• Hibiscus is acquiring Licence P2366 (Block 15/18d and 15/19b) in UK North Sea for US$5m which contains the Crown discovery field from the United Oil & Gas-Swift Exploration consortium.

• We estimate that, under worst-case scenario the Crown field is priced at US$1.67/bbl; we opine that this is not excessive as the Marigold-Sunflower (12km away) purchased in Oct 2018 implied US$1.25/bbl.

• We believe tie-back development with the proposed Marigold Sunflower field would lower production unit cost and boost viability of both fields.

• Reiterate BUY on Hibiscus with unchanged DCF-derived TP RM1.50. The Crown field could add RM0.07 to TP as we are optimistic on its prospects.

Acquiring Licence P2366 in UK North Sea

Hibiscus entered into conditional non-binding term sheet with United O&G-Swift Exploration consortium to acquire License P2366 which contains two blocks (15/18d and 15/19b) for US$5m. These blocks contain the Crown discovery field, drilled by ConocoPhillips in 1998, and are located in the UK North Sea just 12km from the Marigold Sunflower field which were acquired by Hibiscus in Oct 2018.

Price is not excessive, we think

An independent estimate (refer to United O&G Corporate Presentation in Mar 2019) indicated Crown’s recoverable oil volume is in the range of 3-12 MMbbls. We estimate that under worst-case scenario the Crown field is priced at US$1.67/bbl (Table 1), slightly higher than the Marigold-Sunflower purchase price of US$1.25/bbl.

Lower risk with subsea tie-back development

Given the proximity of these fields, we believe a subsea tie-back development between the planned Marigold-Sunflower and Crown field could reduce unit production costs. Besides Crown field, management is concurrently in early discussion with up to 5 nearby stranded fields (each containing 5-25 MMbbls of 2C oil reserves) for facilities-sharing arrangement; with limited output, the arrangement could boost viability of field developments. We are also not ruling out more acquisitions by Hibiscus in the future.

Reiterate BUY with unchanged TP at RM1.50

Reiterate BUY with an unchanged DCF-derived TP of RM1.50 (Table 3). We believe the Crown acquisition would enhance viability of Marigold-Sunflower project and potentially add c.RM0.07 to our TP. Understandably, the market has yet to reflect the potential making it a good buying opportunity.

Source: BIMB Securities Research - 19 Jul 2019