Rex International Holding is ramping up activities in Oman and will be focusing on several initiatives to generate cash flow in 2017.

Rex remains cash positive with no long-term loans and borrowings. These positives are overlooked by the market which has sold down its share price.  

Stock price

4.7 cents

52-week range

4.3-16.6 cents

Market cap

S$59.6 m

PE (ttm)

--

Dividend yield

--

YTD return

- 47%

Source: Bloomberg

Mr Dan Broström, Executive Chairman of Rex International Holding, said, “Rex’s share price had been impacted by the plummet and volatility of oil prices and macro-economic headwinds since 2014 and most recently, news of Swiber Holdings Limited’s bankruptcy and some of our peers’ debt covenant woes.

“Rex remains financially sound as a going concern. As at 30 June 2016, the Group has US$68.51 million in liquid assets comprising cash, cash equivalents and quoted investments, enabling Rex to continue operating until when we expect to be cash flow positive.

"The Group has no long-term loans and borrowings; its only short-term borrowings being a bridging credit facility in Norway, 100% backed by tax refund receivables from the Norwegian government for 78% of exploration costs which subsidiary Lime Petroleum Norway AS is eligible for as a pre-qualified petroleum company,” he added.


DanBrostrom1.16quote3.16.jpgRex shares appear to be grossly undervalued; given that the current market capitalisation of the Company is even less than the value of our liquid assets. The market has not priced in any value for our proprietary technologies and our interests in licences, which include a discovery in Oman and another in Norway, both of which have the potential to be monetised over the medium term.”

-- Dan Broström (photo),
Executive Chairman, Rex International.

NextInsight file photo 

Focus on several initiatives to generate cash flow

Rex’s business model had been to use Rex Virtual Drilling (RVD) to identify oil in the ground, validate the RVD results through oil discoveries and monetise by, amongst others, selling oil-in-the-ground.

With the continued volatility of oil prices and the over-supply of oil in storage, there are very few buyers now for oil-in-the-ground.

Rex will need to develop its discoveries into oil production in order to monetise its assets, at higher capital expenditure and longer lead time in this low oil price environment.

The flip side of this is that Rex will get a much higher price for its developed discoveries than if it were to sell oil-in-the-ground.

Focus will be placed on developing existing entities in the Group to generate cash flow in 2017.

The Group is also on the lookout for investment opportunities to diversify risks in oil exploration.

Future drilling programme

Mr Broström said, “Crude oil remains the only energy source used to manufacture fuel which is essential for powering transportation on land, sea and air over long distances, which is why world demand has been upheld even in these testing times for the industry. A Bloomberg report dated 30 August 2016 states that explorers in 2015 discovered only about a tenth as much oil as they have annually on average since 1960. We want to ensure that Rex will be in good stead to benefit when global oil supply and demand rebalance and oil prices go up again.

“We have moderated our drilling plans over the past year and will continue to be very selective in undertaking new exploration drillings. We have on the cards to drill at the minimum one more well in Oman and one well in Norway in the next 12 months." 

The well to be drilled in Norway will be located near Rex's recent discovery in Edvard Grieg South (Rolvsnes) in PL338C. Another successful discovery in the area will prove up a substantial reservoir in Norway for the Group, which could be monetised as soon as there is a rebound in oil prices.

♦ Block 50 Oman licence extended for three years
The Omani Ministry of Oil & Gas (“MOG”) has extended the Exploration and Production Sharing Agreement (EPSA) for Block 50 Oman for another three years from the end of the current phase to March 2020. Plans are now being finalised to drill another exploration well in Block 50 in early 2017. 

This will be the first well using the new multi-attribute version of RVD, which enables the Company to be independent from traditional geological inputs on porosity and permeability. The Manarah-1 well drilled in the first quarter of 2016 confirmed the presence of a source rock and a working petroleum system in the 17,000 sq km Block 50 concession. 

The Company is actively pursuing a farm-out campaign with the aim to attract partners to the concession. The current direct interest held by the Group in subsidiary Masirah Oil Limited of 76.95% is above the recommended level in its investment policy. 

The well results were considered another milestone towards establishing value creation in the concession, following the Group’s oil discovery (a first in offshore Oman) in the GA South well in 2014. 

Investigations are also underway for a revised, lower service-cost extended well testing and early production system to be used in Block 50. The Group expects successful investments in Oman to generate positive cash flow even at prevailing oil prices of around US$40.


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