basis over the following periods:

Software 5 yearsClub debentures 10 yearsTechnology rights 40 yearsDistribution rights 28 – 30 years

Software, gas distribution rights and technology rights

Software, gas distribution rights and technology rights are stated at cost less accumulated amortisation which is charged to the income statement over the estimated life of the intangible asset. Amounts acquired from third parties are initially recognised at fair value and then amortised.

Exploration and evaluation assets

The Group adopts the successful efforts method of accounting for exploration and evaluation costs. All licence acquisition, exploration and evaluation costs and directly attributable administration are initially capitalised in well, field or exploration area cost centres, as appropriate. Interest payable is capitalised insofar as it relates to specific exploration and development activities. These costs are then written off unless the exploration and evaluation activity is related to an established discovery for which commercially recoverable reserves have already been established or at the balance sheet date, exploration and evaluation activity has not reached a stage which permits a reasonable assessment of the existence of commercially recoverable reserves. Pre-licence costs are expensed in the period in which they are incurred. Capitalised exploration and evaluation costs are not amortised. At a future date, when it is determined that these costs will be recouped through successful development and exploitation, it is intended that expenditure will be transferred to property, plant and equipment.

Impairment of tangible and intangible assetsThe carrying amount of the Group’s assets is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the income statement.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which estimates of future cash flows have not been adjusted.

Prepaid lease paymentsPrepaid lease payments represent the purchase cost of land use rights in the PRC and are charged to the income statement on a straight-line basis over the terms of the relevant leases.

Leasing

The Group as lessor

Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease.

The Group as lessee

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

InventoriesInventories held in the trading business are valued at net realisable value. Other inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated selling expenses. Cost is determined on the first-in first-out basis and includes all costs incurred in acquiring the inventories and bringing them to their present location and condition.




Segment reportingOperating segments are reported in a manner consistent with the internal reporting provided to the board of directors of the Company who are responsible for allocating resources and assessing performance of the operating segments.

TaxationTax on the profit or loss for the year comprises both current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax liabilities are recognised for all deductible temporary differences except in respect of taxable temporary differences associated with investments in subsidiaries and interests in jointly controlled entities where the timing of the reversal of the temporary difference cannot be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the periods in which the asset is realised or the liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Under the prevailing PRC income tax law and its relevant regulations, foreign corporate investors are levied PRC dividend withholding tax at a rate of 5% or 10%, unless reduced by tax treaties or arrangements, on dividends declared by PRC-resident enterprises for profits earned subsequent to 1 January 2008. Deferred tax liabilities have been recognised in respect of the undistributed earnings to the extent that remittance is probable in the foreseeable future.

Foreign currenciesThe functional and presentation currency of Fortune Oil PLC is pounds sterling. The functional currencies of foreign operations are the currency of that primary economic environment in which it operates. In the financial statements of individual Group companies, the Group translates foreign currency transactions into the functional currency at the rate of exchange prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currency are translated into the functional currency at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are taken to profit and loss.

Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, are recognised in the translation reserve.

As at the reporting date, the assets and liabilities of foreign operations are retranslated into the presentation currency of Fortune Oil PLC at the rate of exchange ruling at the balance sheet date and their income statements are translated at the average exchange rate for the year. The exchange differences arising on the retranslation are taken directly to a separate component of equity. On disposal of a foreign operation, the cumulative amount recognised in equity relating to that particular foreign operation shall be recognised in the income statement.

The Group has elected not to record cumulative translation differences arising prior to the transition date as permitted by IFRS 1. In utilising this exemption, all cumulative translation differences are deemed to be zero as at 1 January 2004 and all subsequent disposals shall exclude any transaction differences arising prior to the date of transition.




Financial instruments

Trade receivables and payables

Trade receivables do not generally carry any interest and are normally stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Trade payables are generally not interest-bearing and are normally stated at their nominal value.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liability and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Derivative financial instruments

The Group has entered into derivative financial instruments by granting options for future investment in Fortune subsidiary undertakings. Further details of derivative financial instruments are disclosed in note 27.

Derivatives are initially recognised at fair value at the date the share subscription agreement was entered into and are subsequently re-measured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately.

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than twelve months and it is not expected to be realised or settled within twelve months. Other derivatives are presented as current assets or current liabilities.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the issue of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method except for borrowing costs capitalised for qualifying assets.

Equity instruments

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Available for sale financial assets

Available for sale financial assets are non-derivatives that are either designated or not classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments.

For available for sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition.

Available for sale financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been impacted. For an available for sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment.




ProvisionProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flow.

Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. Sales of gas are recognised when goods are delivered and title has been passed. In respect of oil trading transactions, where the Group does not act as the principal, then only management fees and commission are recognised as revenue.

Revenue from connection fees is recognised in full once the connections work has been completed as the Group remaining obligation is inconsequential.

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably).

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Government grantsGovernment grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable.




Share-based paymentsThe cost of providing share-based payments to employees is charged to the income statement over the vesting period of the related share options or share allocations. The cost is based on the fair value of the options or shares granted and the number of awards expected to vest. The fair value of each option is determined using an appropriate pricing model at the date of granting. Market related performance conditions are reflected in the fair value of the share. Non market related performance conditions are allowed for using a separate assumption about the number of awards expected to vest.

Treasury sharesCompany shares held by the Employee Share Ownership Plan (ESOP) Trust are presented within reserves until such time as the interest in shares is transferred unconditionally to the employees. Costs of administering the trust are charged to the income statement as incurred.

PensionsThe Group does not operate any pension schemes that carry obligations similar to defined benefit arrangements. Contributions to social benefits for employees are charged to profit as incurred.

Critical accounting estimates and judgementsThe Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The main estimates and judgements that have the most significant effect on the amounts recognised in the financial statements are as follows:

a) Acquisition of business assetsIFRS 3 Business Combinations applies to a transaction or other event that meets the definition of a business combination. When acquiring new entities or assets, the Group applies judgement to assess whether the assets acquired and liabilities assumed constitute an integrated set of activities and thus whether the transaction constitutes a business combination, using the guidance provided in the standard. In making this determination, management evaluates the inputs, processes and outputs of the asset or entity required.

b) Recognition and measurement of intangible assets under business combinationsIn order to determine the value of the separately identifiable intangible assets in a business combination, management are required to make estimates of gas distribution right agreements, secured customer contracts, other contracts, customer relationships and goodwill. For material acquisition, the Group engages outside independent parties to perform these calculations and determine the fair value and estimated useful lives of these assets. The carrying amount of intangible assets at 31 December 2012 is shown in note 12.

c) Estimated impairment of goodwillDetermining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which the goodwill has been allocated. The value in use calculation requires an estimate to be made of the timing and amount of cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value. The discount rate applied reflects the market assessment of the time value of money and risks specific to the asset. Further details are provided in note 11.




d) Carrying value of property, plant and equipment and other intangible assetsThe Group reviews the carrying value of property, plant and equipment and other intangible assets each year to ascertain if there are any indications of impairment. This assessment, and any impairment testing, requires the use of certain judgements and estimates regarding the future cash flows expected to arise from the asset and a suitable discount rate. The carrying amount of property, plant and equipment and other intangible assets at 31 December 2012 are shown in notes 10 and 12 respectively.

e) Recoverability of exploration and evaluation assetsDetermining whether an exploration and evaluation asset is impaired requires an assessment of whether there are any indicators of impairment, including by reference to the specific impairment indicators prescribed in IFRS 6 Exploration for

and Evaluation of Mineral Resources. If there is any indication of potential impairment, an impairment test is required based on value in use of the asset. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of exploration and evaluation assets at 31 December 2012 is shown in note 10.

f) TaxationTax provisions are made based on the Group best estimate of the amount expected to be paid. Tax legislation is open to interpretation and accordingly, tax provision may change as agreement is reached with the relevant taxation authority. Full provision is made for deferred taxation at the rate of tax prevailing at the period end dates unless future rates have been substantively enacted. Deferred tax assets are recognised where it is considered more likely than not they will be recovered, taking into account the nature of the losses, and the certainty of the relevant offsetting income streams.

g) Reserve estimatesProven and probable reserve estimates are based on reviews undertaken using standard recognised valuation techniques. The amount that will ultimately be recovered cannot be known with certainty until the end of the asset life.

h) Deferred consideration on acquisition of Everthriving EnergyThe purchase agreement for Beijing Everthriving Energy Technology Co. Ltd (“Everthriving Energy”) in 2010 specifies that additional consideration of RMB 50 million (£4.9 million) is payable after certain conditions are met, including receipt of government approval for refitting marine diesel oil-LNG dual fuel technology, execution of not less than 1,500,000 tons of marine diesel oil-LNG dual fuel refitting, and obtaining government approval for six LNG refuelling stations along Yangtze river. In 2011, the directors consider it probable that all of the conditions will be met by June 2019 based on the development of the project to date, and therefore a provision for additional consideration of £1.2 million has been recorded from the date of acquisition, using a discount rate of 17.8%.



2. Segmental Reporting

The Group has adopted IFRS 8 Operating Segments to identify eight 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 “Investment Holding”, “Natural Gas”, “Single point mooring facility”, “Aviation Refuelling”, “Trading”, “Products Terminal”, “Resources” and “Others”.

Information regarding these segments is presented below.

a) Operating segments

Discontinued Oil operations Investment Single point Aviation Products Continuing Holding mooring facility Refuelling Trading Terminal Resources Others** operations Natural Gas Group

Amount in £’000 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

Revenue including share of jointly controlled entities – – 17,308 17,224 495,239 403,745 123,411 121,487 2,672 2,606 – – 8,942 9,012 647,572 554,074 91,830 70,560 739,402 624,634

Share of revenue of jointly controlled entities – – – – (495,239 ) (403,745 ) – – (2,672 ) (2,606 ) – – (8,942 ) (9,012 ) (506,853 ) (415,363 ) (17,961 ) (9,498 ) (524,814 ) (424,861 )

Group revenue – – 17,308 17,224 – – 123,411 121,487 – – – – – – 140,719 138,711 73,869 61,062 214,588 199,773

Profit from operations (including share of results of jointly controlled entities) 103 – 5,453 5,849 11,545 11,606 1,043 1,037 787 1,063 (784 ) – (1,082 ) (1,092 ) 17,065 18,463 15,794 11,975 32,859 30,438

Office overheads* (4,345 ) (3,014 ) – – (4,345 ) (3,014 )

Operating profit, net of overheads 12,720 15,449 15,794 11,975 28,514 27,424

Other gains or losses 4,645 – – – – – – – – – – – – – 4,645 – – 7,323 4,645 7,323

Finance costs (5,008 ) (4,216 ) (1,087 ) (1,065 ) (6,095 ) (5,281 )

Investment revenue 1,079 969 581 1,217 1,660 2,186

Profit before taxation 13,436 12,202 15,288 19,450 28,724 31,652

Taxation (4,542 ) (3,536 ) (3,704 ) (3,265 ) (8,246 ) (6,801 )

Profit for the year 8,894 8,666 11,584 16,185 20,478 24,851

Attributable to

Owners of the parent 8,013 6,463 7,653 11,701 15,666 18,164

Non-controlling interests 881 2,203 3,931 4,484 4,812 6,687

Capital additions – FA – – 3,865 2,395 55 – 58 24 – – 100 139 – – 4,078 2,558 11,626 17,695 15,704 20,253

Addition to intangible – – – – – – – – – – 4,635 30,436 240 – 4,875 30,436 11 3,877 4,886 34,313Depreciation and amortisation – – 4,823 3,925 9 7 51 51 – – 35 18 25 – 4,943 4,001 3,257 2,555 8,200 6,556



2. Segmental reporting continued

Discontinued Oil operations Investment Single point Aviation Products Continuing Holding mooring facility Refuelling Trading Terminal Resources Others** operations Natural Gas Group

Amount in £’000 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

Net assets: by class of business

Assets

Segment assets 98,655 – 17,129 19,910 31,981 33,531 53,798 107,204 5,154 5,171 46,288 47,004 8,691 41,269 261,696 254,089 169,011 133,361 430,707 387,450

Unallocated assets 491 318 – – 491 318

Consolidated total assets 262,187 254,407 169,011 133,361 431,198 387,768

Liabilities

Segment liabilities – – (2,582 ) (3,178 ) (484 ) (1,661 ) (17,283 ) (9,656 ) – – (8,327 ) (8,525 ) (2,328 ) (4,478 ) (31,004 ) (27,498 ) (38,894 ) (36,814 ) (69,898 ) (64,312 )

Unallocated liabilities*** (114,490 ) (126,964 ) – – (114,490 ) (126,964 )

Consolidated total liabilities (145,494 ) (154,462 ) (38,894 ) (36,814 ) (184,388 ) (191,276 )

116,693 99,945 130,117 96,547 246,810 196,492

* Includes overheads in UK/HK/PRC offices.** Others include retail and distribution.*** Includes bank loan, deferred tax and dividend withholding tax.

b) Geographical operationsAll Group’s revenues are attributed to PRC and Hong Kong. Aside from the amount of £34.4 million (2011: £31.2 million) which are located in Armenia, all of the Group’s non-current assets, are held in PRC and Hong Kong. The Directors are of the opinion that the PRC and Hong Kong form one geographical segment.

c) Analysis of group revenue

Year Year ended endedAmount in £’000 31.12.12 31.12.11

Sales of goods 191,365 185,822Income from gas connection contracts 21,185 10,946Rental income 899 950Others 1,139 2,055

214,588 199,773Investment revenue 1,660 2,186

216,248 201,959

d) Major customersNone of the customers individually account for more than 10% of the Group’s revenue during the current and previous year.



2. Segmental reporting continued

e) Segment informationi) 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 refuelling 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. Staff costs

Amount in £’000 2012 2011

Staff costs, including directors:Wages and salaries 7,471 7,300Social security costs 16 13Share-based payments 700 400

8,187 7,713

Number 2012 2011

The average monthly number of employees during the year, including directors:Management and administration 330 313Engineering and operations 689 638Oil trading, marketing and project development 62 51

1,081 1,002

A proportion of the Group’s staff costs shown above is capitalised into the cost of fixed assets. The net staff costs recognised in the income statement is £6,319,000 (2011: £6,929,000).

Directors’ emolumentsDetails of Directors’ emoluments are set out below.

Highest paid Director All Directors

Amount in £’000 2012 2011 2012 2011

Fees – – 182 178Salaries and benefits 314 326 597 605Share-based payments 134 100 251 182

Total 448 426 1,030 965

None of the Directors accrue retirement benefits under money purchase or defined benefit schemes.

Further details in respect of Directors’ emoluments are set out in the audited section of the Directors’ Remuneration report.



4. Profit for the year

Profit for the year is arrived at after charging/(crediting) the following:

Amount in £’000 2012 2011

Depreciation of tangible fixed assets (see note 10) 7,426 6,052Amortisation of prepaid lease payments and other intangible assets (see note 12 and 13) 834 579Staff costs (see note 3) 6,319 6,929Auditors’ remuneration (see below)– audit fees 350 297– non-audit fees 5 5Foreign exchange loss 1,052 852Loss on disposal of property, plant and equipment 1,813 1,832Operating lease rentals – land and buildings 551 855Cost of inventories recognised as cost of sale 100,796 145,034Gain on disposal of interest in subsidiaries – (7,633 )Loss on disposal of 5% interest in jointly controlled entity – 310Gain on disposal of available for sale investments (see note 15) (4,645 ) –

Amount in £’000 2012 2011

Audit feesFees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts 131 * 113 Fees payable to the Company’s auditor and their associates for other services to the Group: The audit of the Company’s subsidiaries 219 184

Total audit fees 350 297Non-audit fees Audit-related assurance services 5 5

Non-audit fees 5 5

* Includes £30,000 in respect of 2011.



5. Finance costs

Amount in £’000 2012 2011

Finance costs: on bank loans 5,371 3,111 on other loans 484 1,541 unwind of discount on provision (see note 22) 240 629

Total finance costs 6,095 5,281

6. Investment income

Amount in £’000 2012 2011

Investment income on bank deposits 933 1,986 others 727 200

Total investment income 1,660 2,186

7. Taxation

The taxation charge for the year is analysed below:

Amount in £’000 2012 2011

Withholding taxGroup withholding tax (see note 23) 1,552 1,396

Total withholding tax 1,552 1,396

Current taxGroup current taxUK tax (300 ) 300Foreign tax 7,624 6,821

Total current tax 7,324 7,121

Deferred taxGroup deferred tax (see note 23) (630 ) (1,716 )

Total deferred tax (630 ) (1,716 )

Tax on profit on ordinary activities 8,246 6,801



7. Taxation continued

The tax charge for the year differs from the standard rate of corporation tax and is explained below.

Amount in £’000 2012 2011

Profit from continuing and discontinued operations before taxation 28,724 31,652Theoretical tax at PRC corporation tax rate 25% (2011: 25%) 7,181 7,913Effects of:– Share of results of jointly controlled entities (3,642 ) (3,706 )– Share of results of associates (13 ) – – Income tax on concessionary rates (85 ) –– Nil or lower tax in PRC – (75 )– Tax losses not recognised 526 225– Utilisation of tax losses credit not previously recognised (831 ) (234 )– Other expenditure that is not tax deductible 3,794 3,429– Income not taxable (1,861 ) (2,123 )– Withholding tax on dividend income 1,552 1,396– Derecognition of deferred tax assets 1,625 –– Different tax rate – (24 )

Total tax 8,246 6,801

The above reconciliation uses a 25% (2011: 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 2012, one of the PRC subsidiaries enjoyed the last 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.

8. Dividends

Amount in £’000 2012 2011

Amounts recognised as distributions to equity holders in the year:Final dividend for the year ended 31 December 2011 of 0.18p (2010: 0.13p) per share 3,424 2,468

Proposed final dividend for the year ended 31 December 2012 of 0.16p (2011: 0.18p) per share 3,180 3,424

9. Earnings per share

Earnings per share has been calculated on the earnings activities after taxation and non-controlling interests of £8,013,000 (2011: profit of £6,463,000) for continuing operations, £7,653,000 (2011: profit of £11,701,000) for discontinued operations and £15,666,000 (2011: profit of £18,164,000) for total.

2012 2011

No. No. No. No. ’000 pence ’000 pence ’000 pence ’000 pence Continuing operations Discontinued operations Total

Basic 1,901,220 0.42 1,901,220 0.40 1,901,220 0.82 1,898,617 0.96Share option adjustment 15,558 – 15,558 – 15,558 – 14,320 –

Diluted 1,916,778 0.42 1,916,778 0.40 1,916,778 0.82 1,912,937 0.95



10. Property, plant and equipment

Group Motor Single Short Assets in vehicles, point Leasehold Oil and gas the course of fixtures mooring property & developmentAmount in £’000 construction & fittings buoy improvements Pipelines assets Total

CostAt 1 January 2011 7,516 4,185 32,568 4,315 33,307 15,881 97,772Exchange differences 293 100 1,032 160 1,169 (51 ) 2,703Additions 11,768 1,117 2,394 – 1,805 3,018 20,102Acquisition 135 16 – – – – 151Disposal of subsidiaries – (511 ) – – – (18,848 ) (19,359 )Other disposals – (242 ) (3,070 ) – (1,287 ) – (4,599 )Reclassification (8,120 ) (9 ) – 2,306 5,823 – –

At 31 December 2011 11,592 4,656 32,924 6,781 40,817 – 96,770Exchange differences (343 ) (161 ) (923 ) (198 ) (1,189 ) – (2,814 )Additions 8,566 1,990 3,864 127 1,157 – 15,704Acquisition (see note 31) 1,137 71 – 178 122 – 1,508Other disposals – (299 ) (1,364 ) (253 ) (453 ) – (2,369 )Reclassification (7,559 ) 65 – 1,823 5,671 – –Transfer to assets held for sale (see note 20) (13,393 ) (4,552 ) – (8,019 ) (46,125 ) – (72,089 )

At 31 December 2012 – 1,770 34,501 439 – – 36,710

DepreciationAt 1 January 2011 – 2,336 23,193 1,080 5,969 – 32,578Exchange differences – 78 886 50 298 – 1,312Charge for the year – 488 3,862 193 1,509 – 6,052Disposal of subsidiaries – (168 ) – – – – (168 )Other disposals – (133 ) (1,185 ) – (266 ) – (1,584 )Reclassification – (12 ) – – 12 – –

At 31 December 2011 – 2,589 26,756 1,323 7,522 – 38,190Exchange differences – (89 ) (801 ) (40 ) (226 ) – (1,156 )Charge for the year – 589 4,773 279 1,785 – 7,426Acquisition (see note 31) – 11 – 34 3 – 48Other disposals – (270 ) (69 ) (18 ) (75 ) – (432 )Reclassification – (17 ) – – 17 – –Transfer to assets held for sale (see note 20) – (1,420 ) – (1,139 ) (9,026 ) – (11,585 )

At 31 December 2012 – 1,393 30,659 439 – – 32,491

Net book valueAt 31 December 2012 – 377 3,842 – – – 4,219

At 31 December 2011 11,592 2,067 6,168 5,458 33,295 – 58,580



11. Goodwill

Amount in £’000 Goodwill

CostAt 1 January 2011 4,068Exchange differences 20Disposals (979 )

At 31 December 2011 3,109Exchange differences (102 )Transfer to assets held for sale (see note 20) (3,007 )

At 31 December 2012 –

Accumulated impairmentAt 1 January 2011, 31 December 2011 and 31 December 2012 –

Carrying amountAt 31 December 2012 –

At 31 December 2011 3,109

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. Before recognition of impairment losses, the carrying amount of goodwill had been allocated as follows:

Amount in £’000 2012 2011

Beijing Fortune Huiyuan Gas – 1,192China United Shanxi CBM – 562Xinyang Fortune Gas – 1,355

– 3,109

On 17 December 2012, the Group announced that it has conditionally agreed to inject its natural gas business into China Gas Holdings Limited for a total consideration of US$400 million (the “Proposed Transaction”), of which the Group shares US$340 million. All goodwill was transferred to assets held for sale at the year end.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. All of the goodwill is allocated to the natural gas operating segment which was classified as held for sale at 31 December 2012 and therefore a separate value in use impairment test for goodwill was therefore not completed. The proceeds of disposal are expected to substantially exceed the book value of the related net assets.



12. Intangible assets Exploration Club Technology Distribution and evaluation OperatingAmount in £’000 Software Debentures Rights Rights assets Rights Total

CostAt 1 January 2011 29 319 6,563 8,155 – – 15,066Exchange differences 1 6 308 522 497 – 1,334Acquired on acquisition of a subsidiary – – 1,033 2,342 – – 3,375Disposal of subsidiaries (5 ) – – – – – (5 )Disposal (1 ) – – – – – (1 )Change in estimate – – (2,960 ) – – – (2,960 )Additions 19 – 483 – 30,436 – 30,938

At 31 December 2011 43 325 5,427 11,019 30,933 – 47,747Exchange differences (1 ) (11 ) (158 ) (322 ) (1,187 ) (16 ) (1,695 )Acquired on acquisition of a subsidiary (see note 31) 6 – – 239 – 3,323 3,568Additions 24 239 – – 4,623 – 4,886Transfer to assets held for sale (see note 20) (57 ) (182 ) (1,063 ) (10,936 ) – (3,307 ) (15,545 )

At 31 December 2012 15 371 4,206 – 34,369 – 38,961

AmortisationAt 1 January 2011 13 48 – 532 – – 593Exchange differences 1 2 12 36 – – 51Disposal of subsidiaries (2 ) – – – – – (2 )Disposal (1 ) – – – – – (1 )Charge for the year 7 18 209 270 – – 504

At 31 December 2011 18 68 221 838 – – 1,145Exchange differences – (2 ) (7 ) (26 ) – – (35 )Charge for the year 10 18 384 362 – – 774Transfer to assets held for sale (see note 20) (26 ) (84 ) (106 ) (1,174 ) – – (1,390 )

At 31 December 2012 2 – 492 – – – 494

Net book valueAt 31 December 2012 13 371 3,714 – 34,369 – 38,467

At 31 December 2011 25 257 5,206 10,181 30,933 – 46,602



12. Intangible assets continued

All of the Group’s software, club debentures, technology rights and distribution rights were acquired from third parties.

The amortisation of software and club debentures is presented in administration expenses in the income statement. The amortisation of all other intangible assets are included in distribution expenses.

Technology rights represent the right to use the diesel engine oil-LNG dual fuel technology that will be used to develop LNG refueling stations in the Yangtze River and distribution rights represent the right to develop spur pipeline and gas distribution.

Included in distribution rights is an amount of £5,675,000 (2011: £6,074,000) representing the city gas operation right in Xinyang. The rights entitle the Group to operate city gas for 30 years from the date of acquisition. The net carrying amount will therefore be amortised over the remaining useful life of 26 (2011: 27) years.

£1,064,000 (2011: £1,096,000) of technology rights were acquired in respect of Beijing Fortune Power Technology Company Limited. £4,283,000 (2011: £4,167,000) of distribution rights were acquired in respect of Liaoning Fortune Gas Company Limited, Liaoning Jianping Fortune Gas Company Limited, Fu Song Jin Run Natural Gas Limited and Quyang Province Dafung Natural Gas Company Limited. These are not yet available for use and accordingly have not been amortised during the year, however as part of the natural gas operating segment which was reclassified as held for sale at 31 December 2012 no separate impairment test was performed.

£4,144,000 (2011: £6,615,000) of technology rights were acquired in respect of Beijing Everthriving Energy Technology Company Limited and will be amortised over the remaining useful life of 37 years.

The amounts shown for exploration and evaluation assets related to the Group’s iron ore exploration projects located in Armenia. The costs are accounted for under IFRS 6, “Exploration for and Evaluation of Mineral Resources” as the technical feasibility and commercial viability of the projects is not yet demonstrable and the determination process is still in progress. There is no indication of impairment at 31 December 2012. The outcome of ongoing exploration and evaluation, and therefore whether the carrying value of exploration and evaluation assets will ultimately be recovered, is inherently uncertain.

13. Prepaid lease payments

Amount in £’000 2012 2011

The Group’s prepaid lease payments comprise:Leasehold land in PRC with medium-term leases – 1,811

– 1,811

2012 2011

Analysed for reporting purposes as: Current asset (included in trade and other receivables – see note 17) – 80 Non-current assets – 1,731

– 1,811

Amortisation of prepaid lease payments amounted to £60,000 (2011: £75,000) during the year.

All prepaid lease payments are held by the gas group and hence have been reclassified to “assets held for sale” at 31 December 2012.



14. Investments

The following are the Company’s principal subsidiary undertakings**:

Interest in Country of ordinary shares Percentage Percentage incorporation and voting rights share of control ofCompany and operation Parent* Group* profit board Nature of business

Maoming King Ming China 56.00% 56.00% 40.00% 57.10% Construction andPetroleum Company operation of singleLimited (note 1) point mooring facility

Guangzhou Fortune Oil China 100.00% 100.00% 100.00% 100.00% Trading in petroleumCompany Limited products and investment in retail petrol stations in Beijing

Fortune Resources LLC Armenia 72.00% 66.00% 72.00% 100.00% Exploration and production of iron ore

Spice Steel Armenia Armenia 99.90% 65.93% 99.90% 100.00% Exploration andSJSC production of iron ore

* Parent represents the effective interest which the immediate holding company hold directly in the subsidiaries and Group represents the effective interest which the Group hold indirectly in the subsidiaries.

** Principal subsidiary undertakings in the discontinued operations have not been included in this table.

All companies are held indirectly through subsidiary companies.

A full list of subsidiaries and jointly controlled entities is produced in the Annual Return in the Company Registrars of their respective countries of incorporation.

1. Maoming King Ming Petroleum Company Limited (MKM) is controlled through an arrangement where the foreign companies as an alliance

in the arrangement own 70 per cent of the equity of MKM and are entitled to receive 50 per cent of its retained profits through annual and

final distributions. Fortune itself owns 56 per cent of the equity of MKM and is entitled to 40 per cent of retained profits. The joint venture

agreement was expired on 5 February 2013, the winding up procedure was commenced and the activities are expected to continue until

the revised venture agreement is in place, after which they will continue under the terms of the revised agreement, and MKM will cease to

be a subsidiary of the Group.

2. On 20 July 2012, the gas division of the Group acquired 51 per cent of the issued share capital of Quyang Province Dafung Natural Gas

Company Limited (see note 31).

3. On 16 December 2012, Beijing Everthriving Energy Technology Company Limited which was held under gas division of the Group was

transferred to oil division of the Group.

4. On 17 December 2012, the Group announced that it has conditionally agreed to inject its natural gas business into China Gas Holdings

Limited for a total consideration of US$400 million (the “Proposed Transaction”), of which the Group shares US$340 million. Therefore,

all assets and liabilities of natural gas group were reclassified as assets held for sale at the ended of the year.

Jointly controlled entities Interest in Net loans Total jointly to jointly jointly controlled controlled controlledAmount in £’000 entities entities entities

Share of net assets/costAt 1 January 2012 61,488 10,155 71,643Exchange rate difference (2,118 ) (390 ) (2,508 )Advances – 62,307 62,307Dividend (13,020 ) – (13,020 )Share of profit 14,568 – 14,568Gain on establishment of new jointly controlled entity (see note 15) 2,014 – 2,014Share of movement in reserves 40,347 – 40,347Transfer to assets held for sale (see note 20) (23,784 ) (16,048 ) (39,832 )

At 31 December 2012 79,495 56,024 135,519



14. Investments continued

Jointly controlled entitiesThe following are the Group’s principal jointly controlled entities:

Term Country of Percentage Percentage of initial incorporation share of control of contract GroupCompany and operation Principal activity profit* board (years) interest*

South China Bluesky Aviation China Construction and 24.50% 25.00% 25 24.50%Oil Company Limited operation of aviation oil storage and supply facilities

Zhuhai Special Economic Zone China Storage of petroleum 37.00% 33.30% 30 37.00%South China Petroleum products andCompany Limited operation of jetty

Beijing City Badaling China Operation of gasoline 55.00% 50.00% 15 55.00%Highway Service Station stations

China Gas Group Limited** Hong Kong Investment holding 50.00% 50.00% Indefinite 50.00% company

For the companies above, the control of strategic, financial and operating policies are shared between two or more parties that are involved in the jointly controlled entities.

There is no Board of Directors in Beijing City Badaling Highway Service Station but Fortune Oil controls 50% of the management committee.

* Percentage share of profit represents the percentage of profit directly shared by the immediate holding company and Group interest represents the percentage of profit indirectly shared by the Group.

** During the year, the Group’s subsidiary – Fortune Oil PRC Holdings Limited and Joint Coast Alliance Market Development Limited established China Gas Group Limited as an investment holding company to hold shares in China Gas Holdings Limited.

Note to Jointly controlled entitiesThe Group’s share of the results and net assets of its jointly controlled entities is shown below:

2012 2011 Discontinued operations Discontinued operations Natural NaturalAmount in £’000 Bluesky * CGGL Others Gas FLG Total Bluesky * CGGL Others Gas FLG Total

Revenue 495,239 – 11,614 17,961 – 524,814 403,745 – 11,619 9,497 – 424,861

Expenses/(income) 480,318 (453 ) 9,995 15,858 281 505,999 388,636 – 9,812 7,594 (281 ) 405,761Profit before tax 14,921 453 1,619 2,103 (281 ) 18,815 15,109 – 1,807 1,903 281 19,100Profit after tax 11,567 453 1,177 1,652 (281 ) 14,568 11,606 – 1,488 1,449 281 14,824

Non-current assets 24,431 101,502 7,367 13,368 17,722 164,390 26,888 – 5,728 11,064 20,331 64,011Current assets 59,676 15,452 1,195 5,023 390 81,736 65,737 – 2,181 4,784 578 73,280Current liabilities (52,556 ) (74,178 ) (3,394 ) (10,927 ) (1,792 ) (142,847 ) (60,163 ) – (2,627 ) (9,363 ) (3,650 ) (75,803 )

Net assets 31,551 42,776 5,168 7,464 16,320 103,279 32,462 – 5,282 6,485 17,259 61,488

* South China Bluesky Aviation Oil Company Limited.



14. Investments continued

Associates

Interest in associates

Amount in £’000 2012 2011

Share of net assets/costAt 1 January 945 –Exchange rate difference (28 ) (6 )Additions – 1,023Share of loss 52 (72 )Transfer to assets held for sale (see note 20) (969 ) –

At 31 December – 945

Note to AssociatesThe Group’s share of the results and net assets of its associates is shown below:

Amount in £’000 2012 2011

Revenue 820 –

Expenses 768 72Profit before tax 52 (72 )Profit after tax 52 (72 )

Non-current assets – –Current assets – 1,258Current liabilities – (313 )

Net assets – 945

15. Available for sale investments

Amount in £’000 2012 2011

Available for sale investments comprise:Listed securities:– Equity securities* – 27,815Unlisted securities:– Investment fund 1,948 2,045

1,948 29,860

* During the year, the Group disposed of its shares in China Gas Holdings Limited (“CGH”), a listed company in the Hong Kong Exchange. These shares were previously held as an available for sale investments, and were sold by a wholly owned subsidiary of the Group to the newly formed jointly controlled entity, China Gas Group Limited.



15. Available for sale investments continued

Investment in China

Gas Holdings Limited

Amount in £’000 2012 2011

Balance at the beginning of the year 27,815 –Additions 30,562 23,839Movement in fair value 773 3,180Foreign currency exchange difference (545 ) 796

Balance at the date of disposal to jointly controlled entity 58,605 27,815

The consideration for these shares transferred to the jointly controlled entity China Gas Group Limited, was made in a form of a loan HK$700 million (£57.3 million). Accordingly a loss on disposal of £1.3 million has been recognised in the income statement.

On the date of disposal, £4 million representing the net gain arising from changes in fair value, which were previously recognised in equity was reclassified to the income statement.

Other gain in the income statement represents:

Amount in £’000

Loss on disposal of available for sale assets (1,322 )Net gain arising from change in fair value of available for sale assets 3,953Gain on establishment of new jointly controlled entity (note 14) 2,014

Other gain 4,645

Reference to the table on page 94, in 2011, the Group acquired Huaneng Carbon Assets Development Fund Plan, a private company. This investment are not held for trading and accordingly are classified as available for sale. There has been no gain or loss recognised in respect of Huaneng Carbon Assets Development Fund Plan, other than exchange loss of £97,000.

16. Inventories

Amount in £’000 2012 2011

Raw material – 2,692Work in progress 5 2,421Finished goods 6,379 4,584

6,384 9,697

Finished goods represents mainly inventory held in the trading business. The Group recognised a loss of £nil (2011: £0.2 million) in the income statement on the valuation of inventory to its net realisable value.



17. Trade and other receivables

Amount in £’000 2012 2011

Trade receivables* 13,690 12,606Due from customer for contract work* – 1,191Other receivables*† 10,813 22,827Prepaid lease payments* (see note 13) – 80Prepayments and accrued income 421 457

Total trade and other receivables 24,924 37,161Less: other non-current receivables (2,413 ) (3,958 )

Trade and other receivables – current 22,511 33,203

* The decrease in trade receivables due from customer for contract work, other receivables and prepaid lease payment was mainly because the Group announced that it has conditionally agreed to inject its natural gas business into China Gas Holdings Limited and those receivables were reclassified as assets held for sales at the year end.

† The amount primarily represents loans to non-controlling interests at £5,349,000 (2011: £5,451,000) (see note 30), advance payments for gas sales and construction £nil (2011: £10,342,000) and deposits for an acquisition £nil (2011: £511,000).

The following is an aged analysis of trade receivables net of allowance for doubtful debts at the balance sheet date:

Amount in £’000 2012 2011

0 –30 days 13,690 10,57931–60 days – 38661–90 days – 23791–120 days – 308Over 120 days – 1,096

13,690 12,606

Included in the Group’s trade receivables balance are debtors with a carrying amount of £nil (2011: £1,738,000) which are past due at the reporting date for which the Group has not provided for impairment loss.

Ageing of trade receivables which are past due but not impaired

Amount in £’000 2012 2011

0–30 days – –31–60 days – 9761–90 days – 23791–120 days – 308Over 120 days – 1,096

– 1,738



18. Cash and cash equivalents

Cash and cash equivalents (which are presented as a single class of assets on the statement of financial position) comprise cash at bank and short-term bank deposits with an original maturity of three months or less. The carrying value of these assets is approximately equal to their fair value.

Bank balances carry interest at market rates which range from 0.01% to 0.40% (2011: 0.01% to 0.40%) per annum.

19. Trade and other payables

Amount in £’000 2012 2011

Trade payables 16,584 9,762Other payables* 5,182 12,043Receipts in advance for gas connection fee* – 15,833Payables for taxation and social security 290 –Accruals and deferred income 1,138 3,471

23,194 41,109

* Significant decrease in other payables and receipts in advance for gas connection fee was mainly because the Group announced that it has conditionally agreed to inject its natural gas business into China Gas Holdings Limited and those liabilities were reclassified as liabilities held for sale at the year end.

The following is an aged analysis of trade payables at the balance sheet date:

Amount in £’000 2012 2011

0–30 days 11,159 4,56931–60 days 4,981 72561–90 days 410 17291–120 days 34 2,802Over 120 days – 1,494

16,584 9,762



20. Assets classified as held for sale

On 17 December 2012, the Group announced it had conditionally agreed to inject its natural gas business into China Gas Holdings Limited for a total consideration of £247.5 million (US$400 million) (the “Proposed Transaction”), of which the Group’s share is £210.4 million (US$340 million), with the balance payable to non-controlling interests.

The major classes of assets and liabilities of the subsidiaries classified as held for sale are as follows:

Fortune Gas InvestmentAmount in £’000 Holdings Ltd

Interests in jointly controlled entities (see note 14) 39,832Interests in associates (see note 14) 969Property, plant and equipment (see note 10) 60,504Intangible assets (see note 12) 14,155Goodwill (see note 11) 3,007Prepaid lease payment 2,749Other non-current receivables 1,426Inventories 3,564Bank and cash balance 23,123Trade and other receivables 19,682

Total assets classified as held for sale 169,011

Trade and other payables (23,962 )Borrowings (10,043 )Current tax liabilities (2,306 )Deferred tax liabilities (see note 23) (2,583 )

Total liabilities classified as held for sale (38,894 )

The cash flow statement for the discontinued operations is as follows:

Amount in £’000

Net cash from operating activities 9,838Net cash used in investing activities (21,320 )Net cash used in financing activities (5,539 )

Net decrease in cash and cash equivalent (17,021 )Cash and cash equivalents at beginning of the year 41,869Effect of foreign exchange rate changes (1,725 )

Cash and cash equivalents at end of the year 23,123

The disposal group is materially all of the natural gas operating segment. Fortune Gas Technology Company Limited and subsidiaries were sold to the continuing group prior to signature of the conditional Sales and purchase agreement, however the net assets associated with these companies are not significant. The sale was subject to five conditions precedent including 1) approval by Fortune Oil shareholders; 2) approval by CGH shareholders; 3) the consent or waiver being obtained from the facility agent on behalf of the majority of lenders from Fortune Oil group’s syndication loan; 4) receipt of regulatory approval from the Anti-Monopoly Bureau of the Ministry of Commerce of the PRC; and 5) on negative confirmation from the Hong Kong Takeovers Executive or Takeovers and Mergers Panel. Approval by the Fortune and China Gas shareholders was received on 19 February 2013 and 8 February 2013 respectively. At the date of this report, the receipt of regulatory approval from the Anti-Monopoly Bureau of the Ministry of Commerce of the PRC and negative confirmation from the Hong Kong Takeovers Executive or Takeovers and Mergers Panel is still outstanding, however is expected to be received prior to the long stop date of 30 June 2013. The proceeds of disposal are expected to substantially exceed the book value of the related net assets and accordingly no impairment losses have been recognised on the classification of these assets and liabilities as held for sale.



21. Borrowings

Amount in £’000 2012 2011

Current liabilitiesBank loans 68,211 16,077Other loans – 5,828

68,211 21,905

Non-current liabilitiesBank loans (see note 27) 43,581 110,618Loan from non-controlling interests – 1,604

43,581 112,222

Total borrowings 111,792 134,127

Bank loans amounting to £6,948,000 (2011: £7,157,000) are secured, interest bearing from 6.6% to 7.782% p.a. and are repayable within 12 months.

In April 2011, the Group restructured its facility arrangement and Fortune PRC Holdings Limited, a wholly owned subsidiary of the Company, entered into a new loan facility with Morgan Stanley Asia Limited (“Morgan Stanley”) amounting to £112 million (US$180 million) which is guaranteed by the Company, secured over its various of the Group’s subsidiaries and bears interest at a margin of 2.6% above LIBOR (the “Morgan Stanley syndicated loan”). £61,262,000 (2011: £5,791,000) of the Morgan Stanley syndicated loan is repayable within 12 months and the remaining balance is repayable after 12 months. The proceeds were used to repay the 3-year US$80 million loan facility (£52 million) arranged by Standard Chartered Bank (Hong Kong) in April 2010.

In connection with this loan, the Company granted to Morgan Stanley warrants to subscribe for 16,027,957 (representing 0.80% of the issued share capital of the Company) new ordinary shares of 1p each in the Company at an exercise price of 15.27p per share. The option is exercisable at any time up to 8 June 2013. The value of the warrants, of £424,000 which has been determined using a Trinomial valuation model, have been considered part of the transaction costs of the loan. The inputs into the valuation model were as follows:

Fair value at grant date 2.55pShare price at grant date 11.31pExercise price 15.27pExpected volatility 1Warrants life 2 yearsExpected dividend yield nilRisk-free interest rate 1.36%

On 17 December 2012, the Group announced that it has conditionally agreed to inject its natural gas business into China Gas Holdings Limited and those bank loans of £3,087,000, other loans of £5,658,000 and loan from non-controlling interests of £1,298,000 were reclassified as liabilities held for sale at the year end.

Other loans are unsecured, interest bearing at the range at 2.55% p.a. in 2011.

Included in the above are bank loans with a carrying amount of £111,792,000 (2011: £126,695,000). The Group has fully complied with the covenants attached to these loans. These covenants relate to total equity, net borrowings to total equity and EBITDA to gross interest paid by the Group.



22. Other non-current liabilities

Amount in £’000 2012 2011

Deferred payment 6,775 8,242Other provision 1,354 1,150

8,129 9,392

In 2011, the Group acquired an interest in three mining licences. Part of the purchase consideration includes a payment deferred until 2015, which has been discounted at a risk free rate at 1.95%.

The purchase agreement for Everthriving Energy in 2010 specifies that additional consideration of RMB50 million (£4.93 million) is payable after certain conditions are met, including receipt of government approval for refitting marine diesel oil-LNG dual fuel technology, execution of not less than 1,500,000 tons of marine diesel oil-LNG dual fuel refitting, and obtaining government approval for six LNG refuelling stations along Yangtze river. The Directors consider it probable that all of the conditions will be met by June 2019 based on the development of the project to date, and therefore a provision for additional consideration of £1.2 million has been recorded, using a discount rate of 17.8%. During 2012 the Group recognised in the income statement £0.2 million (2011: £0.6 million) for the unwinding of the discount in respect of the liability. Given the change in the expected timing to settle the obligation, the £2.9 million of change of the estimate has resulted in a reduction to the deferred consideration provision and the cost of the intangible technology rights.

23. Deferred tax liabilities

Deferred tax comprises:

Revaluation Accelerated Revaluation of intangibleAmount in £’000 tax depreciation of PP&E assets Other Total

At 1 January 2011 (352 ) (107 ) 1,339 1,126 2,006Exchange differences (25 ) (4 ) 118 179 268Acquisition of subsidiaries – – 813 – 813Withholding tax on dividend (see note 7) – – – 1,396 1,396(Credited)/charged to income statement (493 ) 4 (48 ) (1,179 ) (1,716 )

At 31 December 2011 (870 ) (107 ) 2,222 1,522 2,767Exchange differences 28 3 (68 ) (184 ) (221 )Acquisition of a subsidiary – (139 ) 740 – 601Withholding tax on dividend (see note 7) – – – 1,552 1,552Changed/(credited) to income statement 842 4 (72 ) (1,404 ) (630 )Transfer to assets held for sale (see note 20) – 239 (2,822 ) – (2,583 )

At 31 December 2012 – – – 1,486 1,486

At the balance sheet date the Group had unused tax losses of £4,207,000 (2011: £11,111,000) arising from operations in the PRC, Hong Kong and the United Kingdom. No deferred tax asset has been recognised in respect of such tax loss due to unpredictability of future profits. The tax losses may be carried forward indefinitely.

From 2008, dividends distributed overseas by foreign invested enterprises in China were subject to tax. The tax rate is 10% for Bluesky and Maoming Single Point Mooring dividends and 5% for West Zhuhai Terminal.

There are no material temporary difference associated with investments in subsidiaries, associates and interests in jointly ventures for which deferred tax liabilities have been recognised.



24. Share capital

Group Number of shares Share Capital

2012 2011 2012 2011 ’000 ’000 £’000 £’000

Ordinary shares of 1p each

AuthorisedAt beginning and end of year 3,500,000 3,500,000 35,000 35,000

Issued and fully paidAt beginning and end of year 1,987,467 1,987,467 19,875 19,875

25. Share-based payments

Analysis of share options at as 31 December 2012:

2012 2011

Weighted Weighted average average Options exercise price Options exercise price

Outstanding at the beginning of the year 12,562,702 9.15p 6,700,000 7.40pGranted during the year – – 7,642,702 10.18pExercised during the year (1,603,421 ) 6.25p (1,650,000 ) 6.98pLapsed during the year (186,605 ) 9.41p (130,000 ) 6.32p

Outstanding at the end of the year 10,772,676 9.58p 12,562,702 9.15p

Exercisable at the end of the year 3,316,579 8.20p 4,920,000 7.57p

The weighted average closing share prices at the settlement dates for share options exercised during the year were 10.42 pence (2011: 13.92 pence).

The options outstanding at the end of the year have an exercise price in a range from 6.32 pence up to 12.75 pence and a weighted average remaining contractual life of 7.6 years (2011: 7.5 years).

Summary of Share Options Granted as follows:

Date of Grant 08.06.05 25.06.08 08.06.11 04.10.11 04.10.11

Number of Options Issued 6,230,000 1,350,000 1,709,000 5,631,587 302,115

Name of Scheme* 2004 Approved 2004 2004 2004 2004 Scheme and Unapproved Unapproved Unapproved Approved 2004 Unapproved Scheme Scheme Scheme Scheme Scheme

Using Trinomial Valuation Model with the following Assumptions Fair Value at Grant Date (pence) 3.39 6.49 6.87 4.95 4.80 Share Price at Grant Date (pence) 6.32 11.75 12.75 9.41 9.41 Exercise Price (pence) 6.32 11.75 12.75 9.41 9.93 ** Expected Volatility (%) 46.36% 35.54% 56.17% 54.72% 54.72% Option Life (years) 10 years 10 years 10 years 10 years 10 years Expected Dividend Yield (pence) nil nil nil nil nil Risk-Free Interest Rate (%) 4.145% 5.115% 3.555% 2.349% 2.349%

* For further details, please refer to pages 53 to 54.

** Calculated based on a 3 days average.

The Group recognised a charge of £700,000 (2011: £400,000) related to share-based payments transactions which included LTIP charge. Disclosures required under IFRS 2 “Share-based Payments” in respect to the Long Term Incentive Plan (“LTIP”), which details are included in the Directors’ Remuneration Report, have been omitted because the amounts involved are not material.



26. Reserves

Foreign currency translation reserveThe foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of the PRC, Hong Kong and Armenian operations.

Treasury sharesThe shares are held by JTC Trustees Limited as the trustee for future distribution to employees.

Following the shareholder approval at the AGM on 25 June 2004, the 2004 Senior Executive Incentive Plan (the “Plan”) had been operated by the trustee of the Company’s Employee Benefit Trust, subject to the rules of the Long Term Incentive Plan (the “LTIP”) as amended in 2004. On 24 June 2009, shareholders have approved the renewal of the LTIP and Plan at the AGM (with details on pages 54 to 56). There is a specified Remuneration Committee Policy in relation to the operation of the Plan under the LTIP rules.

The total number of shares held in the name of JTC Trustees Limited is 85,496,806 (2011: 87,786,609). The nominal value of these shares is £678,000 (2011: £878,000).

At 31 December 2012, the investment represented 4.3 per cent (2011: 4.4 per cent) of the called up ordinary share capital of Fortune Oil PLC. Additional details are given in the Remuneration Report.

The market value of shares was £8,977,165 at 31 December 2012 (2011: £10,534,393).

27. Financial Instruments

Significant accounting policiesDetails of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the bases for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are disclosed in note 1.

a) Categories of financial instruments

Amount in £’000 2012 2011

Financial assetsLoans and receivables (including cash and cash equivalents) 75,229 160,766Available for sale investments (see note 15) 1,948 29,860

77,177 190,626

Financial liabilities at amortised cost 143,115 184,628Derivative financial liabilities 68 71

Financial liabilities 143,183 184,699



27. Financial Instruments continued

Financial instruments that are measured subsequent to initial recognition at fair value are grouped into levels 1 to 3 based on the degree to which the fair value is observable:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liabilities that are not based on observable market date (unobservable inputs).

The fair value of the derivate financial liabilities are determined in accordance with generally accepted pricing models based on the fair value of Fortune Liulin Gas Company Limited. The fair value measurements were derived from valuation techniques that include inputs that are not based on observable market data and as such have been classified as a Level 3 fair value measurement.

There were no transfers between levels during the year.

2012 2011

Amount in £’000 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Financial assetsAvailable for sale investments – quoted – – – – 27,815 – – 27,815Available for sale investments – unquoted (see note 15) – – 1,948 1,948 – – 2,045 2,045

– – 1,948 1,948 27,815 – 2,045 29,860

Financial liabilitiesDerivative financial liabilities – option – – 68 68 – – 71 71

There were no transfers between levels during the year.

Derivative financial liabilities

Amount in £’000

Balance at 1 January 2012 71Exchange difference (3 )

Balance at 31 December 2012 68




b) Financial risk management objectives and policiesThe Group’s significant financial assets and financial liabilities included available for sale investments, trade and other receivables, cash and cash equivalents, borrowings, and trade and other payables. Details of these financial instruments are disclosed in a) above, and in the respective notes. The risks associated with these financial instruments include market risk (currency risk, interest rate risk and price risk), credit risk and liquidity risk. The carrying amounts of financial assets and financial liabilities recorded in the Group financial statements approximate their fair value.

Market risk

i) Currency risk

At present, no foreign exchange hedging is undertaken by the Group. However, management monitors the related foreign currency exposure closely and will consider hedging significant foreign currency exposure should the need arise.

The carrying amount of the Group’s cash and cash equivalents and borrowings denominated in foreign currency is as follows:

Cash and cash equivalents Borrowing

Amount in £’000 2012 2011 2012 2011

US dollars 14,897 55,958 104,844 113,230HK dollars 7,727 473 – –Chinese renminbi 50,703 71,615 16,991 20,897

The following table details the Group sensitivity to a 20% increase and decrease in the relevant foreign currencies against GBP. 20% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The table shows the decrease in equity that would result from a 20% strengthening of the GBP against the relevant currency. A 20% weakening of the GBP against the relevant currency would increase equity by an equivalent amount.

RMB Impact HK$ Impact US$ Impact

Amount in £’000 2012 2011 2012 2011 2012 2011

Equity – translation reserve 27,403 25,514 5,674 5,120 612 791

The following table details the Group sensitivity to a 20% increase and decrease in the relevant foreign currencies against RMB. 20% is the sensitivity rate use when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The table shows the impact on profit of a 20% strengthening of the RMB against the relevant currency. A 20% weakening of the RMB against the relevant currency would have an equivalent, opposite impact on profit.

HK$ Impact US$ Impact

Amount in £’000 2012 2011 2012 2011

Profit or (loss) (155 ) (595 ) (4,430 ) (3,237 )




ii) Interest rate risk

The Group is exposed to cash flow interest rate risk in relation to variable-rate bank borrowings. (See note 21 for details of these borrowings).

The Group’s borrowings at the balance sheet date were as follows:

Amount in £’000 2012 2011

Non-interest bearing – 1,369Floating rate 111,792 132,758

111,792 134,127

The Group cash flow interest rate is mainly concentrated on the fluctuation of LIBOR, HIBOR and the PRC prevailing borrowing rate.

The sensitivity analyses below have been determined based on the exposure to interest rates for variable-rate. If interest rates had been 5% higher or lower and all other variables were held constant, the Group’s profit for the year ended 31 December 2012 would decrease or increase by £559,000. (2011: decrease or increase by £658,000).

iii) Commodity price risk

The Group generally considers the volatility in commodity prices to be part of its business environment and accordingly does not hedge market risk resulting from fluctuations in gas and oil prices. The Group holds no financial instruments which are sensitive to commodity price risk.

iv) Other price risk

The Group is exposed to equity price risk on its available for sale equity investments.

The sensitivity analysis below shows the impact of a movement in the equity values of the available for sale investments held as at the reporting date. If the value of the available for sale investments had increased by 10% as at the reporting date, equity would have increased by £0.2 million (2011: £3.0 million). There would have been no impact on the income statement.

These sensitivity disclosures above exclude any exposure to price risk arising from the Group’s investments in associates and joint ventures.

Credit riskCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises on financial instruments such as cash and cash equivalent and trade and other receivables.

For cash and cash equivalent, the Group deposits money into state-owned banks and regional banks, with high credit-ratings assigned by international credit-rating agencies. For trade and other receivables, the Group has adopted a policy of only dealing with creditworthy counterparties, and monitors the credit risk by scrutinising customers’ profiles and periodical review of ageing of amounts due. The concentration of credit risk is limited due to the customer base being large and unrelated. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management.

The maximum exposure to credit risk in 2012 is £75,299,000 (2011: £160,766,000) which is the total cash equivalents and trade and other receivables.




Liquidity risk managementIn 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 operations and mitigate the effects of fluctuations in cash flows. In addition, the Group has aggregate letter of credit facilities, which are floating rate, of £115,183,000 (US$186,136,000). (2011: £102,956,000 (US$159,993,000)) as at 31 December 2012.

The average interest rate incurred on debt for the year ended 31 December 2012 is 4.62% p.a. (2011: 4.63%)

The following table shows the details of the Group’s expected maturity of the financial instruments, which are different fromthe actual contract dates.

Weight average effective Total interest rate Repayable 3 months Over undiscounted CarryingAmount in £’000 % on demand 1– 3 months to 1 year 1 year cash flows amount

2012Non-derivative financial liabilitiesTrade and other payables N/A 12,765 4,566 5,863 – 23,194 23,194Bank loans due over 1 year 4.57% – – – 46,854 46,854 43,581Bank loans due less than 1 year 4.73% – 5,569 64,078 – 69,647 68,211Other non-current liabilities N/A – – – 8,575 8,575 8,129

12,765 10,135 69,941 55,429 148,270 143,115

Weight average effective Total interest rate Repayable 3 months Over undiscounted CarryingAmount in £’000 % on demand 1– 3 months to 1 year 1 year cash flows amount

2011Non-derivative financial liabilitiesTrade and other payables N/A 23,572 6,508 11,029 – 41,109 41,109Bank loans due over 1 year 4.64% – – – 122,710 122,710 110,618Bank loans due less than 1 year 5.75% – 7,191 9,344 – 16,535 16,077Other loans due less than 1 year 2.55% 5,112 – 725 – 5,837 5,828Other loans due over 1 year 0.37% – – – 1,620 1,620 1,604Other non-current liabilities N/A – – – 19,027 19,027 9,392

28,684 13,699 21,098 143,357 206,838 184,628




Maturity profile of financial liabilitiesThe maturity profile of the carrying amount of the Group’s non-current borrowings is as follows:

Amount in £’000 2012 2011

One to two years 43,581 71,681Between two and five years – 40,541

43,581 112,222Interest 3,273 12,108

Cash flows 46,854 124,330

Capital risk managementThe Group’s objectives are to return capital to shareholders while leaving the Group with sufficient funds to progress its short, medium and long-term growth plans as well as preserving the financial flexibility to take advantage of opportunities as they may arise. This policy remains unchanged. During the years ended 31 December 2012 and 2011, the Group has generated operating cash flow which has been used to partially fund acquisitions and the ongoing development of the Group. In addition, the Group utilises external borrowings, which were renegotiated in the prior year, as detailed in note 21.

The Group actively reviews and monitors its capital structure on a regular basis to maintain a healthy gearing ratio which is net debt/(cash) divided by shareholders’ funds. For this purpose the Group defines net debt/(cash) as borrowings less cash and cash equivalents. The Group’s total cash is held in demand and term deposits. Shareholders’ funds comprise share capital, share premium and reserves attributable to the Company’s shareholders as shown in the consolidated statement of financial position. In order to maintain or adjust the capital structure, the Group may adjust the payment of dividends, issue new shares, raise new debt financing or sell assets to reduce debt.

Amount in £’000 2012 2011

Borrowing 111,792 134,127Cash 50,726 128,440

Net Debt 61,066 5,687Equity 189,053 141,081

Externally imposed capital requirementThe Group is not subject to externally imposed capital requirements.



28. Operating lease arrangements

The Group as lessee:At the balance sheet date, the Group had outstanding commitments (excluding those operating commitment in the natural gas business) for future minimum lease payment under non-cancellable operating leases in respect of property, which fall due as follows:

Amount in £’000 2012 2011

Within one year 740 484In two to five years 466 369Over five years – 113

1,206 966

Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for an average term of two to six years and rentals are fixed for an average of two to six years.

The Group as lessor:At the balance sheet date, the Group had outstanding future minimum lease receivables under non-cancellable operating leases, which fall due as follows:

Amount in £’000 2012 2011

Commitments under operating lease (receivables):Within one year – 9In two to five years – 13

– 22

Property rental income earned during the year was £9,000 (2011: £9,000). The properties are expected to generate rental yields of 6.5% on an ongoing basis. All of the properties held have committed tenants for the next two to five years.

29. Capital commitments

2012 2011

Commitments for Commitments for capital expenditure in capital expenditure in

jointly controlled jointly controlledAmount in £’000 subsidiaries * entities * subsidiaries entities

Outstanding at 31 December 2012Contracted for but not provided for in the financial statements 3,044 3,767 60,660 826

* The amount was excluding those capital commitment in the natural gas business.



30. Related party transactions and significant contracts

The Group’s related parties, the nature of the relationship and the extent of transactions with them are summarised below:

Amount in £’000 Sub note 2012 2011

Loans from equity non-controlling interests in subsidiaries (see note 21) 1 – (1,604 )Loans to equity non-controlling interests in subsidiaries (see note 17) 1 5,349 5,451Trade account receivables from non-controlling shareholders 2 876 4,208Trade account payables from non-controlling shareholders 2 1,585 2,672Shareholder loans to jointly controlled entities (see note 14) 3 56,024 10,155Sales of goods to Vitol Asia 4 – 3,212Sales of goods to jointly controlled entities 4 4,241 3,456Purchase of goods from Vitol Asia 4 – 6,852Purchase of goods from jointly controlled entities 4 2,310 1,629Current account with Vitol Asia 4 (476 ) (490 )Current account with jointly controlled entities 4 – (37 )

Key management remuneration is disclosed in note 3 to the financial statements.

Sub Notes1. On 17 December 2012, the Group conditionally agreed to inject its natural gas business into China Gas Holdings Limited. Natural gas

group’s loans from equity non-controlling interests in subsidiaries are transferred into assets held for sale at the year ended. The loans of

£1,604,000 in 2011 comprised loans from the non-controlling shareholders of Shuozhou Jingshuo Natural Gas Limited, Luquan Fu Xin Gas

Company Limited, Shuozhou Fu Hua Natural Gas Limited and Qufu Fu Hua Gas Company Limited which are unsecured, interest free and

without fixed payment terms, except for the loan of £228,000 which was interest bearing at 2.5% p.a. and repayable in 2024. Loans

of £5,349,000 (2011: £5,541,000) comprised mainly loans to the non-controlling shareholders. A £1,450,000 (2011: £1,494,000) loan

to the non-controlling shareholders of Beijing Everthriving Energy Technology Company Limited is unsecured interest free and without

fixed payment terms. A £3,899,000 (2011: £3,957,000) loan to the non-controlling shareholders of Bounty Resources Armenia Limited

is guaranteed, interest bearing at a margin of 4% over LIBOR p.a. and repayable in June 2014.

2. Maoming Petrochemical Corporation (MPCC) is a corporate shareholder of the Group’s subsidiary, Maoming King Ming Petroleum

Company. Throughputting turnover from MPCC amounted to £16,397,000 (2011: £16,311,000) of which £876,000 (2011: £4,208,000)

was owed at 31 December 2012. Processing fee to MPCC amounted to £5,404,000 (2011: £5,251,000) of which £1,585,000 (2011:

£2,672,000) was payable at 31 December 2012.

3. The shareholder loans are part of shareholders’ investment in the jointly controlled entities. These are common methods of making

an investment in jointly controlled entities in China. £10,155,000 in 2011 was due from Tianjin Tianhui Natural Gas Limited, Jining Qufu

New Fu Hong Gas Limited, Beijing Fuhua Natural Gas Logistics Limited and Fortune Liulin Gas Company Limited. Since the Group was

conditionally disposed natural gas business to China Gas Hollings Limited, all amounts due from natural gas group’s jointly controlled

entities were transferred into assets held for sale at the year ended. £55,878,000 was loaned to China Gas Group Limited which is

established in Hong Kong and £146,000 was due from Zhuhai Special Economic Zone South China Petroleum Company Limited.

4. Vitol Energy (Bermuda) Limited is a shareholder of the Company. Sales from a Group’s subsidiary, Fortune Oil Holdings Limited, to Vitol Asia

Pte Limited amounted to £nil (2011: £3,212,000). Purchase from Vitol Asia Pte Limited amounted to £nil (2011: £6,852,000) and purchase

from jointly controlled entity – Jining Qufu New Fu Hong Gas Limited amounted to £2,310,000 (2011: £1,629,000) respectively. Sales

from Group’s subsidiary, Xinyang Fortune Gas Company Limited to Group’s jointly controlled entity, Xinyang Fortune Vehicle Gas Company

Limited, amounted to £4,241,000 (2011: £3,456,000).

Current account due to Vitol Energy (Bermuda) Limited amounted to £476,000 (2011: £490,000). Since the Group conditionally disposed

the natural gas business, all current account with jointly controlled entities was transferred into assets held for sale at the year ended.

Current account due to jointly controlled entity, Jining Qufu New Fu Hong Gas Limited, amounted to £42,000 and current account due

from jointly controlled entity, Beijing Fortune Natural Gas Logistics Limited, amounted to £5,000 in 2011.

5. Fortune Max Holdings Limited (“FMH”) is a private company controlled and beneficially owned by Mr. Daniel Chiu. During 2012, FMH has

entered into arrangements with lenders to finance the purchase of China Gas Holdings Limited (“CGH”) shares, and then entered into a

verbal understanding to sell any such CGH shares to CGG, at all cost associated with the purchase and financing of any CGH shares

acquired as and when these are transferred to CGG, and any losses arising on the CGH shares acquired by FMH. In April 2013, CGG has

acquired all the 207,968,000 CGH shares previously purchased by FMH by its own financing capacity (see note 34).

6. As at 31 December 2012, 200 million CGH shares held by CGG are pledged for a loan of First Level Holdings Limited, a company controlled

and beneficially owned by Mr. Daniel Chiu, executive director of the Company.



31. Acquisition of subsidiaries

On 20 July 2012, the Group acquired 51% of the issued share capital of Quyang Province Dafung Natural Gas Company Limited for cash consideration of £4.07 million (US$6.39 million).

The Group obtained control of the subsidiary as a result of being able to exercised control over the respective board of directors.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the following.

Quyang Province Dafung Natural Gas Fair valueAmount in £’000 Company Limited adjustments Fair value

Net assets acquired:Property, plant and equipment (see note 10) 2,018 (558 ) 1,460Intangible assets (see note 12) 6 3,562 3,568Other receivables 4,436 – 4,436Inventory 251 – 251Bank balance and cash 304 – 304Loan from Fortune Oil (698 ) – (698 )Borrowings (139 ) – (139 )Other payables (616 ) – (616 )Deferred tax liabilities (see note 23) – (601 ) (601 )Taxation 14 – 14

5,576 2,403 7,979Non-controlling interests (2,732 ) (1,178 ) (3,910 )

Consideration satisfied in cash 4,069

Satisfied by:Cash and cash equivalents 4,069

Net cash outflows arising on acquisition: Cash consideration paid 4,069 Bank balance and cash acquired (304 )

3,765

Acquisition related costs incurred are immaterial and have been recognised in the income statement.

Quyang Province Dafung Natural Gas Company Limited contribution to the Group’s revenue and net profit for the period was negligible between the date of acquisition and the balance sheet date. If the acquisition of the subsidiary had been completed on the first day of the financial year, the Group’s revenues and net profit would have not materially changed.

In May 2011, the Group acquired 51% of the issued share capital of Liaoning Jiaoning Fortune Gas Company Limited and Fu Song Jin Run Natural Gas Limited for cash consideration of £1.1 miliion.

In June 2011, the Group acquired 55% of the issued share capital of Beijing Fortune Power Technology Company Limited for cash consideration of £0.4 million.



32. Hedging reserve

Amount in £’000 2012 2011

At 1 January – 564Loss on cash flow hedges arising during the year – 111Loss on cash flow hedges transferred to income statement – (675 )

At 31 December – –

The hedging reserve represents the cumulative portion of gains and losses on hedging instruments deemed effective in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only when the hedged transaction impacts the profit or loss, or is included as a basis adjustment to the non-financial hedged item, consistent with the applicable accounting policy.

33. Note to cash flow statement


Net cash from operating activitiesProfit for the year 20,478 24,851Adjustments for: Share of post-tax results of jointly controlled entities 14 (14,568 ) (14,824 ) Share of post-tax results of associates 14 (52 ) 72 Taxation 7 8,246 6,801 Amortisation 12, 13 834 579 Depreciation 10 7,426 6,052 Loss on disposal of property, plant and equipment 1,813 1,832 Government grant income (1,092 ) – Gain on disposal of subsidiary undertakings – (7,633 ) Loss on disposal of jointly controlled entities – 310 Gain on disposal of available for sale investments 15 (4,645 ) – Share-based payments 700 400 Investment revenue 6 (1,660 ) (2,186 ) Finance costs 5 6,095 5,281Increase in inventories (282 ) (5,257 )(Increase)/decrease in trade and other receivables (5,433 ) 17,476Increase/(decrease) in trade and other payables 6,088 (10,596 )

Net cash from operations 23,948 23,158Taxation paid (7,898 ) (6,236 )

Net cash from operating activities 16,050 16,922

Cash and cash equivalentsCash and bank balances 50,726 128,440Cash and bank balances classified as assets held for sale 20 23,123 –

73,849 128,440



34. Post balance sheet events

On 17 December 2012, Fortune Oil conditionally agreed to inject its natural gas business into CGH, a Hong Kong listed company, by selling its stake in Fortune Gas Investment Holdings Limited (the “Proposed Transaction”). As at the date of this report, three out of five conditions precedent have been fulfilled, with the Proposed Transaction still being conditional on receipt of regulatory approval from the Anti-Monopoly Bureau of the Ministry of Commerce of the Peoples’ Republic of China (“PRC”), and on negative confirmation from the Hong Kong Takeovers Executive or Takeovers and Mergers Panel. It is expected the remaining conditions will have been fulfilled by mid-year of 2013.

Fortune Oil holds its investment in CGH through China Gas Group Limited (“CGG”), a joint venture company between Fortune Oil and Mr. Liu Minghui, the founder of CGH. In April 2013, CGG acquired the 207,968,000 CGH shares previously held by FMH. This purchase was financed by an additional debt facility, Following this transaction, CGG holds 702,446,000 CGH shares, representing 15.4% of CGH’s total issued shares as at the date of this report. As a result of this transaction, FMH no longer holds any CGH shares. Under the terms of the verbal understanding with CGG, FMH has generated neither profit nor incurred any loss from its transaction in CGH shares, however CGG will recognise a gain of over £60 million based on the market value at the date of transfer, with Fortune Oil’s share being over £30 million.

The Board of Directors proposed a final dividend for the year ended 31 December 2012 of 0.16p per share. Please refer to note 8 “Dividends” for detail.

35. Litigation

In April 2012, an action was commenced in the High Court of Hong Kong against inter alia, the Company and Giant Global Development Limited (“GGDL”), its wholly owned subsidiary, in relation to the sale of a 16.7 per cent shareholding in Caspian Bounty Steel Limited (“CBSL”) to GGDL in January 2011. CBSL is the company through which Fortune Oil holds, partly, its interests in an iron ore mining project located in Armenia. GGDL successfully applied in September 2012 to the High Court of Hong Kong for security for costs to be given by Caspian Resources Development Pte Limited, and to the best of knowledge of Fortune Oil, the claim has not been progressed since. Both the Company and GGDL deny all allegations against them and will strenuously defend their case. The statement of claim does not include the amount claimed.

In January 2013, the Company received correspondence from the solicitors of its joint venture partner in Fortune Liulin Gas (“FLG”), Dart Energy (FLG) Pte. Ltd. (“Dart”), alleging that the Proposed Transaction would constitute a breach of the obligations of subsidiaries of the Company, under the joint venture agreement that governs the operations of FLG. As at the date of this report, no formal proceedings have been filed. The management, on legal advice, believes no breach has or will occur and the Company will vigorously defend its position if necessary.

Fortune Oil is currently unable to quantify any potential damages that could arise from any such claims; however, management believes that the outcome of these claims is likely to be in the Group’s favour and therefore should not have any significant adverse effect on the Group.


Amount in £’000 2012 2011 2010 2009 2008

Revenue: group and share of jointly controlled entities 739,402 624,634 566,886 403,745 364,722

Profit before tax 28,724 31,652 26,068 18,057 15,676

Income tax charge (8,246 ) (6,801 ) (6,526 ) (2,784 ) (1,501 )

Profit for the year 20,478 24,851 19,542 15,273 14,175

Profit attributable to non-controlling interests (4,812 ) (6,687 ) (6,459 ) (6,431 ) (5,198 )

Profit attributable to owners of the parent 15,666 18,164 13,083 8,842 8,977

Employment of Group capital

Non-current assets 305,208 216,428 133,068 143,399 137,564

Net current (liabilities)/assets (1,321 ) 104,445 95,327 12,167 36,235

Non-current liabilities

Borrowings (44,879 ) (112,222 ) (56,185 ) (18,346 ) (34,633 )

Deferred tax liabilities (4,069 ) (2,767 ) (2,006 ) (3,024 ) (2,556 )

Other non-current liabilities (8,129 ) (9,392 ) (3,320 ) – –

Financial liabilities – cash flow hedges – – (564 ) – –

Net assets 246,810 196,492 166,320 134,196 136,610

Basic earnings per share 0.82p 0.96p 0.69p 0.47p 0.49p

This information is unaudited.

five year summary



We have audited the parent company financial statements of Fortune Oil PLC for the year ended 31 December 2012 which comprise the Company statement of financial position and the related notes 1 to 7. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorAs explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statementsIn our opinion the parent company financial statements:

• give a true and fair view of the state of the Company’s affairs as at 31 December 2012• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and• have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006In our opinion:

• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

• the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements.



Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or• we have not received all the information and explanations we require for our audit.

Other matterWe have reported separately on the group financial statements of Fortune Oil PLC for the year ended 31 December 2012.

Bevan Whitehead (Senior Statutory Auditor)for and on behalf of Deloitte LLPChartered Accountants and Statutory AuditorLondon, UK24 April 2013



Non-current assets

Investments 2 58,192 59,515

58,192 59,515

Current assets

Debtors: amount falling due within one year 3 23,064 23,072

Cash and cash equivalents 396 236

23,460 23,308

Total assets 81,652 82,823

Current liabilities

Creditors: amounts falling due within one year 4 (18,111 ) (16,457 )

Net assets 63,541 66,366

Capital and reserves

Share capital 5 19,875 19,875

Investment in own shares 6 (678 ) (878 )

Share premium account 6 10,129 10,129

Merger relief reserves 6 19,048 19,048

Capital reduction account 6 3,327 3,327

Profit and loss account 6 11,840 14,865

Equity shareholders’ equity 7 63,541 66,366

The financial statements of Fortune Oil PLC, registered number 2173279, were authorised for issue and approved by the Board on 24 April 2013 and signed on its behalf by:

Li Ching Tee Kiam PoonDirector Director

The notes on pages 117 to 120 form part of these financial statements.

company statement of financial positionat 31 December 2012


1. Accounting policies

Basis of accountingThe financial statements have been prepared under the historical cost convention and in accordance with applicable UK accounting standards and law. As permitted by the Companies Act, the profit and loss of the parent company has not been separately presented in the financial statements. The loss of the Company during the year is £301,000 (2011: £574,000). A cash flow statement has not been presented as permitted by FRS 1 (revised) “Cash flow statements”.

The Parent Company financial statements are prepared on a going concern basis as explained in the going concern statement in the Directors’ Report.

InvestmentsIn the Company’s financial statements, investments in subsidiary undertakings are stated at cost, less provision for any impairment.

Share-based paymentsThe cost of providing share-based payments to employees is charged to the income statement of the entity receiving the service. The Company records an increase in investment to subsidiaries when share-based payments are made to employees of a subsidiary. Details of the share schemes can be found in the Remuneration Report and the notes to the Group accounts.

Investment in own sharesCompany shares held by the Employee Share Ownership Plan (ESOP) Trust are presented within reserves until such time as the interest in shares is transferred unconditionally to the employees. Costs of administering the Trust are charged to the income statement as incurred.

FRS 29 ExemptionThe Company, as a parent company of a group drawing up consolidated financial statements that meet the requirements of IFRS 7, is exempt from disclosures that comply with its UK GAAP equivalent, FRS 29 “Financial Statements: Disclosure”.

Related parties disclosures exemptionThe Company has taken advantage of the exemption conferred by FRS 8 “Related Party Disclosures” which allows it not to disclose transactions with Group undertakings as the Company’s financial statements are presented together with the consolidated financial statements of the Group.

Dividends payableDividends proposed are recognised when they represent a present obligation, i.e. in the period in which they are formally approved for payment. Accordingly, an interim dividend is recognised when paid and a final dividend is recognised when approved by shareholders.

Cash at bank and in handCash at bank and in hand comprise cash in hand and deposits repayable on demand.

Equity instrumentsEquity instruments issued are recorded at the proceeds received, net of direct issue costs.

Financial guaranteesFinancial guarantees are fair valued at inception and subsequently amortised over the life of the guarantee provided of received.

notes to the company financial statementsfor the year ended 31 December 2012



2. Investments

Amount in £’000

Cost of investment in shares and loansAt 1 January 2012 71,003Additional investment 4,479Written off (11,488 )Transfer to debtor (5,802 )

At 31 December 2012 58,192

Amounts providedAt 1 January 2012 11,488Written off (11,488 )

At 31 December 2012 –

Net book valueAt 31 December 2012 58,192

At 31 December 2011 59,515

At the balance sheet date, the cost of investment comprises investment in shares of £17.3 million (2011: £55.3 million) and investment in loans of £40.9 million (2011: £4.2 million).

During the year, amounts due from subsidiary undertakings were reclassified from investments to debtors as their settlement is planned and likely to occur, and therefore these amounts no longer form part of the Company’s net investment in those subsidiary undertakings.

The Company’s subsidiaries are disclosed in note 14 to the consolidated financial statements.

3. Debtors

Amount in £’000 2012 2011

Other debtors 40 31Prepayment 57 50Financial asset – financial guarantee 1 3,035 5,036Amount due from subsidiaries 2 19,932 17,955

23,064 23,072

1 The Company has received financial guarantees from two of the subsidiary undertakings over banking facilities agreements entered into by its subsidiaries, for which the Company has provided equal financial guarantees to banks.

2 The amounts are unsecured, carry interest bearing at 2.5% p.a. and repayable on demand.



4. Creditors

Amount in £’000 2012 2011

Financial liability – financial guarantee 3,035 5,036Amount due to subsidiaries 14,774 10,137Other creditors 45 857Accruals and deferred income 250 127Creditors for taxation and social security 7 300

18,111 16,457

The Company has provided financial guarantees to certain banks over banking facilities agreements entered into by its subsidiaries.

5. Share capital

Number of shares Share Capital

2012 2011 2012 2011Amount in £’000 ’000 ’000 £’000 £’000

Ordinary shares of 1p each

AuthorisedAt beginning and end of year 3,500,000 3,500,000 35,000 35,000

Issued and fully paidAt beginning and end of year 1,987,467 1,987,467 19,875 19,875

No movement of the authorised share capital in the current or prior years.



6. Reserves

Company Investment Share Merger Capital Profit in own premium relief reduction and lossAmount in £’000 shares * account reserves account account Total

At 1 January 2011 (898 ) 10,129 19,048 3,327 17,100 48,706Movement in investment in own shares 20 – – – (17 ) 3Share-based payments – – – – 400 400Issuance of warrants – – – – 424 424Dividend paid – – – – (2,468 ) (2,468 )Loss for the year – – – – (574 ) (574 )

At 31 December 2011 (878 ) 10,129 19,048 3,327 14,865 46,491Movement in investment in own shares 200 – – – – 200Share-based payments – – – – 700 700Dividend paid – – – – (3,424 ) (3,424 )Loss for the year – – – – (301 ) (301 )

At 31 December 2012 (678 ) 10,129 19,048 3,327 11,840 43,666

* The shares are held by JTC Trustees Limited as the trustee for future distribution to employees. Following the shareholder approval at the AGM on 25 June 2004, the 2004 Senior Executive Incentive Plan (the “Plan”) is currently operated by the trustee of the Company’s Employee Benefit Trust, subject to the rules of the Long Term Incentive Plan as amended in 2004 (“LTIP”). There is a specified Remuneration Committee Policy in relation to the operation of the Plan under the LTIP rules.

The Company’s investment in own shares is disclosed in note 26 to the consolidated financial statements.

In 2011, the Company granted to Morgan Stanley warrants in connection with the Morgan Stanley Syndicated loan. Details of the warrants are disclosed in note 21 to the consolidated financial statements.

7. Reconciliation of movements in shareholders’ funds

Amount in £’000 2012 2011

Loss for the year (301 ) (574 )Movement in investment in own shares 200 3Dividend paid (3,424 ) (2,468 )Share-based payments 700 400Issuance of warrant – 424

Net decrease in shareholders’ funds (2,825 ) (2,215 )Opening equity shareholders’ funds 66,366 68,581

Closing equity shareholders’ funds 63,541 66,366


RegistrarEnquiries and notifications concerning dividends, share certificates, transfers and address change, replacement share certificate should be addressed to the Company’s Registrar, whose address is:

Capita RegistrarsThe Registry34 Beckenham RoadBeckenhamKentBR3 4TU

Shareholders’ Helpline:UK: 0871 664 0300 (Calls to this number cost 10p per minute plus any network extras. Lines are open from 9am-5.30pm, Monday-Friday)International: + 44 (0) 20 8639 3399

In any correspondence with the registrars, please refer to Fortune Oil PLC and state clearly the registered name and address of the shareholder.

Dividend InformationAnnual General Meeting 18 June 2013Ex-dividend Date 10 July 2013Record Date 12 July 2013Final Dividend Payment Date 15 August 2013

Direct Dividend paymentsIf you would like to have your dividend paid directly into a UK bank or building society account, please contact Capita Registrars by calling their shareholder helpline or completing the dividend mandate attached to your dividend cheque. The associated tax voucher will still be sent to your registered address.

Dividend Reinvestment Plan (DRIP)The Company offers a dividend reinvestment plan to registered shareholders as a cost-efficient way of increasing their shareholding by using cash dividends under a standing election to buy additional shares in the Company. The DRIP is administered by Capita IRG Trustees Ltd (“CIRGT”). CIRGT will instruct the broker to buy shares on the dividend payment date at the then current market price. Any cash left over which is insufficient to purchase a whole share will be carried forward and held, without interest, in a client money bank account. The DRIP commission charged to the shareholder is 1% of the purchase price of the shares, with a minimum charge of £2.50. This is exclusive of stamp duty reserve tax at 0.5% of the deal value.

Should shareholders wish to participate in the DRIP, please contact the Registrar on 0871 664 0381 (calls cost 10p per minute plus network extras. Lines are open from 9am-5.30pm, Monday-Friday) or; if calling from overseas, + 44 20 8639 3402; alternatively you can email [email protected]

shareholder information

International dividend payment serviceCapita Registrars has partnered with Western Union to provide shareholders with a service that will convert shareholders’ sterling dividends into their local currency at a competitive rate. Shareholders can choose to receive payment directly into the bank account or alternatively, we can send shareholders a currency draft. For further information, please call Capita Registrars on 0871 664 0385 (calls cost 10p per minute plus network extras. Lines are open from 9am-5.30pm, Monday-Friday.) or; if calling from overseas, + 44 20 8639 3405; alternatively you can email [email protected]

Online share portalRegistered shareholders can register and access information regarding their shareholdings by using the Shareholder Portal at www.capitashareportal.com Shareholders will need their investor code (IVC) which can be found on their share certificate(s). The share portal allows shareholders to:

• viewtheirholding• updateaddressdetails• viewdividendhistory• viewtransactionhistory• electtoparticipateinthedividendreinvestmentplan• voteonlineand• registerforecommunicationsallowingFortuneOilto

notify shareholders by email that certain documents are available to view on its website.

Share Dealing ServiceShare dealing services are available for shareholders to either sell or buy Fortune Oil shares.

UK shareholders only – Capita Share Dealing Serviceswww.capitadeal.com (on-line dealing)

0871 664 0454 (telephone dealing – Calls to this number cost 10p per minute plus any network extras. Lines are open from 8am-4.30pm, Monday-Friday)

To deal online or by telephone all you need is your surname, Investor Code reference number, full postcode and your date of birth. Your investor code can be found on a recent share certificate, statement or tax voucher. Please have the appropriate documents to hand when you log on or call, as this information will be needed before you can buy or sell shares.

Full terms, conditions and risks apply and are available on request or by visiting www.capitadeal.com.

This is not a recommendation to buy or sell shares. The price of shares can go down as well as up, and you are not guaranteed to get back the amount that you originally invested.

Capita Share Dealing Services is a trading name of Capita IRG Trustees Limited which is authorised and regulated by the Financial Conduct Authority.


shareholder information

Share Price InformationThe current share price of Fortune Oil PLC is available on the interactive FT Cityline service on 09058 171 690 and listen to current FTSE 100 index, then simply say “Fortune Oil”. Calls are charged at 75p per minute from a BT landline. Average call duration will be 1 minute per stock. Cost from other networks and mobile phones, may be higher.

Warning to shareholders

Unsolicited mailFortune Oil PLC is obliged by law to make its share register publicly available and, as a consequence, some shareholder may receive unsolicited mail. If you wish to limit the receipt of unsolicited mail, you may do so by contacting the Mailing Preference Service, an independent organisation whose services are free to you.

Mailing Preference Service (MPS)MPS FREEPOST 29LON20771London W1E 0ZT

MPS Registration Line: 0845 703 4599

Or via their website at www.mpsonline.org.uk

Unsolicited calls or correspondenceWe are aware that a small number of shareholders have received unsolicited telephone calls concerning their investment in Fortune Oil PLC. These calls are from overseas based organisations who offer to buy Fortune Oil PLC shares for considerably more than the current market price. In some cases the caller has suggested that there is currently a takeover offer for Fortune Oil PLC. There is no such offer and we suspect that the calls were bogus.

Shareholders are advised to be very wary of any unsolicited investment advice, offers of free company reports. Operations, commonly known as “boiler rooms”, are targeting UK shareholders are callers can be very persistent and extremely persuasive. We are aware that they attempt to persuade individuals to provide email addresses or other personal information; shareholders are strongly advised not to provide any such details.

If you receive any unsolicited investment advice:

• checkthattheyareproperlyauthorisedbytheFinancialConduct Authority by visiting www.fsa.gov.uk/fsaregister and contacting the firm using the details on the register;

• reportanysuspicionstotheFCAeitherbycalling0800111 6768 or by completing an online form at http://www.fca.org.uk/consumers/scams/investment-scams/share- fraud-and-boiler-room-scams/reporting-form; or

• informCapitaRegistrarson08716640300(Calls cost 10p per minute plus network extras. Lines are open from 9am-5.30pm, Monday-Friday) or email [email protected]. They are not able to investigate such incidents themselves but will record the details and pass them on to us; and

• ifthecallspersist,hangup.

If you deal with an unauthorised firm, you will not be eligible to receive payment under the Financial Services Compensation Scheme.

Details of any share dealing facilities that the Company endorses is available on www.capitadeal.com

More detailed information on this or similar activity can be found on the FCA website http://www.fca.org.uk/consumers/scams/investment-scams

Electronic and web communicationsAt the annual general meeting of the Company held on 15 June 2010, resolutions were passed, whereby shareholders’ consent was obtained and the new articles of association were adopted, to enable the Company to communicate with shareholders by electronic communications further to the web communication since July 2007.

The Companies Act 2006 permits UK registered companies to send, or make available to their shareholders, their annual reports and accounts, notices of general meetings and other communications (the “Company communication”) by electronic means rather than by means of hard copies sent through the postal service (except to those who have specifically elected to receive a paper copy). Receiving your communications electronically offers advantages in terms of speed and convenience and is a secure method of obtaining your shareholder documentation, which also allows the Company to communicate in a more environmentally friendly and effective way.

Notices of general meetings and the Reports and Accounts, in Adobe Acrobat Portable Document Format (PDF), are supplied via the Company’s website (www.fortune-oil.com) to shareholders who have not requested a hard copy of these documents.

Relating to beneficial owners of shares with “information rights”Please note that beneficial owners of shares who have been nominated by the registered holder of those shares to receive information rights under section 146 of the Companies Act 2006 are required to direct all communications to the registered holder of their shares rather than to the Company’s registrar, Capita Registrars, or to the Company directly.

BankersMorgan Stanley Asia LimitedLevel 46 International Commerce Centre1 Austin Road WestKowloon, Hong Kong

Standard Chartered Bank (Hong Kong) LimitedStandard Chartered Bank Building4 – 4A Des Voeux Road, CentralHong Kong

The Hongkong and ShanghaiBanking Corporation LimitedHSBC Main Building1 Queen’s Road CentralHong Kong

CITIC Bank International Limited80 Fl. International Commerce Centre 1 Austin Road WestKowloon, Hong Kong

DBS Bank (Hong Kong) Limited16th Floor, The Center99 Queen’s Road Central Central, Hong Kong

Shenzhen Development Bank Co., Ltd.Guangzhou BranchNo. 66 Huacheng DadaoZhujiang Xincheng, GuangzhouChina

Barclays Bank plcKnightsbridge Business CentreP.O. Box 32014London NW1 2ZGUnited Kingdom

P R AdviserPelham Bell Pottinger5th Floor, Holborn Gate330 High HolbornLondon WC1V 7QDUnited Kingdom

Financial Adviser & Stockbroker Oriel Securities Limited150 CheapsideLondon EC2V 6ETUnited Kingdom

Corporate ConsultantS.Goschalk Limited41 MeadwayLondon NW11 7AXUnited Kingdom

Corporate AdviserVSA Capital LimitedFourth FloorNew Liverpool House15-17 Eldon StreetLondonEC2M 7LD

Investor Relations ConsultantScott Harris Victoria House1–3 College HillLondon EC4R 2RAUnited Kingdom

SolicitorsJun He Law OfficesSuite 2208, 22/F., Jardine HouseOne Connaught PlaceCentral, Hong Kong

Reed Smith LLPThe Broadgate Tower20 Primrose StreetLondon EC2A 2RSUnited Kingdom

DirectorsQIAN BenyuanChairman (Non-executive)

Daniel CHIUExecutive Vice-Chairman

TEE Kiam PoonChief Executive

LI Ching (Ms)Executive Director

Frank ATTWOODSenior Independent Director

LIN XizhongMAO TongDennis CHIULouisa HO (Ms)Ian TAYLORWANG JinjunZHI YulinNon-executive Directors

Company SecretarySandi CHOI (Ms)

Registered Office6/F., Belgrave House76 Buckingham Palace RoadLondon SW1W 9TQUnited Kingdom

Registered Number2173279

AuditorsDeloitte LLP2 New Street SquareLondon EC4A 3BZUnited Kingdom

company informationVisionTo be a leader in China’s energy and resources supply

StrategyTo invest and operate long term cost competitive assets supplying oil, gas and resources to China

Fortune Oil PLCannual report 2012

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Documents

Fortune Oil PLC · 2016-11-13 · Natural gas business; includes the exploration, production, distribution and supply of natural gas to residential, ... Zhong-Wu Pipeline Huai-Wu