This article first appeared in The Edge Financial Daily on October 11, 2018
Hibiscus Petroleum Bhd
(Oct 10, RM1.25)
Maintain outperform with an unchanged target price (TP) of RM1.73: Hibiscus Petroleum Bhd reported that it has entered into a sale and purchase agreement with Caldera Petroleum (UK) Ltd to acquire a 50% interest in the UK Continental Shelf Petroleum Production licence No P.198 Block 15/13a and Block 15/13b in the Central North Sea for a total cash consideration of US$37.5 million (RM155.63 million).
The new oil field known as Block 15/13a and Block 15/13b is situated approximately 250km northeast of Aberdeen and 19km northeast of the Piper Field in the Central North Sea with about 140m water depth. A total of seven wells under the licence have been drilled to date. Discovery within Block 15/13a has seen significant contingent oil resources. Gross resources for the blocks have been classified by AGR Tracs International Ltd currently as Contingent Resources (2C) as development and expenditure plans for the blocks have yet to be assessed. Based on AGR’s gross estimates as of September 2018, the 2C oil resources of the blocks net to Hibiscus upon completion is 30MMstb.
With an additional 30MMstb from the blocks, the group’s 2C is expected to increase by 77.9% from 38.5MMbls currently in its existing Anasuria Cluster, North Sabah and Australia assets. Once development plans are approved and successfully implemented, this additional 30MMstb of 2C will be converted to proven and probable reserves, which presently stands at about 46MMbbls — putting it well on track to hitting its stated mission of 100MMbbls by 2021.
The blocks’ development plans, together with necessary expenditures are expected to be tabulated by the second quarter/third quarter of calendar year 2019, with the development phase likely to take about three to four years. While no further details have been provided currently, development of the asset is expected to be around US$7.50 (RM31.13) per bbl for category 125m to 150m depth, with operating expenditure within the US$25 per bbl to US$30 per bbl range, according to Rystad Energy. Nevertheless, we anticipate the overall development and operating cost could potentially be lower than estimated due to stranded discoveries around the asset.
The price tag of US$37.5 million or equivalent to US$1.25 per bbl is deemed reasonable. According to Rystad Energy, the average price paid in 2016 for acquisition of discovered but undeveloped asset was around US$1.50 per barrel of oil equivalent. Meanwhile, the average price (2005 to 2015) for field under development was about US$8 per bbl. This means that the market value of Block 15/13a and 15/13b fields is expected to increase by 5.3 times once its development plan is approved.
The purchase consideration of US$37.5 million was arrived at on a willing-buyer, willing-seller basis. We understand that it will be 100% funded via internally generated funds. As of June 2018, the group’s cash stood at RM136 million. Together with cash inflows in the first quarter of financial year 2019 (two crude oil offtakes have taken place, equivalent to 524,432bbls from Anasuria field), we believe funding is not an issue. — Public Invest Research, Oct 10