Hibiscus Petroleum Berhad

Shell Trilogy: The Final Call

Publish date: Fri, 22 Sep 2017, 10:10 PM
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Sharing insights-Malaysia's first listed independent oil & gas exploration and production company

This post is a continuation of previous "Shell Trilogy: The Great Sale" article which is accessible from here. 


3) North Sabah EOR (Announced Oct 2016, closed ??)

Unlike Anasuria which is a concession, North Sabah EOR is under Production Sharing Scheme (PSC), details of which you can read more here.  PSC is essentially a type of profit sharing arrangement where the profit is shared between the government and the operator after deducting out the cost. But the government will always has bills to pay even if the PSC is not making a profit.  Hence, PSC is structured in such a way that caps the maximum cost that can be recouped in a reporting period (The technical term is Cost Recovery Ceiling, but there is no impact to accounting profit as any unrecoverd cost can be bought forward). The implication is the operator has to invest more of his own money to keep the operation ongoing especially during the low oil price period where costs have exceed the ceiling. Combined with Shell's reluctance to invest further on marginal assets, these provided the backdrop on the motivation for Shell to dispose its North Sabah assets.

At US$25m, is Hibiscus getting a good deal? Let's first compare the factsheets between North Sabah and Anasuria (a superb deal by all counts). Tabulation below shows key assets parameters of Anasuria and North Sabah:



North Sabah


Purchase Price (PP)



1) Economic interest since 1/1/2015 (~15 mths to close 10/3/2016)
2) Economic interest since 1/1/2017 (9 mths & counting to closing date)

2P Reserves (Acquisition Date)

20.2 MMbbl Oil
2.3 MMbbloe Gas

31.0 MMbbl Oil

Data is from Bursa Malaysia announcements

2C Reserves 

5.6 MMbbl

39.5 MMbbl

Anasuria figure from FY16 AR

OPEX in bpd



3) Based on actual 2014 spending.  Simple average 4 quarters OPEX has since dropped to US$15.11

4) Based on exchange rate USDMYR: 3.9592:1 @June 2016

Daily runrate in bpd




Purchase Price (PP) per 2P bbl



5) See below

PP per 2P+2C bbl



5) See below


Table below shows the differences between concession (Anasuria) and PSC (North Sabah). 



North Sabah








10% of Revenue
5% - Federal, 5% - State

Royalty payment is tax deductible

Profit Sharing


Gov: Hibiscus-70:30

Source: See link 

Tax Rate*

30% Corporate Tax + 10% Supplementary Charges

38% Tax Rate


Not all barrels are equal. To have an apple to apple comparison, we must first normalize a concession barrel with a PSC barrel. As can be seen in the first table, Anasuria Opex per barrel has nearly halved to US$15.11 since 2014. This is comparable with 2016 Opex of US$13.94 stated for North Sabah. We could therefore fairly deduced that the cost structure is quite similar for both the Anasuria & North Sabah. For modelling purpose, assuming oil price at US$55, Opex cost US$15 and a similar Capex cost US$15, total cost is US$30/US$55 or 45%



Revenue (A)



Cost (B)






Tax (D)

40% Tax Rate


Net Profit




North Sabah (PSC)*

Revenue (A)



Cost (B)



Royalty (R)






His's Share of PBT

H=30% of C


Tax (D)

38% Tax Rate


Net Profit




Based on the model above, each barrel oil produced in Anasuria is US$15/US$3.6 = ~4x more profitable than a barrel produced in North Sabah. The other way of putting it is to say it takes 4 barrel oil oil produced in North Sabah to earn similar profit to a barrel of oil produced in Anasuria. So, using a normalizing factor N=4 to the Purchase Price per barrel oil in North Sabah,

  • North Sabah Purchase Price per 2P bbl= US$25m/31mbbls x 4= US$ 3.23
  • North Sabah Purchase Price per 2P+2C bbl=US$25m/70.5mbbls x 4= US$1.42

All in all for North Sabah, the Purchase Price per 2P bbl was at 40% premium compare with Anasuria.  Inclusive of 2C resources, North Sabah's Purchase Price per 2P+2C barrel is at 25% discount. Overall, it can be reasonably concluded that the valuation for North Sabah is equally attractive compare with the Anasuria deal but at a smaller scale. And that is even without factoring that Anasuria's purchase price was based on Opex level of US$29.87 per bbl when the deal was struck.


Final Words

​The past few years were anything but an easy ride for Hibiscus. The management shift from exploration-oriented Jackpot to production-focused slow-but-steady growth has given much comfort. Those nightmares of flushing RM 100m+ down the exploration well only to encounter dry hole are truly over. If the Anasuria deal was the deal that save Hibiscus from bankruptcy, will the North Sabah deal propel Hibiscus to new height? The low asset entry price does not guarantee profitability but certainly provide much needed safety buffer against lower oil price. Today the focus shall be on the production costs, facilities uptime and maximizing reserve recovery, something certainly Hibiscus has better control with. 

As for the status of the deal, Hibiscus announced on 29/05/2017 that Petronas Carigali has waived its pre-emption rights under a joint operating agreement. Petronas has also conditionally approved the assignment of the Shell's interest to Hibiscus, which means the deal has not closed yet and can only be closed upon fulfilment of all conditions set by Petronas. Do take note that original closure date of the end of Q22017 was already due. 

As for the share price, monster upward move of 39.7% on 20/09/2017 has exceeded the author's expectation by a wide margin. Without the benefit of hindsight, the author initially expects the RM0.56 level to be broken only upon the closure of the deal. The author believes that whatever windfall benefit from North Sabah deal should already be partially reflected in the price. With Brent oil price currently hovering at near the year high, caution is strongly advised. The author is humble and has been humbled by market numerous times to learn that investing is less about being correct than to simply make a profit out of our investment. The adage of "let the profit runs and cut the losses" can never be more apt here. Immediate support level is at RM0.61 and a much stronger level at RM0.56. Price dropping below RM0.56 flashes a big bearish signal. 



1)  The author has no access to management of Petronas, Shell or Hibiscus. The report was written purely based on the news reports, company statements and media releases together with industrial trade reports. Verificacy of the report is based on best efforts and was subject to the author's knowledge inadequacies, assumptions used and the probabilistic nature of the future events.

2)  The author has position in Hibiscus and while trying to stay as objectively as possible but may still be influenced by subconscious confirmation and memory bias. 


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1 person likes this. Showing 13 of 13 comments


Lau333, isnin saya nak beli; harga berapa baik beli?

2017-09-22 22:28


thanks you for your thoroughly research shared.

Hibiscus is hot cake vs your fact sheet.
Interesting to see how market would reach then.

I have a feeling that Hibiscus would ride up big way, upon the necessary consolidation complete.

However, the volatility expected to be great .

2017-09-22 22:51


Fatimah, I do concur with VenFx. Hibiscus will be volatile. The ride will be bumpy, depending on how and when the North Sabah deal eventuate. I don’t have a target price for you but caution is strongly advised as per the content of my write-up. Buy on weakness and do not chase high.

Venfx, thank you for supporting my write-up.

2017-09-23 13:01


The PSD is based on a 50:50 basis. And if below 10kbpb/day, profit sharing shall be on a 50:50 basis. Yet, you're now basing 30% profit from 50% portion?

Please correct if I'm wrong.

2017-09-30 19:05


2011 North Sabah Enhanced Oil Recovery Production Sharing Contract was entered between PETRONAS and a 50:50 joint venture between Sabah Shell Petroleum Company and Petronas Carigali. No, the 50:50 is NOT the profit sharing ratio but is the equity ratio in the joint venture between Sabah Shell & Petronas Carigali.

Actual Profit sharing between PETRONAS & the joint venture is not made available to BURSA and hence estimate of 70:30 is used, which is based on "revenue over cost" PSC sliding scale. See link below


2017-09-30 21:34


Meaning 70% of profit goes to PETRONAS and the balance 30% to the joint venture. Since Sabah Shell (to be taken over by Hibiscus) only has 50% share, then the profit attributed to Shell is only 50% of 30% share of profit of the joint venture (total output 18k barrel per day). I’m not able to find any information that production below 10k is given special rate of 50:50. Anyway, this is irrelevant since the joint venture TOTAL production 2015 is 18kbpd, which is over 10k (of which 9kbpd belongs to Sabah Shell).

Under PSC term, the government is enjoying 3 slices from the barrel pie, i.e Royalty, profit attributed to PETRONAS (in the form of dividend) and finally taxation.

2017-09-30 21:40


lau333, ini makna bagus untuk Hibiscus?

2017-09-30 21:45


Fatimah, PSC is good for the country as the government get the biggest slice.

If you are asking in the context of Hibiscus share price, what I can say is that Hibiscus paid (or is going to pay) a good price for the assets, whether it translates into better share price for Hibiscus especially after nearly 40% increase is another matter...

2017-09-30 22:08


50% of 30% share of profit? Technically, you're saying Hib only have a share of 2700 barrel per day of 18000, but to share 50% of capex and opex. It is a very bad business for anyone to go into.

Are you sure you've got this right? You're now saying a whole different story from the bank research. This is a serious matter if what you're saying is right.

2017-10-03 08:56


The 2700 bbl/day production that you quoted is still subjected to taxation...
Consider that in Iraq, contractors are paid fix fee US$2 per barrel, it is not too bad as with PSC you share more if the oil heads north.

The data source and the analysis are both provided and explained. Is my story really very different from those bank research? On the contrary, I think it’s congruent. Taking BIMB report that was shared in Hibiscus forum as example (table 3 & table 4):
Anasuria Fair Value (derived from DCF) for 2018, premised on 55 USD/bbl and 3800 bbl/d production, is RM 0.468
North Sabah Fair Value for 2018, premised on same oil price with 8000 bbl/d production, is RM 0.581

Shouldn’t North Sabah deserve a much higher Fair Value since the production is twice as much in comparison with Anasuria?
Not all profit are equal…

2017-10-03 21:52


From the report by Public Investment Bank:
Anasuria: RM 0.58 (DCF with WACC=11%)
North Sabah: RM 0.48 (2C reserve only)
North Sabah is given a lower valuation despite higher production.
Again, not all profit are equal....

2017-10-03 22:39


Lau333 d tax rate for North Sabah sld not b 38% but 25%

Petroleum income tax

Petroleum income tax is imposed at the rate of 38% on income from petroleum operations in Malaysia. An effective petroleum income tax rate of 25% applies on income from petroleum operations in marginal fields with effect from 30 November 2010. No other taxes are imposed on income from petroleum operations.
08/10/2017 22:11

2017-10-08 22:13

Jon Choivo

This is fantastic. I was just too stupid to even go and read it.


2018-11-27 23:51

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