Monday, November 11, 2013

Rex International : Cashing in on the E&P value chain (UOBKH)

Rex International
Share Price S$0.755
Target Price S$1.27
Cashing in on the E&P value chain

• Maintain BUY but with lower target price of S$1.27 (previous: S$1.47), mainly attributable to the dilutive effect from new shares placed out.

What’s new?
• JV for new income source. Rex has formed a JV company, Rexonic, to provide proprietary, high-power ultrasound technology (Rexonic solution) for commercial oil well stimulation.

• Consolidating US assets and increase stake in Trinidad & Tobago concessions. Rex has exchanged its 20% direct interest in its US concessions for Fram shares. Following which, Rex will hold a 27.7% interest in Fram. Rex has also acquired an additional interest in Caribbean Rex from Fram, where it will hold 64.2% of Caribbean Rex after the transaction. Caribbean Rex has working interests in three onshore oil fields in Trinidad & Tobago that are currently oil producing.

Our View
• Eco-friendly alternative that improves productivity of oil production. Rexonic solution is an eco-friendly alternative that claims to be more cost-efficient and effective than conventional well stimulation technology in increasing oil production. Based on 70 global well stimulations, Rexonic solution has shown to improve oil production by 30-380% with a longer-term sustained effect. In contrast, conventional well stimulation improves oil production by a lesser rate and often does not provide a sustained effect. Conventional well stimulations are also less environmentally friendly and may damage the well bore/ well reservoir.

• A potential significant source of income. With the oil & gas (O&G) industry constantly under the scrutiny of environmentalists, we believe the eco-friendly Rexonic solution will be well sought after by the O&G community for its green features and higher productivity claims. As the technological concept behind Rexonic solution has been used in other industries, we believe it may be easier for Rexonic solution to gain acceptance among oil production companies. A successful implementation of Rexonic solution could hence provide a potential recurring source of income for Rex in the future.

• Restructuring as part of risk mitigating exercise with potential price catalyst. Based on our calculations, while we noted that Rex’s exchange of its 20% interest in US concessions to Fram shares were done at a discount, Rex’s exposure to its US assets has also been reduced with no further capex requirements required (from Rex) to develop the US assets. The exchange into Fram shares may also provide a future price catalyst with Fram’s potential listing plans.

Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 08/11/13

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