RH Petrogas -
Exploration VP Steps Up To CEO Role
December 19, 2013
RHP announced that current CEO Dr Tony Tan is retiring on 31 Dec, but will continue to serve as an advisor to the board. Francis Chang, currently VP exploration & production (E&P), will step into the CEO role. Chang has a strong background in E&P and we expect a smooth transition, as he has been with RHP since June 2010. Maintain BUY with SGD1.38 TP. The stock trades at 37% discount to its production assets.
■ Incoming CEO not a new face, we expect a smooth transition
For over 35 years, Francis Chang, a geologist by training, has worked in major and independent US-based oil companies such as Amoco, Burlington Resources, Anadarko Petroleum and Texas American Resources. Chang joined RHP in June 2010 and we understand that he has been instrumental in planning and executing its drilling programme. We expect a smooth leadership transition and expect RHP to continue executing its strategy of increasing production and investing in low-to-medium risk Asian assets.
■ No share placement to fund acquisition
We understand that RHP is not considering any share issuance in the near term to fund its upcoming acquisitions. Project financing will be available, as RHP has healthy cash flow and its net cash position offers sufficient debt headroom. We believe that RHP’s bite-size is around USD40m for a production-stage field of a size in between its Basin and Island production sharing contracts (PSCs)’s 2P reserves sizes. “2P” denotes proven and probable reserves.
■ Low expectations priced into stock
At a 37% discount to its production assets alone, market expectations are low. Our calculation shows that the implied Brent price in the share price is USD70/barrel (bbl). The price also implies a 36% DCF-value discount rate, which is too pessimistic. RHP’s EV/(2P+2C) ratio stands at USD4.35/barrel of oil equivalent (boe) vs USD11.50/boe for KrisEnergy (KRIS SP, NR). “2C” denotes best estimates of contingent resources.
■ Maintain BUY with SGD1.38 TP
We believe RHP’s fundamental value will become more apparent with greater investor education on valuing E&P companies. Our TP is set at parity to our net present value (NPV)-and-risking model.
Publish date: 19/12/13