Hibiscus’ qualifying acquisition of Lime Petroleum to be a success — Research

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KUCHING: Hibiscus Petroleum Bhd’s (Hibiscus) proposed stakeholding acquisition of a Middle Eastern upstream oil and gas (O&G) company is expected to be successful on the basis of a solid foundation and significant upside moving forward.

SIGNIFICANT UPSIDE: Hibiscus’s higher risk profile (post QA approval) would come with potential significant upside arising from the development of Lime Petroleum’s estimated 200.7 million boe risked recoverable resources. — Bloomberg photo

Hibiscus announced its ‘qualifying acquisition’ (QA) involving a 35-per cent equity stake in an early-stage exploration company called Lime Petroleum Ltd (Lime Petroleum) with three assets in the United Arab Emirates and Oman.

The acquisition is a combination of new equity injection into Lime Petroleum and vendor shares from Rex Oil and Gas Ltd for a total cash consideration of US$55 million (RM172.1 million).

This would meet the minimum requirement of RM168 million to be spent for the QA under the special-purpose acquisition (SPAC) listing requirements.

RHB Research Sdn Bhd (RHB Research) noted in a report, “Hibiscus, as a SPAC listing, presented the curious case of an almost riskless investment with a guaranteed refund of RM0.74 per share and a business that is all about taking significant risks related to O&G exploration and development.

“Now, with the QA identified, Hibiscus’ risk profile is clearly shifting towards the latter. The market appears to be supportive during this transition period until the QA is approved, as implied by the 13.3 per cent and 70.7 per cent rise in the price of Hibiscus’ shares and warrants since the QA was announced.”

RHB Research believed that Hibiscus’ higher risk profile (post QA approval) would come with potential significant upside arising from the development of Lime’s estimated 200.7 million barrels of oil equivalent (boe) risked recoverable resources.

The successful commercialisation of the resources from the four wells to be drilled in the 2012 work programme would result in an estimated net risked resource of 157.6 million boe.

RHB Research estimated Hibiscus’ 35 per cent stake could be worth RM1.01 to RM1.33 per share, which implied a significant 33.2 to 76.1 per cent upside to Hibiscus’ current share price.

The research house also pointed out that Hibiscus’ proposed QA was exciting on two counts, namely the significant risked resources identified relative to the size of the company and the relatively inexpensive entry cost into the assets versus its potential value (based on NAV per boe).

“We believe Hibiscus’ experienced management and their significant vested interest (with their 20 per cent collective stake) will ensure that this first acquisition is a success,” RHB Research summarised.