Target Price: SGD1.38
Roadshow And Operation Highlights
We took RHP’s management on a non-deal roadshow on Tuesday. The company has published its 2014 drilling programme, planned reserve upgrades, and schedule of upcoming news flow. Operationally, wireline logs indicate potential hydrocarbon zones in the Klagalo-1 well, while development wells at Klalin-15 and -17 have gas and condensate flows with rates to be confirmed. The stock is trading at a 35% discount to its production assets. Maintain BUY, with SGD1.38 TP.
• Heavy focus on drilling development wells in 2014. RHP’s 2014 work programme includes nine development wells and one appraisal well (contingent on Klagalo-1 being successful) in the Basin PSC. For Fuyu, 40 development wells are planned for 2Q-3Q14, with a deep exploration well to test the deep gas zone. Total net drilling capex is USD60m, and management expects >80% cash refund in 2014 from cost recovery oil.
• 2P reserves to treble. RHP targets to upgrade 19mmboe (million barrels of oil equivalent) of 2C resources to 2P reserves in 2014. This will bring RHP’s EV/2P ratio down from USD30.9/boe to USD11.4/boe by end-2014. KrisEnergy trades at an EV/2P of USD27.6/boe. The Asian average is USD21/boe.
• Positive developments. We understand the Klagalo-1 well was completed ahead of schedule, with no hiccups in cementing and perforation, and wireline logs indicate potential hydrocarbons. Three zones will be each be tested for seven days. We expect the Klalin -15 and -17 wells to boost existing output with gas and condensate flows.
• 50% historical exploration success rate. Management shared that RHP has had six successful exploration wells out of 12 drilled in its three-year history. This is a commendable track record, indicating success in executing its strategy to focus on low-to-medium risk assets.
• Targeting oilfield acquisition. RHP is looking to acquire a producing field in the South-East Asian region. We do not expect this to be a large acquisition. Project financing should be available, and the agreement could be finalised within a few months.
• Maintain BUY, SGD1.38 TP. RHP continues to trade at a 35% discount to its production assets, implicitly pricing in a Brent crude price of USD80/bbl, or a 32% discount rate, both of which are too pessimistic.
Publish date: 28/11/13