Friday, August 23, 2013

Interra Resources : Better-than-expected 2Q13 profit (S&P)

Interra Resources Limited
Price: SGD0.47
Date: August 21, 2013
Results Review
Better-than-expected 2Q13 profit on higher revenue, efficiency gains. Interra’s share of oil production jumped 107.8% YoY leading to revenue growth of 43.3% YoY and offsetting a 7.9% YoY drop in its weighted average selling price (ASP) of oil. Bottomline expanded 776% YoY with the increased production helping to lower unit production costs. As such, operating profit margin increased to 32.4% from 15.6% in 1Q13 and 9.9% in 2012.

Interim profit of USD5.8 mln exceeds our original estimate. While gross production and the weighted ASP was in line with our assumptions, a higher share of production at its Indonesia TMT field, helped lift Interra’s share of production. In addition, the improvement in unit production costs was far better than we had expected. As a result, 1H13 net profit of 5.8 mln makes up almost 90% of our original full year 2013 net profit forecast.

Reaping benefits of successful drilling. Gross production gains were driven by drilling successes particularly at its TMT field. TMT saw gross production rise almost 4x to 1,203 barrels per day (bpd) in 2Q13 over 1Q13. Its other producing asset in Indonesia, Linda Sele, also saw gross production rise 10.3% YoY. An additional 17,512 barrels were uplifted in 2Q13, in line with our assumption, and marking stable sales to the local refinery. Progress in Myanmar is steady, with gross production up 6.1% YoY.

Earnings Outlook / Estimates Revision
Raising our earnings estimate. On factoring in a higher quantum of shareable production and lower unit production costs, our 2013 and 2014 net profit forecasts rise significantly to USD13.8 mln and USD20.0 mln from USD6.5 mln and USD10.1 mln, respectively.

Production to rise. We anticipate continued drilling success mainly at the TMT and Myanmar fields. As such we look for Interra to sell 702k barrels of oil in 2013 and 929k barrels in 2014. We have increased our assumed gross production by around 150 barrels per day (bpd) to 3,715 bpd and 4,467 bpd in 2013 and 2014, respectively, given the recent completion of producing wells in Myanmar.

Crude oil prices benign. There is no change in our crude oil price assumptions. We see the Brent benchmark trading at the USD100- USD110/bbl level through 2014. Sluggish global demand growth and reduced U.S. imports are offset by output shortfalls in Nigeria, Libya and Iraq and ongoing Iran embargoes. We forecast Interra’s crude oil ASP to average USD100-USD101/bbl.

Investment Risks
We see the main risk to Interra being that its assets may be subject to regulatory and/or policy changes. Crude oil price weakness – should Nigerian and Iraqi production resume faster than anticipated – may also hurt revenue. Disappointing drilling results may also dampen sentiment and growth potential.

Source/Extract/Excerpts/来源/转贴/摘录: S&P Capital IQ Equity Research
Publish date: 21/08/13

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