Wednesday, November 16, 2011

Understanding Hibiscus

Some investors are still in a maze with regards to Hibiscus. Yes, you have the oilfields now, but don't you still have to get some oil? I approached the company with as much cynicism as the next guy. I have met the top 3 management team and grilled them, looked over their decision making process and the oilfields they ended up with - I came away feeling optimistic. 

They have parlayed their expertise, and basically partnered with a much sought after group (who have recently ventured on their own - they actually created a unique way of locating "decent oilfields" by way of analysing gravity and matter in the prevailing seabed). Did you know that the sea levels are not the same all over the world? 

Thats because the gravity differs, in India it could be 30m-50m higher than somewhere else. The scientist team deciphered that that can be traced to the the kind of seabed underneath which gives rise to "potential for locating oil resources"). Their technology was highly sought after and they sold their company, but was barred from doing similar work till now, so they are striking out on their own. The fact that Hibiscus team got to work with them was a stroke of confluence of events, they needed the funding and oil price was weaker in the first half of 2011.

Hence you can say their jv with Lime was a pretty good move. There will be three catalysts coming for the stock:
1) the upcoming acquisition of anoedther significant oilfield
2) the listing of Lime on London exchange, which in effect allows buyers of Hibiscus to be in the position of pre-IPO investors at a good price, likely to be done sometime June 2012
3) actually striking oil, which I think is highly  likely than not base don the available data and pre-selection process by the Lime group (the Lime group had their pick of whichever oil fields they wanted based on their reputation and technology expertise in the past)

That is why I think, as some who know more about what they are doing, Hibiscus is a pretty good thing. I keep seeing initial big shareholders loading up more shares and the entry of a couple of significant new shareholders as well from Singapore. Suffice to say, I am pretty confident that the share should be closer RM1.00 by year end, just based on the above fundamentals.

Hibiscus : Adding some zest    (RHB Research)                                                                                                    
Visit Note 
-          Hibiscus announced its “qualifying acquisition” (QA) involving a 35% equity stake in an early-stage exploration company called Lime Petroleum with three assets in the UAE and Oman for a total cash consideration of US$55m (or RM172.1m). The proposal – subject to approvals from Securities Commission and shareholders (excluding management’s 20%) – is expected to be completed by 1HCY12. 
-          After the QA is approved, we believe Hibiscus’ higher risk profile comes with potential significant upside arising from the development of Lime’s estimated 200.7mmboe risked recoverable resources. Other than E&P risks, other risks include: 1) Rex’s (Lime’s originator for the Middle East assets) proprietary exploration technology is commercially unproven; and 2) Lime’s funding for its work plan is sufficient only for FY12. 

-          We estimate Hibiscus’ 35% stake could be worth RM1.01-1.33/share based on the successful 50% commercialisation of resources from the four wells to be drilled in 2012 work programme and the implied NAV/boe range of US$4.9-6.5/boe. This implies 33.2-76.1% upside to Hibiscus’ current share price. 
-          Hibiscus’ proposed QA is exciting on two counts: 1) the significant risked resources identified relative to the size of the company; and 2) the relatively inexpensive entry cost into the assets vs. its potential value (based on NAV/boe). There are also the potential upsides from new concessions to be acquired in the future, including the Fujairah block in 2012. 

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.


devilmaycare said...

Mr Dali,

Have only recently began to read your blog. Will be joining local O&G company soon. You've blog about them a few times. Mixed reviews I think. I'd like to meet up and discuss things with you in the future.

Question is, how do I get in touch with you?

Bonescythe said...

Hoot ah..!
Cica ftw :)

Kingsmen said...

70% of its +400m shares are off loaded to IPO investors at 0.75cts. Basically this is a company with no prior assets, no cash, no track record etc. In a nutshell someone created a clever idea and thus a 500million ringgit company has given birth. Directors are v well connected in the industry though. A good speculation stock to say the leaast.

bonny b said...

Waaah....yr pics of ZWT really took eyeballs off what u wrote...ask anyone if they recall what was in yr article...

Bonescythe said...

Cica is too hot until people forgot to look at content already :) Hahaha..
Good ah!! Very nice pics!!

ANW Bear said...

Interesting article

Mohammed said...

Where one fun manager sees profit, another might see peril. Don't sweat Dali. If it is a screaming buy there will be takers, sooner or later.

Bonescythe said...

Today people start to look at content while taking a steal at Cica again, and realized that it is time to get some Hibiscus.. :)

Bonescythe said...

Wah.. Cica effect can last for 1 week.. :) Very powerful :)