Monday, December 2, 2013

RH Petrogas : Formalises Oil Discovery In Indonesia; We Anticipate More Newsflow (UOBKH)

RH Petrogas
Share Price S$0.59
Target Price S$1.60
Formalises Oil Discovery In Indonesia; We Anticipate More Newsflow

RHP announced yesterday that its wire-line logging at its Klagalo-1 exploration well indicated that there were potential hydrocarbon zones from the Kais limestone and final tests are being done now. While it did not mention if the hydrocarbons were recoverable, we are upbeat about the oil discovery. We remain encouraged with potential upcoming newsflow which may boost shareholders’ value. Maintain BUY. Target price: S$1.60.


WHAT’S NEW
• Oil discovery made in Basin PSC, Indonesia. RH Petrogas (RHP) announced that there were potential hydrocarbon zones while conducting its wire-line logging at its Klagalo-1 exploration well in Basin PSC, Indonesia. Recall that the Klagalo-1 exploration well onshore Basin PSC was drilled recently and reached a total depth of 7,077 feet. We understand that there could be potential contingent resources of 50m (30m net to RHP based on its 60% stake) at the oilfield.

• Developing Klalin 15 and 17. Management guided in yesterday’s announcement that the test results for Klalin-15 and Klalin-17 will be announced in Dec 13. If the results are positive, a finalised POD will be submitted to the government, which may result in higher oil production in 2H14.

• Hoping for final approval in China by Dec 13. Recall that RHP received an approval from the National Development and Reform Commission (NDRC) for its additional supporting study, which was a new requirement forming part of the overall development (ODP) plan submission. While this is not the final approval, it is a positive step towards obtaining full approval for its ODP, which is likely to be given very soon.

• Spudding in Koi-2 by end-Nov 13, drilling results by Jan 14. Recall that the Bohai-8 drilling rig, which was used to drill the Zircon-1 exploration well, has been moved to a new drill site. The drill site would be an earlier discovery (Koi-1) which tested 980 barrels of oil per day (bopd) and 2.7 million cubic feet per day (mmscfd) of gas per day in year 2000 (resulting in 5mmboe of contingent resources recorded).

STOCK IMPACT
• Upside of S$0.20 in the near term for Klagalo-1 prospect. Assuming a 50% risking factor and US$8.4/boe, this would translate into a value of S$0.20 per share in addition to our target price as it has not been factored into our valuation model.

• Strong re-rating for the stock if ODP for China is approved. We believe that RHP’s share price could re-rate significantly if the ODP for Fuyu-1, China is approved. We currently value the oilfield at S$467.9m or S$0.64/share based on our DCF valuation. This forms 40.2% of our target price.

• Developments in other PSCs. RHP also disclosed that the geological and geophysical (G&G) works in the West Belida PSC in Indonesia are ongoing, with a re-mapping and further analysis of the Gitar-1 well. In the SK331 PSC in East Malaysia, RHP has completed 12,414 line kilometres of Full Tensor Gradiometry (FTG) survey. The data acquired will facilitate the design and layout of the seismic programme scheduled in 2014.

• Investors could also look forward to M&A activities in 2014. We gathered that management may be looking to acquire two additional production assets next year (one in 1H14 and one in 2H14. The acquisition, coupled with other production wells put in place, would enhance its cash-flow generating capabilities.

EARNINGS REVISION/RISK
• We are making no changes to our earnings estimates following yesterday’s announcement.

• Key risks include: a) exploration risk, b) development risk, c) production risk, d) oil price risk, and e) regulatory risk.

VALUATION/RECOMMENDATION
• Maintain BUY with target price of S$1.60 based on NPV and risking model. Our valuation is based on the NPV of the company’s current production/near-production fields, plus risked estimates of its 2C resources and prospective resources, less net debt adjusted for its committed capex and new funds raised from its recent private placement exercise.

• Downside to our TP at S$1.00. Assuming if investors attach no value to its nearproduction asset in China, Fuyu 1, we think the downside for RHP’s share price to our target price is capped at S$1.00.

• In a blue-sky scenario, RHP could be worth S$2.02 in 2014 and S$3.21 in 2015. Based on our alternative valuation method for RHP in 2014 and 2015, by valuing RHP’s assets individually, RHP could be worth S$2.02 in 2014 and S$3.21 in 2015. This is because its share price would likely re-rate if its exploration and development initiatives are successful.

SHARE PRICE CATALYST
• Successful discovery of O&G in its exploration assets.
• Final approval obtained for its overall development plan for its oilfield in China, Fuyu 1.
• Higher-than-expected oil prices, resulting in additional revenues for RHP.



Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 28/11/13

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