• Reservoir’s established track record as well as the solid business relationship with PETRONAS position them in a favourable spot for the umbrella contracts with earnings backed by dozen of contracts on hand.

• We project the earnings to grow to by 3Y CAGR of 5.9% to RM10.8m in FY21 (after a 26.8% decline to RM7.1m in FY20) underpinned by recovery from works resumption as well as stabilising crude oil prices.

• Reservoir is valued by pegging its FY21f core EPS to 12.0x PE (approximately 25% discount to peers average of 16.3x), leading to a FV of RM0.46.

Company Background

• Established in 2008, Reservoir Link Energy Bhd (Reservoir) is principally involved in provision of oil & gas (O&G) well services that support operations in the O&G upstream industry. The well services are used in the exploration, appraisal, development and production segments of the O&G industry. Reservoir’s well services are used in all stages of well’s life cycle supported by four operational facilities, all located in Malaysia. With Malaysia being the key geographical revenue driver over the years, Reservoir has also established its presence in Vietnam, Mauritania and United Kingdom.

• As a well services specialist, Reservoir covers every stage of an O&G well's lifecycle; from initial well exploration and completion to its plugging and abandonment. There are three major phases of the O&G well lifecycle; namely (i) startup that encompass well perforation, well testing and wireline, (ii) production that encompass well perforation, well testing, well leak repair, wireline and O&G production enhancement and lastly (iii) end-of-life comprising of well perforation and wash & cement.

• Well perforation services (RM30.7m or 38.4% of total revenue in FY19) involve creating holes at specific points of the well casing and the surrounding formation in an O&G reservoir. These holes, also known as perforation tunnels, are the physical connection between the well and the formation.

• Well testing services (RM13.8m or 17.2% of total revenue in FY19) revolves around data collection to create models to predict the characteristics of wells and O&G reservoirs. The data collected include pressure and temperature measurements, flow rates and fluid samples. Well characteristics are important factors in designing well completions, developing field producing strategies and designing production facilities.

• Wireline or also known as slickline services (RM4.4m or 5.5% of total revenue in FY19) involves the usage of one or multiple wirelines as a conveyance for delivery of well construction services such as tubing clearance check, sand & debris bailing, gas lift valve change out and heavy duty fishing among others.

• Well leak repair services (RM15.5m or 19.4% of total revenue in FY19) conduct tests to determine any leakages, identifying the location and nature of the leak. Should there be any leakages in the well, it will be sealed by pumping repair chemicals into the well that fills any holes and cracks.

• O&G production enhancement services (RM2.4m or 3.0% of total revenue in FY19) are performed to increase the rate and/or total amount of crude O&G production from a reservoir. Reservoir currently supplies Improved Oil Recovery (IOR) chemicals and provide sand management solutions since FY19.

• Wash & cement (RM12.3m or 15.3% of total revenue in FY19) revolves around the installation of cement plugs and heavy mud at specific locations to seal the well that is no longer in use due to depletion, production is no longer commercially viable and product sharing contract (PSC) operator's lease has ended.

• Apart from the services listed above, the other products and services that contributed RM0.9m (1.1% of total revenue in FY19) revolve around the supplying of technical O&G personnel as contract workers, supply of oilfield equipment and construction & consultancy services.

• Geographical wise, the local operations have been the key revenue contributor over the years, ranging between 88.9-96.5% of total revenue in FY16-FY19. In FY19, the Malaysia operations makes up to 96.5% or RM77.3m while the remainder (3.5% amounting to RM2.8m) derived from Mauritania. To-date, Reservoir’s portfolio consists of 10 umbrella contracts and 16 contracts on call-out basis.

Source: Mplus Research - 29 Jun 2020