This article first appeared in The Edge Financial Daily on December 28, 2017

Hibiscus Petroleum Bhd
(Dec 27, 88 sen)
Maintain outperform with a target price (TP) of RM1.06: Hibiscus Petroleum Bhd has entered into a novation agreement for the assignment and transfer of Shell Sabah’s 50% interest in the North Sabah Enhanced Oil Recovery (EOR) field SEA Hibiscus to continue production and development of petroleum resources at the said field, a step towards completion of the deal, now expected no later than March 31, 2018. This affirms our “outperform” rating on Hibiscus, with an unchanged TP of RM1.06 accounting for ongoing contributions from its Anasuria Cluster in the North Sea (valued at 48 sen per share), and oncoming contributions from the North Sabah EOR field (58 sen). There is scope for further upside from the possible conversion of 2C to 2P reserves for the North Sabah field.

On Oct 12, 2016, Hibiscus via its indirect wholly-owned subsidiary SEA Hibiscus signed a conditional sale and purchase agreement (SPA) with Sabah Shell Petroleum Company Ltd to acquire a 25% operating interest in the 2011 North Sabah EOR Production Sharing Contract (PSC) and a further 25% non-operating interest in the PSC The purchase consideration is for US$25 million (RM102.1 million) and comprises four producing fields and operatorship of associated equipment and assets.

The arrangement is for net economic benefits and risks in the asset to accrue to SEA Hibiscus from Jan 1, 2017. A transfer of operatorship process is ongoing.

We continue to be excited over this impending acquisition. The entitlement of about 6,000 barrels (bbls) per day production from North Sabah operations net to Hibiscus is expected to aggregate about 9,500bbls per day production for the group. — PublicInvest Research, Dec 27