Shares of property investor and building materials wholesaler Orient Resources Group surged as much as 46 per cent after chairman and controlling shareholder Zhong Hongwei announced an injection of HK$7.28 billion in oil assets.
The shares traded as high as HK$2.57 before closing up 39.2 per cent at HK$2.45 amid a global share market rout, as investors bet that the move into the oil business would enhance profit.
Orient Resources has signed an agreement to acquire from United Petroleum & Natural Gas Investments the participation rights and obligations for an oil project located in Bohai Bay.
Mr Zhong, the head of one of the mainland's 10 largest private enterprises, owns 74.5 per cent of Orient Resources and 85 per cent of United Petroleum.
United Petroleum last September agreed with China National Petroleum Corp, parent of the nation's largest oil and gas producer, PetroChina, to develop the Gaosheng oil block, which CNPC said has been operating for 'many years'.
A PetroChina spokesman declined to disclose the block's production figures. An Orient Resources spokesman could not be reached for comment.
The 29-square-kilometre block had 77.07 million tonnes of geological reserves, of which 16.7 million tonnes were recoverable, CNPC said last September. It produces heavy oil, which is worth much less than light oil as it is more expensive to refine.
The central government gave approval in 1993 for foreign investors to help raise the block's oil recovery rate.
United Petroleum will invest up to US$16 million to conduct tests on oil wells, drill at least 10 new wells and install production facilities over two years from February 1 this year.
Approval will then be sought from the central government for a three-year development programme, the unspecified cost of which will be borne 30 per cent by CNPC and 70 per cent by United Petroleum.
After 20,000 tonnes of oil are extracted incremental to CNPC's existing production, the project will enter a production period during which CNPC will pay 40 per cent of operating expenses and United Petroleum 60 per cent, with revenues split in the same proportion.
Orient Resources will pay for the acquisition by issuing 4.52 billion shares at HK$1.61 each. It will also sell 1.37 billion new shares to independent investors to raise HK$2.14 billion to finance the oil project. Subsequently, Mr Zhang's stake in the company will fall to 70.45 per cent.
Orient Resources has signed a deal for rights on a Bohai Bay oil project
Intraday, Orient Resources shares climbed as high as: 46%