UOB Kay Hian analysts are positive on RH PetroGas in an unrated report, highlighting its operational performance and growth in reserves.
In their Dec 14 note, the analysts point out that the Indonesia-focused oil and gas company has undergone asset rationalisation and sold off two of its assets over the past five years. These consist of one high-cost oil production asset in China, while the other is an exploration asset in Malaysia.
As a result, the company currently only has two producing assets in Indonesia — the Kepala Burung Production Sharing Contract (PSC) and the Salawati PSC, both of which are located onshore West Papua. RH PetroGas owns 70% of these PSCs, while its 30% partner is Indonesia’s national oil company, Pertamina.
Unlike other Singapore Exchange-listed oil and gas companies, RH PetroGas has shown very good execution ability in the past five years with 5% production CAGR over the 2017-2021 period, the analysts add. Its operating costs per barrel of oil equivalent (boe), on the other hand, has declined by 2% CAGR over the same period.
Additionally, its proven and probable (2P) oil and gas reserves have grown by 18% and 37% CAGR over the same period to 31.4 mmbbl and 19.2 bcf respectively as at Jan 1. At the beginning of the year, RH PetroGas’s reserves-to-production ratio was just over 20 years.
The analysts also highlight the key initiatives to strengthen the company’s balance sheet. One of which occurred in 3QFY2021, when its major shareholders converted their interest-free shareholder loans amounting to US$15.5 million ($21 million) into equity in the company at a price of 17.2 cents per share.
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This led RH PetroGas’s negative equity position at end-2020 to turn positive — as at end 1HFY2022, the company had no debt and US$51 million in cash, equivalent to 8 cent per share.
In 2023, RH PetroGas plans to drill one exploration well in each of its PSCs, as well as one development well in the Kepala Burung PSC. The company’s seismic data indicates that its exploration well at Kepala Burung will target over 1 tcf of natural gas, which would be material to a company of its size, the analysts say.
Given its net cash position, UOBKH believes RH PetroGas may also look to acquire or farm into prospective assets in the Asian region.
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The analysts add that the company appears inexpensive on various metrics — based on annualised 1HFY2022 EPS, RH PetroGas trades at a PE of 4.5x.
However, given its large cash holdings as at June 30, the company’s PE on an excluding cash basis would be 2.6x. In 1H22, RHP generated an ROE of 99% and free cash flow of US$2.3 million.
As at 12.09pm, shares in RH PetroGas are trading 0.1 cents higher or 0.54% up at 18.4 cents.
