Xinchao Industry Company, a public real estate company based in Yantai, Shandong province recently announced that it had sold its 50 percent stock rights of Earth Real Estate, officially departing from its traditional real estate business. Shortly before that, Xinchao had also announced its takeover of oil field assets in Texas, US with an expected transaction value of 8.3 billion yuan. Transformation or “unrestrained gambling?” The company buying the US oil filed has proved controversial on capital markets.

In order to purchase the oil field in the US, Xinchao has first to take over Ningbo Dingliang Huitong Equity Investment Center. Then Dingliang Huitong will purchase the oil field in Texas through its subsidiary company in the United States. After Dingliang Huitong completes the deal, the holder of Dingliang Huitong will sell his rights and interests to an unrelated third party. Xinchao then buys the equity capital from the third party and is then indirectly in possession of the oil field property. It has been revealed by the office of the secretary to the president at Xinchao that the company has already signed a Letter of Intent with Dingliang Huitong, while details of the purchase are still under discussion.

This is not the first time Xinchao has set foot on US oil property. On May 30 this year, Xinchao purchased 100 percent of Zhejiang Benbao’s stock rights for 2.21 billion yuan, while the latter’s main property is an oil field in Texas US. The fact is that the original real estate corporation Xinchao has been planning its transformation for a while. In March, 2014, the big change of the strong stock holders of Xinchao led to a new board of directors, who decided to focus its future development on the exploration, exploitation and sale of oil and gas, and completely detach the traditional real estate business.

The two purchases require an accumulated input over 10 billion yuan while Xinchao only had a revenue of 936 million yuan in 2014. Analysts think that Xinchao’s ambition is based on its confidence in a strong rebound of oil prices. Xinchao claims in a report that through business cycle evolution, it is impossible for oil prices to stay low for sustained periods, and the return to the high price is an inevitable trend.