RH Petrogas Limited - Wait and see

We see RH Petrogas, with predominantly crude production, taking a capital preservation stance, even though it has capacity to take on debt. At Fuyu-1 block (its main catalyst) located in China, 14 wells were drilled as at end-July 2015, against a target of 40-100 development wells in 2015.

First production from Fuyu-1 is uncertain even though RHP had earlier guided a spring 2015 start-up. Our 2015 estimates for Fuyu-1 contribution are marginal given its back-end loaded drilling profile. We expect 2015 production to be close to 2014 at ~4,000boe/d from two Indonesian PSCs.

Given the company's plans to cut back on capex and defer development drilling at North Klalin field in Indonesia, we reduce its borrowing in our model in 2015 which leads to slightly improved earnings in 2015 on lower interest payment.

We cut our target price to S$0.30/sh from S$0.40/sh. Given the supply-driven oil price uncertainty and RHP's conservative stance, we increase our risk factor on the second phase of Fuyu-1 Block from 50% to 30%. Maintain NEUTRAL.

Taking a capital preservation stance in an uncertain crude price environment: With production predominantly in crude oil, we see RH Petrogas taking a capital preservation stance in an uncertain crude price environment. At the company's main catalyst block, Fuyu-1 located in China, the company drilled 14 wells as at end-July 2015, against a target of 40-100 development wells in 2015.

First oil at Fuyu-1 deferred: First production from Fuyu-1 is uncertain even though the company had earlier guided for a start-up in Spring 2015. Our estimates for Fuyu-1 contribution are marginal in 2015 given its back-end loaded drilling profile. We expect 2015 production to be close to 2014's at ~4,000boe/d from two Indonesian PSCs.


Technical Analysis
Daily Chart
Capex reduction in 2015: The company plans to cut back on capex and defer development drilling at North Klalin field in Basin PSC (Indonesia). The development approval plan was obtained in Jan 2015, with development drilling estimated to cost US$25-30 mn net. We update our model by deferring RHP's borrowing from 2015 to 2016. The company maintains a prudent balance sheet with low leverage, keeping its funding options open.

Cut target price to S$0.30/sh from S$0.40/sh: Given the supplydriven oil price uncertainty and RHP's conservative stance at phase 1 of Fuyu block, phase 2 will likely feature as a longer term plan. We raise our risking on phase 2 of Fuyu 1 Block (which has yet to obtain final ODP approval) from 50% to 30%. And following updates to reserves/resources published by the company's reserve auditors, we cut target price to S$0.30/sh from S$0.40/sh. Maintain NEUTRAL. (Read Report)

Source : Credit Suisse Asia Pacific Equity Research

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