• Hibiscus is acquiring 50% operating interest in Block 15/13a and 15/13b within P.198 of the UK Continental Shelf for US$37.5m from Caldera Petroleum.

• We are encouraged by the pace of acquisition; this affirms our positive view on management’s vision to achieve its target of having 100 MMbbl of 2P reserves by 2021.

• We have factored in P.198 contribution in our forecasts from FY23F onwards based on our expectations of FID being achieved by FY21F.

• Reiterate BUY on Hibiscus with a higher RM1.60 (from RM1.35) DCF-derived TP.

Acquiring discovery field P.198 at UK Continental Shelf

Hibiscus entered into conditional SPA with Caldera Petroleum (target completion: 16 Oct 2018) to purchase 50% operating working interest in two production blocks within the UK Continental Shelf Petroleum Production Licence P.198 for US$37.5m.

Fair price, we think

Both blocks, 15/13a and 15/13b, has a combined 2C oil resources of 30 MMstb, implying acquisition cost of US$1.25/boe. We think this is reasonable for a greenfield asset. Furthermore, as seen with Hibiscus’ ownership with Anasuria, regulatory risk is low under the UK Oil and Gas Authority (UK OGA) which have proper legal framework.

Shall boost 2P reserves to 76MMbbls

Management guided that the entire 30MMstb of 2C resources could be converted to 2P reserves once the field development plan (FDP) is approved by UK OGA. This raises Hibiscus’ 2P reserves to 76MMbbls. The P.198 field would be Hibiscus’ second greenfield asset after West Seahorse, Australia but its first greenfield development project. While execution risk would be imminent, success of this field development would prove Hibiscus’ credibility as a global E&P player.

P.198 factored in from FY23F

We have factored in P.198 contribution in our forecasts from FY23F onwards based on our expectations of FID being achieved by FY21F.

Retain BUY with higher TP at RM1.60

Maintain BUY with a higher DCF-derived TP of RM1.60 (from RM1.35) as we account for P.198 contribution. Our finite DCF assumes WACC of 9% (Table 6). We believe the TP upgrade is justified as we see the company is capable of undertaking the field development in view of Hibiscus’ experienced management team, low regulatory risk from UK OGA and gearing opportunities with zero-gearing level.

Source: BIMB Securities Research - 12 Oct 2018