SINGAPORE (May 4): NRA Capital is assigning GSS Energy a fair value of 23 cents if the latter could exploit its oil & gas (O&G) assets in Indonesia.
In a Thursday unrated report, analyst Liu Jinshu explains GSS Energy has two businesses, precision engineering (PE) and O&G exploration and production.
The PE business comprises of electronic manufacturing services in Batam, precision shafts manufacturing in Singapore and machining in Changzhou, China.
The energy business pertains to production of O&G from a 47.63 sq. km operation area in the Trembul area in Java.
GSS reported sequentially higher PE revenue. On a full year basis, PE revenue grew by 20% to $75.7 million in FY16. According to its annual report, GSS expects higher orders to continue into 2017 with new projects in the pipeline.
Meanwhile, Q&G production in the Trembul area is expected to kickstart in 2H17. GSS has entered into an operation agreement with stated-owned PT Pertamina in the area, where PT Pertamina will pay GSS the operating costs of producing all oil & gas in the area.
GSS will be entitled to 23.5% of the petroleum and 31.4% of the natural gas produced, after accounting for operating costs. GSS’s cost of participation is that it has to commit to an exploration and development programme for an initial three years amounting to US$7.86 million.
The Trembul area agreement is for a period of 15 years and 24.3 million stock tank barrels of contingent resources at depths up to 800 metres have been estimated by a geologist in a Qualified Person’s Report in 2015.
However, NRA Capital stops short of assigning a rating, as it has only done limited work at this juncture. Risks include whether the 24.3 million barrels can be extracted over the 15-year term.
Shares of GSS Energy are up 0.7 cent at 16.1 cents.
