Hibiscus diversifies into gas with Repsol deal

by SHAHEERA AZNAM SHAH / pic by TMR FILE

HIBISCUS Petroleum Bhd would generate more cashflows, grow in scale and further diversify into the gas business with the acquisition of Repsol Exploración SA’s upstream assets in Malaysia and Vietnam.

The independent oil and gas exploration and production company is expected to generate about US$255 million (RM1.1 billion) in net cashflows in the next five years from the Spanish oil major’s upstream assets under consideration.

“It is a transformative acquisition as it allows us to reinvest into existing assets, acquiring high-quality production assets to expand the group’s asset portfolio and pay dividends to reward our shareholders.

“We have been bidding for this asset and the oil prices have rebounded to a reasonable range now for us to enjoy some of the upsides from this asset,” Hibiscus MD and shareholder Dr Kenneth Pereira (picture) said during a virtual media briefing on Saturday.

Hibiscus’ indirect wholly owned unit, Peninsula Hibiscus Sdn Bhd, is acquiring the entire equity interest in Fortuna International Petroleum Corp (FIPC) from Repsol for US$212.5 million cash. FIPC, via its wholly owned subsidiaries Repsol Oil and Gas Malaysia Ltd, Repsol Oil and Gas Malaysia Ltd and Talisman Vietnam Ltd, own participating interest in production sharing contracts (PSCs) in Malaysia and Vietnam, including a 60% interest in the 2021 Kinabalu Oil PSC located offshore Sabah.

The proposed acquisition would particularly expand Hibiscus’ portfolio in gas, as almost 50% of FIPC group’s production comprises gas.

Pereira added these brownfield assets would provide better balance to Hibiscus’s asset portfolio in terms of price volatility, markets and operations and see the Hibiscus has two hubs of operations in the country.

Prior to the proposed acquisition, Hibiscus’ gas portfolio was mainly in the UK.

The deal sees Hibiscus buying five PSCs in Malaysia and Vietnam, including 205 wells and 17 platforms, and are estimated to contribute US$135 million to Ebitda for the calendar year 2022.

The purchase will also be backdated to January, thus entitling Hibiscus to all income from operations and thus lower the actual amount of cash it will have to fork out for the deal.

Peninsula Hibiscus is also expected to take on Repsol’s role as the operator for all the PSCs.

Upon the sale and purchase agreement materialised, Hibiscus would double its daily oil and condensate production from 9,000 barrels a day to 18,500 by 2022.

The combined company’s daily net barrels of oil equivalent (boe) rate (including gas) would increase from 9,400 boe per day to 26,800 boe post-acquisition.

The deal is expected to be completed by the fourth quarter of the calendar year 2021 (4QCY21).

Hibiscus has plans to embark on another capital raising exercise to raise about RM200 million through an Islamic convertible redeemable preference shares (CRPS) before September and is looking to fund at least 50% of the purchase price or about RM400 million with debt according to Hibiscus’ corporate finance head Joyce Vasudevan.

Last year, the company raised about RM203.6 million through CRPS, which will be utilised for the asset acquisition from the Spanish oil company.

“We will not be paying the entire US$212.5 million and we do not need to raise capital that much, the reason being how we structured the cashflow from January 2021 that was accrued to us.

“When we complete the deal, which is targeted by 4QCY21, the cashflow generated from January 2021 to the time we complete the acquisition will be accrued to us, and we will use the cash to offset the consideration that we need to pay.

“We now have about RM200 million raised from the CRPS. We believe it will not be an issue for us to raise another RM250 million, possibly via CRPS, to close the acquisition deal. The remaining balance will be generated from banks borrowing as part of the acquisition’s settlement,” Vasudevan said in the briefing.

With zero debt, she said the firm is confident to take on debt based on its strong cashflow from the assets the company is acquiring.

Pereira said the company will not opt to raise funds via right issues as this would be negative for existing shareholders’ interest.

Hibiscus shares were last done at 65.5 sen a share ahead of its suspension last week. The shares of the company will resume trading today.