Wednesday, October 26, 2011

Hibiscus Flowering

Hot from the desk of RHB:

 
Hibiscus announced that it has entered into a conditional share subscription agreement (proposed subscription for 76.9m new shares and 22.1m existing shares) with Lime, representing in aggregate 35% of the enlarged issued and paid up share capital for a total cash consideration of USD55m.
 
Lime Group currently owns 100% of three concessions in UAE and Oman i.e. RAK North Concession, Sharjah Concession and Block 50 Oman Concession. Based on Aker Geo valuation on the concession the current net risked recoverable resource for the three concessions is 200.7mmboe.
 
Based on prevailing dollar/boe 2P reserves for the oil majors, we derived the current average NAV/boe of US$5/boe. 2P reserves suggest higher potential of discoverable reserves as compares to the fields own by Lime Group which are still in the development and appraisal stage. We note that industry is currently factoring in 50-70% discount to the $/boe 2P reserves and thus this imply a $1.50 - $2.50/boe range for Lime Group reserves. Based on this valuation, this suggest a potential valuation of RM326m รข€“ RM544m (share price range of RM0.78 to RM1.30) for Hibiscus (35% stake in Lime Group). This presents a potential upside of 16-93% from current price level. Please refer to following for the workings:
 
Current Valuation of E&P players based on reserves    
Dollar/boe 2P reserves (oil and gas)     
       
CompanyUpstream NAV ($m)SEC Proved 1P (mmboe)Wood Mackenzie 2P reserves (mmboe)Upstream NAV/1P Reserves ($/boe)Upstream NAV/2P Reserves ($/boe) 
Exxon Mobil
          308,638
         24,853
               47,331
12.42
6.52
 
Chevron
          186,217
         10,545
               29,181
17.66
6.38
 
ConocoPhillips
            85,281
           8,310
               16,118
10.26
5.29
 
Occidental
            63,294
           3,363
                 7,693
18.82
8.23
 
Marathon
            18,226
           1,640
                 3,983
11.11
4.58
 
Hess
            21,399
           1,537
                 4,199
13.92
5.10
 
Murphy
             8,443
             456
                 1,559
18.52
5.42
 
Suncor
            34,749
           3,899
                 9,357
8.91
3.71
 
Canadian Natural
            27,541
           3,824
                 8,319
7.20
3.31
 
BP
            98,747
         18,071
               34,194
5.46
2.89
 
RD Shell
          169,204
         14,273
               37,472
11.85
4.52
 
Total
            84,347
         10,676
               21,207
7.90
3.98
 
   Average
12.00
4.99
 
* Source: Wood Mackenzie     
       
Sensitivity Analysis      
Discount to NAV/2PNAV/Net risked recoverable ($/boe)Net risked recoverable resources (mmboe)Hibiscus Stake in LimeValuation in RMmShare Price (RM/shr)Upside to current price of RM0.675
30%
3.49
200.7
35%
761.1
1.82
170%
40%
3.00
200.7
35%
652.3
1.56
131%
50%
2.50
200.7
35%
543.6
1.30
93%
60%
2.00
200.7
35%
434.9
1.04
54%
70%
1.50
200.7
35%
326.2
0.78
16%
       
*current field under development and appraisal (akin to Lime's assets) are valued at $1.50-2.50/boe by analysts.
       

  





A special purpose vehicle cannot be valued on its listing, which is why I said nothing. You ride on the management's perceived networking skill, experience and ability to deliver what they said they aim to do. There is always ample time to move into Hibiscus. Naturally, I think the management team is highly qualified.
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Managing director Dr Kenneth Gerard Pereira has 21 years in the oil and gas industry and started off as a field engineer in Schlumberger. Independent non executive director Zainol Izzet bin Mohamed Ishak was previously CEO of Sapuracrest, and is now CEO of Perisai Petroleum. Head of Petroleum Engineering Dr Pascal Josephus Petronella Hos, and Petroleum Economist Ir Mohd Iwan Jefry Abdul Majid have held extensive positions in many oil and gas companies.


Hibiscus will acquire 35% equity stake in Lime Petroleum for US$55 million
 Lime Petroleum has 3 concessions in 2 countries in the Middle East and is expected to add, at least, another concession before the end of this year
 Hibiscus will manage Lime Petroleum Group’s operations, which allows the company significant influence in the delivery of its business objectivesthree assets in two countries, which are Oman and the UAE
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The Middle East contains more than 50% of the world’s oil reserves and approximately 40% of the world’s gas reserves. The Middle East has a strong refining capacity of 7.9 million bbls per day (as of 2009) and a well developed oil and gas infrastructure. UAE is the third largest oil and gas liquids producer in the Middle East and the world’s fourth largest net oil exporter with a daily production of around 3.2 billion bbls per day. 


Oman is the largest non-OPEC producer in the Middle East with a daily production of around 800,000 bbls liquids and 2.4 billion cubic feet of gas in 2009. Crude oil output in Oman has increased year-on-year since 2008. Most of the oil and gas production in Oman is onshore with increasing focus on gas production in recent years, while offshore fields remain largely unexplored.


Shares and warrants are subject to SC moratorium up to the QA for management. Under their 3-year service contracts, any member of the management or non independent directors who resign or dispose of their shares can only do so at a 30% discount to the market price, and sell only to the remaining management team members. The team cannot participate in the distribution of proceeds from the QA or the liquidation of the SPAC. No directors’ fees will be paid until the QA is completed and there will be no adjustment to the remuneration package or introduction of performance
incentive schemes prior to the QA.
Image Detail
The terms of the deal appears to satisfy all of the important guidelines:
• IOR (Improved Oil Recovery) / Service Agreement 
• Proven basin
• Good data availability
• Good fiscal terms
• Political stability of country of location
• Stable Partners

From raising cash in a listed vehicle, we now have the projects, which appear to be "reasonably good". They are not in some gawd-forsaken place. They have reputable partners (including Schroders). They have management contracts which will mean direct management of the projects.


The deal can be termed as a good platform and as such should lure in fresh institutional investors. Now that the wheels are turning, the warrants, which are exercisable at 50 sen, will soon be converted and plough back into the company for further investments.
Image Detail

You still cannot value where the shares should be trading at, but certainly not at current levels now that they have a decent proposal. 

5 comments:

Mohammed said...

You can assume this and that and say the company is worth more than X billion ringgit or the current market cap of the stock.


But without further details, there is a cloud of uncertainty. And humans hate uncertainty. They want something firm to hold on to, like Pippa Middleton's butt, lol.

cmonmsia said...

Its not easy to operate in Oman and we need to find out whether it is an exploration or development/production project that the deal entails. If it is exploration, it carries more risk.

Michael said...

There is very little data given in the media; what are the results from any 2D/3D surveys? Presumably Hibicus must have seen these? what depth are the potential oil/gas bearing structures?.. what are the chances of success? what is the potential oil in place?is it more likely to contain oil or gas?

O&G investor

For those who are keen on oil/gas exploration, I suggest you look up "Shamaran Petroleum", "Gulf Keystone Petroleum" "Xcite Energy Ltd".. their websites give a wealth of information for someone to make an informed investment decision

Michael

mantua said...

Based on today's Star business report:

1) Lime Petroleum does not carry any oil reserves in its books. Hibiscus' Chairman was quoted as saying that he would "prefer not to speculate on the amount of oil reserves" but rather calls them "resources". The latter is a standard oil industry term for quantifying "Undiscovered reserves" which may or may not exist. Only by drilling exploration well(s) will anyone know whether economically recoverable oil or gas reserves exist in the concessions owned by Lime Petroleum.

2) There is no mention of whether any exploration well(s) have already been drilled in these blocks. If some have been drilled & were unsuccessful, the chance of finding new oil/gas fields will be less than in an undrilled block.

3) There are no details on why Lime Petroleum is bringing in a new equity partner (Hibiscus) who will take over as operator. Why is the current major shareholder selling off a big chunk of his shares?

4) The buy-in price was reported to be at a discount to the net asset value of Lime Petroleum. After a life-long career in the oil industry, I am puzzled as to how one can estimate the value of undiscovered oil reserves.

I have many other questions, too long or too technical to detail here. Suffice it to say that if I wish to invest in the upstream oil industry, I would prefer to buy into an existing oil field where the owners have insufficient finance or technical expertise to optimise the oil output. Many such opportunities exist in Nigeria, Indonesia & other proven oil producers.

Participation in exploration ventures has proven to be the downfall of many companies. I hope Hibiscus has better luck, but potential buyers should be fully aware of the risks involved.

SureWin said...

Unbelievable!!!

Look at how spot on is the CLSA Feng Shui chart predicting market to shoot up end-Oct. All stock analysts should study Feng Shui and not Technical Analysis. Wakaka...