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 - $2.50/boe range for Lime Group reserves. Based on this valuation, this suggest a potential valuation of RM326m â€“ RM544m (share price range of RM0.78 to RM1.30) for Hibiscus (35% stake in Lime Group). This presents a potential upside of 16-93% from current price level. Please refer to following for the workings:
Current Valuation of E&P players based on reserves Dollar/boe 2P reserves (oil and gas) Company Upstream NAV ($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/2P NAV/Net risked recoverable ($/boe) Net risked recoverable resources (mmboe) Hibiscus Stake in Lime Valuation in RMm Share 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.
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
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.
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.
You still cannot value where the shares should be trading at, but certainly not at current levels now that they have a decent proposal.