Fortescue Metals expands into oil and gas

Pure iron ore player Fortescue Metals Group (ASX:FMG) has decided to diversify its portfolio of operations by expanding into Australia's oil and gas sectors.

In a statement released yesterday Western Australia's Oil Basins (ASX:BL) said that Fortescue Metals will obtain an 18% equity stake in the company for AUD$4.2 million, marking the iron ore giant's first significant foray into the energy sector.

The shares are priced at 3.5 cents each, representing a premium of around 40% to Oil Basin's recent 7 day volume weighted average price.

The funds will be used by the company to support oil and gas development in Western Australia's Canning Basin, which has become a recent focus of attention in the industry.

Fortescue Metals has weathered a tough year following steep declines in iron ore prices as a result of dwindling demand from core export market China. The company is especially vulnerable to any adverse price shifts in the key steel making ingredient due to its status a pure iron ore player.