Posted by Raymond Tiruchelvam > 2022-05-27 23:04 | Report Abuse

nice analysis, although i found it a little confusing on the AE part, but in summary BOE sales in Q4 alone (2.076m) will be 45% of the whole FY2022 boe sales (4.656m), and looing at the high price of brent today (may25) at 114, and with expectation that it will remain above 100 till 31 june 2022, hibiscus is expected to make bumper profits?

Posted by zhangzuode > 2022-05-28 10:58 | Report Abuse

Thank you for reading Raymond.

In arriving at AE, there are many items e.g., engineering studies, reserve assessments (to determine the negative goodwill), admin salaries (directors), and so on that cannot be attributed to operation of particular fields. In this particular quarter, there were many expenses that is related to the takeover of the Repsol assets and is one-off. That is next quarter, these expenses would not be incurred (not recurring). The reserve study (which is expensive) is such one-off. There could be more in the coming quarters as Hibiscus would want to extend the (Repsol) PSC as well as determine what are the projects to be carried out to either maintain current production or further increase production. Again, these studies are not cheap - can run into 10s of millions.
Expenses incurred for these studies and others related to Repsol assets was taken up this quarter while production sold was only for 2 months and none from Kinabalu – timing issue as accountant say.
The “bumper” profits for Q4 was not done as I was pushed for time. Will try to make an estimate when time permit.
Hope the above help and Happy investing, peace.

Posted by zhangzuode > 2022-05-28 17:43 | Report Abuse

Raymond, my apology on the earlier reply on AE. The studies on possible PSC extension and projects to be executed as well as reserve assessment should all be capitalized.

The expenses (in AE) that will be incurred for the Repsol assets would be the transition cost incurred. This is the Transition Service Agreement (TSA) entered into between Hibiscus and Repsol back in 12 Nov 2021. This TSA will last 9 months from completion of the deal date (25/1/22) and include IT services as well as certain management level manpower. This I believe is calculated based on production and not barrels sold - timing issue.

Posted by Raymond Tiruchelvam > 2022-05-30 04:50 | Report Abuse

@zhangzuode.... yes IFRS says if the studies are pertaining to future income generation that can be proved to some extent, then can be capitalised and amortised there on. Same with the negative goodwill which is a good thing actually - meaning they paid less than the NTA means they can capitalise the sum, as non distributable reserves, all sounds good, furthermore repsol returns were from an associate and therefore did not show in the revenue, but was present in the PBT, all good... nevertheless the market did not think so.

Posted by zhangzuode > 2022-05-30 08:45 | Report Abuse

Raymond – “furthermore repsol returns were from an associate and therefore did not show in the revenue”; this is confusing. Care to elaborate, thanks.

The above conflict with page 17 of the Q3 report that clearly state that revenue from repsol assets is accounted under “sale of crude oil and gas”. The total figure (under Group) is cumulative, i.e. 824,196 – 528,142 = 296,054 (exclude project management & interest income).

Yes, I agree that the market looked at the normalized PAT RM 35m and decided it is rubbish. I remember when N Sabah was combined, again with negative goodwill, Hibiscus suffered similar destruction in value.

As negative goodwill is a non-cash item, it does not really bring in any cash. But strictly, it should be viewed as “cash have not gone out”, an equally important if not more important aspect – cash not leaving the company and assets coming in that will bring mountain of cash.

Also, there are big time players that pried on unsuspecting “investors” (day to short term players).