Investment Highlights

• We maintain BUY on Hibiscus Petroleum (Hibiscus) with an unchanged sum-of-parts based fair value of RM3.23/share (Exhibit 2), which includes a premium of 3% for an ESG rating of 4-star and implies an enterprise value (EV)/proven and probable reserve (2P) valuation of US$7.82/barrel, at a discount of 37% to the regional average of US$12.51/barrel (Exhibit 3).

• Hibiscus announced that its wholly-owned UK-based Anasuria Hibiscus UK (AHUK) has received an offer from the UK North Sea Transition Authority (NSTA), as part of the latest 33rd oil and gas licensing round, for the award of 3 blocks within Quad 15 of the UK Central North Sea, namely: (a) Part Block 15/12 which contains the northern part of the Kildrummy discovery; and (b) Block 15/18a and Part Block 15/19a in the Crown discovery.

• These blocks are situated 8km to 12km away from the Marigold field (Exhibit 1) which is currently under a unitised development involving the operator AHUK with a stake of 61.25%, Ithaca Energy 30% and Caldera Petroleum 8.75%. The discoveries have been identified as potential subsea tieback candidates to this development.

• The Marigold field is to be developed via the Piper Bravo platform owned by Repsol Sinopec. In a company announcement in May 2023, Repsol Sinopec expects the development to see peak production of 40k barrels of oil equivalent per day (kboepd).

• Additionally, the project could consist of up to 9 subsea wells, other ancillary services and a terminal tanker offloading component for oil export through Repsol Sinopec’s Flotta Terminal.

• We gather that Hibiscus is no stranger to the northern Kildrummy and Crown discoveries. AHUK currently holds a license for the development of the southern part of the Kildrummy discovery (P2518), and previously held the license for the Crown discovery (P2366), which was subsequently terminated after its application was rejected for a 12-month extension due to delays in securing Field Development Plan (FDP) approvals for the Marigold project.

• According to reports by Upstream, the average time from license award to production in the UK has been close to 5 years.

• Assuming swift execution of the licenses and that it is incorporated into the Marigold development, we believe these fits well with the timeline that has been set by the group which aims to secure approval for FDP and achieve Final Investment Decision (FID) by 2025, with first oil expected by 2028.

• We believe the prospects could significantly improve Hibiscus’ net production due to the sizeable 2C (best contingent estimate) resource within the field. For reference, the group has identified 43.6mil barrels of oil (MMbbl) of 2C resources from the Sunflower and southern Kildrummy prospect. The larger Marigold cluster is said to contain 60MMbbl of 2C resources, according to Upstream. Hence, this cluster is expected to account for up to 78% of Hibiscus’ total 2C contingent oil resource of 77MMbbl, which can be monetised in the future.

• As of 1 July 2023, Hibiscus’ net entitlement to 2P oil, condensate and gas reserves stood at 67MMboe with 2C contingent oil resources at 60.6MMbbl (excludes the Crown and Kildrummy discoveries). No change to our earnings as impact from the development falls beyond our forecast period of FY24F-FY26F.

• Hibiscus currently trades at an EV/2P reserve of US$6.87/barrel, at a discount of 8% to its closest peer, UK-listed EnQuest, and 45% to the regional average (Exhibit 3).

Source: AmInvest Research - 31 Oct 2023