 Inset: CEO of RH Petrogas, Francis Chang• Is the price of oil headed upwards or will it be rangebound? Forecasts change with some frequency, and the latest? It is that oil prices face upward pressure through 2024. The US Energy Information Administration (EIA) said on 21 March 2024 that it expects "significantly less global oil production than world oil consumption through the first half of 2024, requiring draws on world petroleum stocks (inventory). Stock draws tend to increase oil prices."  • The EIA also said: "The draw on global oil stocks during 2024 will keep Brent crude oil prices elevated, averaging $88/b in 2Q24, $4/b higher than we had forecast in February. Prices will remain relatively flat for the rest of the year before falling to $82/b by the end of 2025 as OPEC+ supply cuts expire and production increases." • There are 2 Singapore-listed oil producers, one of which is RH Petrogas, which may see a positive stock return on strengthening oil prices. • RH Petrogas operates across the full range of activities covering the exploration, development and production of oil and gas resources. It currently operates 2 Production Sharing Contracts. These contracts signed with the Indonesian government enable RH Petrogas to explore for, and produce, oil. RH Petrogas is able to recover certain costs and share in profits, while it pays royalties to the government. • Read more of the outlook of RH Petrogas in excerpts of UOB KH report below.... |
Excerpts from UOB KH report
Analyst: Adrian Loh
| • Drilling plans for 2H24. RHP has planned for a two-well drilling programme in the Basin PSC (RHP stake 70%), one well targeting a shallow reservoir at around 3,000ft well with potential unrisked recoverable reserves of 8-10mmbbl, and the second one targeting a deeper reservoir of 8-10bcf of gas at around 10,000ft. The gross cost of the wells will be US$4m and US$8m-10m respectively. It is important to note that Pertamina drilled two successful oil and gas wells that were only 2-4km away near RHP's first planned shallow well and thus it would appear that the likelihood of a positive result is high in our view. |
STOCK IMPACT
• Positive production outlook in the longer term.
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Stock price |
16.2 c |
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52-wk range |
15.4 – 24.5 c |
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PE (ttm) |
8.1 |
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Market cap |
S$135 m |
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Shares outstanding |
835.2 m |
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Dividend |
-- |
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1-yr return |
-8% |
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P/B |
2.4 |
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Source: Yahoo! |
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Although its Karuka exploration well failed to find any commercial gas to supply the nearby nickel smelting plant, it appears that RHP has enough contingent gas resources nearby to supply the plant with minimal capex outlay.
While negotiations with the smelting plant should commence in the near term with production rates and gas prices yet to be determined, we believe that any positive outcome should bode well for RHP's medium- to long-term production outlook.
EARNINGS REVISION/RISK
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RH Petrogas |
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Share price: |
Target: |
• Raising earnings. We have raised our earnings estimates for 2024-25 by 22-23% due to our higher oil price estimates as well as slightly higher oil production forecasts.
We highlight that the company had zero debt at the end of 2023 and US$54.6m in cash which equates to over half of its current market capitalisation.
• We reiterate our BUY rating on RHP with a slightly higher SOTP-based target price of S$0.242 (S$0.238 previously).  Adrian Loh, analystBased on our forecasts, RHP trades at very inexpensive multiples with its 2024F PE and EV/EBITDA of 6.2x and 4.4x respectively at 23-36% discounts to its regional oil and gas peers. While this can partially be explained by RHP's small market capitalisation and low daily trading liquidity, we point out that management has a good track record of delivering on production growth and cost control. |
Full report here
