Headlines
• Hibiscus Petroleum* (KLSE:HIBISCS – MYR0.20) – (BUY – MYR1.35) – Anasuria Marks a New Phase: While the effective withdrawal from cooperation with Rex is disappointing, we believe that the acquisition of Anasuria, and more specifically the three cash flow it generates, provides the Company with a basis with which it can continue to grow, and effectively put it in control of its own future. Following the changes to its portfolio, our Target Price increases from MYR0.87 to MYR1.35; our Recommendation remained BUY.
• In Brief:
Rex International (OTCMKTS:REXOF – S$0.11) – (HOLD – S$0.35) – Uncertainty Abound:
Hurricane Energy (LON:HUR – 10p) – Everything is Now Ready
Rockhopper Exploration (LON:RKH – 31p) – Acquisition Underlines Strategy
Magnolia Petroleum (LON:MAGP – 0.21p) – Looking Forward
News Items
Hibiscus Petroleum* (KLSE:HIBISCS – MYR0.20) – (BUY – MYR1.35) – Anasuria Marks a New Phase
Today’s announcement by Rex International (see below) regarding its disposal of its UAE interests, now finally frees us to comment on the remainder of Hibiscus’ asset base. Given the extent of disagreement between Rex and Hibiscus, and the exit from the UAE assets, we have decided it prudent to remove all consolidated value that the Company holds in conjunction with Rex.
The reduction in value due to the removal of the UAE and Norwegian assets from Hibiscus’ portfolio, however, is more than offset by the consolidation of 50% of the North Sea Anasuria asset, which was acquired from Shell in March.
The management team and Hibiscus have continued to focus on generating value and returns for shareholders, structuring a deal with the previous owners of Anasuria (Shell and Exxon), in such a way that minimises the upfront costs to Hibiscus (and its joint venture partner Ping Petroleum), yet also minimises the residual decommissioning exposure to Shell/Exxon.
While the effective withdrawal from cooperation with Rex is disappointing, we believe that the acquisition of Anasuria, and more specifically the three cash flow it generates, provides the Company with a basis with which it can continue to grow, and effectively put it in control of its own future. Following the changes to its portfolio, our Target Price increases from MYR0.87 to MYR1.35; our Recommendation remained BUY.
In Brief
• Rex International (OTCMKTS:REXOF – S$0.11) – (HOLD – S$0.35) – Uncertainty Abound: Today’s news that the Company is effectively withdrawing and dissolving the Lime venture (which Hibiscus and Schroders are joint venture partners) and exiting the UAE is a disappointing development, and underlines the tensions that have grown amongst the partners. As a result, we are reflecting these changes in our Target Price, which now moves to S$0.35. However, given the increasing uncertainty at the direction in which Rex is now moving, and the clear loss of an expert operational partner in the form of Hibiscus, we are moving the recommendation to HOLD.
• Hurricane Energy (LON:HUR – 10p) – Everything is Now Ready: These results are less about the numbers and more about the now ample resources (following today’s down round) and the forward plan. Were it not for the addition of Alistair Stobie earlier in the year, we would have started to worry whether the Company had all the requisite elements required for a successful transition into a fully-fledged operating company. With adequate financial resources and a commercially minded and experienced CFO now in harness, we believe that the Company is in good stead to take advantage of the current dislocation in the oil price and emerge from the current operating period in a stronger position than when it entered it. We believe that the Company’s owners should be pleased with the progress that management has made and the position that it is now currently in.
• Rockhopper Exploration (LON:RKH – 31p) – Acquisition Underlines Strategy: The acquisition of a further interest in another producing asset base clearly underlines what Rockhopper’s management is trying to do with the cash pile it received from Premier as a result of the farmin to Sea Lion. While creating significant pain in the remainder of the oil and gas business, the collapse in the oil price has created an opportunity for Rockhopper to deploy its cash resources in a more efficient manner than it otherwise would have done under another, higher oil price scenario. The key for the Company is to now generate sufficient cash flow from its acquisitions by the time it needs to stand its corner for the development of sea lion, and we believe that there is every likelihood that it will manage that. We believe that the majority of owners will be pleased with the way in which managemen t is continuing to grow the Company, and we believe that the deployment of the cash resources at this point in the cycle is a wise move.
• Magnolia Petroleum (LON:MAGP – 0.21p) – Looking Forwards: Today’s news that the Company, despite the downward revision to its reserves base, has successfully negotiated its redetermination date is a significant step forward for the Company, as it now allows it to focus on the business of generating cash flow. Furthermore, we believe that given that by a broad consensus we appear to now be at the bottom of the oil price cycle, it also allows management to start looking forwards and perhaps widening its interests.