Quarter 3 results – good or bad

Expectation was very high, and EPS was 15.28 (diluted), very good compared to 1.59 y-o-y, no?

But Market thought and still thinking otherwise.

Is it that bad? The shock is probably due to this:

PAT is only 35,127 (normalized) compared with Q2 of 48,488. How can that be lower?

Hibiscus is supposed to triple production, revenue is 297,060 compared with 284,404, an increase of 4.4% ONLY?

There were production issues, impairment, but there are two other items that was not normalized:

1)      Depreciation & amortisation, yes it was mentioned as per boxed in orange above but no figures given to set off.

2)      Administrative expenses. Yes, the impairment was backed off, but there still remain a rather large amount of 147,574 - 44,906 = 102,668

Will now attempt to shed some possible quantum / value to these two items.

A)      Depreciation & amortisation (D&A)

-          First, there was no barrels sold for the Kinabalu asset. A cargo was sold just before completion of the deal on 24 Jan 2022 with no quantum given. As per Figure 2 of Corporate and Business Update – 25 May 2022, the estimated quantum to be sold in Q4 amount to about 14,279 boe/d while in Q3, the quantum sold is only 8,863 boe/d.

-          The much lower production of Q3 and D&A of RM 88,556 gives RM 96 per boe.

-          Taking an average of past quarters, the D&A is RM 50.70 per boe. Thus, an equivalent D&A would be RM 46,800 giving a saving of 41,800.

-          Yes, this is very crude but more reflective given the timing issue.

B)      Administrative expenses (AE)

-          The adjusted expenses of RM 102,668 is still high.

-          As this is the first quarter after taking over Repsol assets, there might be many one-off expenses. These maybe hand-over cost, lawyer fees, etc. or timing issue.

-          Again, studying past quarters, the AE approximate RM 39 per boe. So, Q3, AE could be RM 36,000K only, giving a saving of RM 66,000.

In total, there is saving of 41,800 + 66,000 = 107,800. Taking a discount of 30%, gives 75,000.

The profit after tax would be 35,000 + 75,000 = 110,000.

Production

From data provided by Hibiscus, production for the quarter is about 1,365,306 boe. Barrels sold is only 922,806 leaving 442,500 (less gas volume) in tanks or there about.

Two points to note:

a)       Earlier forecast was too ambitious from 38% to 55% over actual (sold)

b)      Repsol revenue is low because gas was sold at only USD 6.98 per thousand scf (equivalent to USD 41.88 per boe) compared with USD 30.26 (North Sea) = USD 181.56/boe. This resulted in a composite rate of only USD 57/boe despite oil being sold at USD 123/b.

Q4 2022

This is a first time that Hibiscus has provided forward production earmarked for sale, Figure 2 of the Corporate and Business Update – 25 May 2022.

The price for gas sold in Malaysia is iffy, so error would be large for revenue from Repsol assets.

BOE sold for April and May 2022 would be accurate as April is "gone" and May is at the last week. Figures for June might change due to unplanned shutdown. Thus, the 2.08 m boe sold would be decent (robust).

SUMMARY

In Q3 21 boe sold was 874,944 barrels while Q3 22 only managed 922,806, a gain of only 5.5%. Reasons for the low gain is well covered in the quarterly report and summarized as:

-          Lower uptime in both North Sabah and Anasuria

-          Key equipment shut in Anasuria and will only be repaired in Q3 CY22

-          Kinabalu cargo sold before completion of the Repsol deal

The Q3 22 result, when normalized, resulted in PAT of 35m, a 28% reduction from last year Q3.

As for lower Q3 22 PAT, the normalization ignored: -

1)      depreciation and amortisation – while D&A are of course higher, due to timing, production of Repsol is not for the full (3 months) quarter while one cargo was sold before completion

2)      higher administrative expenses – there might be many one-off expenses for taking over Repsol assets that should be back-off so that comparison would be like for like. Or, again there are timing issue that cause expanses to be incurred despite the curtailed productions or barrels sold.

Rough adjustment based on past quarterly reports could save 107.8m. Taking a discount of 30%, the saving is reduced to 75m. This would result in a PAT of 110m instead of just 35m.

Hibiscus, for the first time, provided forward guidance to barrels that would be sold in the following quarter. This removes much uncertainty in forecasting production. The remaining uncertainty would be the price of oil and gas. While oil price is relatively stable, there is a big difference in gas price that depended on the location of the gas production (UK is USD 30 vs Malaysia USD 7)

Q4 22 forecasted boe to be sold is 2,076,751 compared with Q4 21 of 862,951 (no gas), a 140% increase.

Estimated revenue for Q4 22 is RM 817m compared with 249m, a 228% increase.

Happy investing, PEACE.

Disclaimer:

I wrote this myself without pay. I and my families own Hibiscus shares. This is not an advice to buy / sell Hibiscus or any other equities / securities / assets.