Rex International Holdings:
Price Target : 12-Month S$ 1.15
Reinforcing the faith;
Second well in Oman a "hit". Results of the second well drilling in Oman Block 50 were released by Masirah Oil, a 64% indirectly owned subsidiary of Lime Petroleum (which in turn is 65% owned by Rex International Holdings or RIH), yesterday. Masirah Oil announced that the drilling had successfully reached the target depth of the well in excess of 3,000m into the Cambrian (geological) formation. Hydrocarbons were discovered in several formations with good quality oil sample extracted. The well will undergo further data acquisition before setting the completion for testing. As of now, there are no formal estimates on hydrocarbon volumes though.
Highlights credibility of Rex Technologies. After the disappointment of the first well at Oman Block 50 - which had run into operational issues before reaching the target depth and had to be suspended for safety reasons - we believe the results from the second well will go a long way towards boosting investor confidence in the efficacy of the Rex Virtual Drilling technology, which had helped the company to determine the drilling locations offshore Oman. The successful discovery of hydrocarbons in an area where no discovery had been made earlier using traditional means underlines the fact that Rex technologies is a unique competitive advantage for RIH.
Wait for the next steps to realise value from the asset. We believe that this is just the tip of the iceberg as far as the Oman asset is concerned. Now that the presence of hydrocarbons has been confirmed, RIH will likely propose further exploratory drilling in the more prolific areas of the concession, as well as appraisal wells to determine the reservoir volumes over the next 6-9 months. In conjunction, an updated Qualified Person Report (QPR) may be commissioned to take into effect the data from the first 2 wells, and this QPR combined with the further drilling programme should set the stage for an eventual sale of Rex’s stake in the asset - either partially or completely - within the next 12 months. Given that the drilling success for now is within expectations, we will not change our risking factors for RIH's existing prospective resource numbers. Hence, we maintain our BUY call and S$1.15 TP, and look forward to further catalysts in the form of either license awards or drilling success at various assets in the US, Caribbean, Middle East and Norway in the near term.
Publish date: 04/02/14