• Hibiscus revealed that its latest asset will add 20.6m bbls of 2P oil reserves and doubles its oil production to 18,500 bpd.

• With expected gas production of 8,000 boepd and reserves of 14MMboe, the asset allows the company to diversify its asset portfolio as part of its energy transition strategy.

• The purchase price of USD212.5m implies acquisition cost of c.USD6.2/boe. Management will seek to raise additional RM200m from equity offering to settle the sum amount.

• We raise our FY22F/FY23F earnings by 35%/191% to account for this asset, assuming SPA completion by 2QFY22F.

• Reiterate BUY on Hibiscus with unchanged TP of RM1.20 based on 1.3x FY22F P/B. No change to our TP as we had already ascribed asset premium in our valuation.

Fair price, we think

Hibiscus revealed that Repsol’s assets contain 20.6m bbls of 2P oil reserves and 83Bscf 2P gas reserves, totalling 2P hydrocarbon reserves of 34.5m bbls of oil equivalent (boe). Based on purchase consideration of USD212.5m, this implies acquisition cost of USD6.2/boe. While this is slightly above our initial expectation, we think this is fair given the rising oil price environment. The 2C resources number, however, have yet to be finalised.

Source of funding

On top of previous remaining RCPS proceeds c.RM197m, management expects that it will require to raise additional RM200m from private placement of RCPS and borrowings (if required) to settle the purchase consideration during SPA completion. This includes the estimated net cash balance available to the company at SPA completion amounted to c.RM200m. Subsequently, there is RM1.6bn RCPS remaining to be issued for future acquisitions.

Work commitments

Following the SPA completion, the company is required to undertake at least 3 drilling projects including 1 exploration and 2 developments at Kinabalu PSC and PM3 CAA areas. The total expected capex for these projects amounted to USD110m which will be funded through cash flows from the asset.

Raise earnings forecast

Upon completion of the transaction, this asset will double its oil production to 18,500 bpd and boost its 2P oil reserves by c.50% to 67mbbls. Besides that, it will also diversify its earnings base into gas with expected production of 47MMScf/day (8,000 boepd) and total 2P reserves of 82BScf (14MMboe). We raise our FY22/FY23F earnings forecast by 35%/191% (Table 1) to account for this asset, assuming SPA completion by 2QFY22 and oil price assumption of USD60/bbl.

Source: BIMB Securities Research - 8 Jun 2021