Repsol’s deal to enhance Hibiscus’ earnings

Earning momentum of Hibiscus will be supported by the current higher oil prices trading at US$60 per barrel


HIBISCUS Petroleum Bhd’s proposed acquisition of Repsol Exploración SA’s upstream assets in Malaysia and Vietnam is deemed timely, given the current favourable movement of oil prices.

Public Investment Bank Bhd (PublicInvest) stated that the earning momentum of Hibiscus, an independent oil and gas exploration and production company, will be supported by the current higher oil prices trading at US$60 per barrel.

“Hibiscus is now producing 9,000 barrels of oil per day through its two assets — Anasuria Cluster and North Sabah. This acquisition will add another 9,500 barrels per day to existing production,” the investment bank noted in a statement yesterday.

PublicInvest expects the deal to enhance Hibiscus’ financial year 2022 (FY22) and FY23 earnings by 149.3% and 250.5% respectively.

The deal raises Hibiscus 2P (proven and probable) reserves by 20.6 million barrels of oil reserves and 83.6 billion standard cu ft (bcf) for gas reserves. There has not been guidance on the 2C reserves at the moment as independent assessment is still ongoing.

PulicInvest stated that Hibiscus guided it would allocate about US$115 million (RM473.8 million) from internally generated funds from operations for capital expenditure for 2021 to 2023 to maintain stable production.

It also guided for operating expenditure (opex) to amount to about US$10 per barrel, which is at the lower end of its North Sabah PSC’s opex of US$10 to US$15 per barrel.

Based on its track record of operating the North Sabah field, Hibiscus successfully increased the daily production levels and reduced operating costs by about 30% from the previous operator, the research house said.

Hibiscus plans to issue additional convertible redeemable preference shares (CRPS) amounting to RM200 million to partly fund the purchase as AmInvestment Bank Bhd (AmBank Research) expects the oil company’s capital expenditure (capex) to reach US$80 million in 2022.

Its analysis assumes a capex of US$80 million in 2022, and the issuance of additional CRPS of RM200 million with a conversion price of 70 sen per share and a net cashflow adjustment of US$50 million to the purchase price US$212.5 million as the transaction was deemed effective Jan 1, 2021.

“Our valuation reflects a premium of 3% from our environmental, social and corporate governance rating of four stars and implies an enterprise value of 2P reserves valuation of US$6.70 per barrel, translating to a discount of 28% to EnQuest plc’s US$9.32 per barrel and 40% to a regional average of US$11 per barrel,” it said.

Given the average price of US$60 per barrel for the daily crude oil production of 9,500 barrels and US$3.90 per one thousand cu ft for the annual gas output of 17bcf, the research house estimates the acquisition of Repsol’s assets could boost Hibiscus’ FY23 forecast for Ebitda by 121%.

“Even with higher finance charges from the additional RM340 million debt arising from the purchase, we estimate Hibiscus’ FY23F diluted earnings per share will surge by 1.2 times to 17.6 sen,” it said.

While its forecast was not revised pending the completion of the transaction, AmBank Research projects the oil division will account for 75% of Hibiscus’ new revenue stream, while the remaining will be from gas.

PublicInvest raised its target price for Hibiscus to RM1.05 from 76 sen on a fully diluted basis, incorporating RM200 million new issuance of CRPS with a conversion price of 60 sen.

AmBank Research maintained its ‘Buy’ call for Hibiscus with a raised sum-of-parts-based fair value of 98 sen per share from an earlier 85 sen per share estimate, incorporating the additional net present value of US$216 million (RM889.92 million) from the new assets.

Hibiscus’ shares closed five sen or 7.63% higher at 70 sen yesterday, giving it a market capitalisation of RM1.39 billion.