Excerpts from UOB Kay Hian report

Rex International Holding (REXI SP)
Turning Around; Targeting First Oil Production

In 2H19, Rex is looking to turnaround into profitability in 2020 when two of its oil wells come on stream. Its Oman oil well is to start production in 2H19 with 5,000 bpd.

The Rolvness oilfield is slated to start in 2020, with 7,000 bpd and this is set to increase to 14,000 bpd by end-20.

Rex could generate S$32.7m net profit in 2020 if the oilfields deliver as planned.

In addition, Rex has cash totalling S$56.9m as of 1H18 and it could receive S$34.5m from the Oman government in 2019 if they exercise their option for a 25% stake, based on a historical cost pool of S$138.0m.


VALUATION
DanBrostrom1.16Dan Brostrom, executive chairman of Rex International. NextInsight file photo.♦ Assuming Rex International Holding (Rex) is able to generate S$32.7m profit in 2020, it will trade at 3.9x FY20F P/E (Figure 1).

Industry peers are trading at an average FY18F P/E of 6.9x; Hibiscus Petroleum and Tethys Oil are currently trading at 7.5x and 6.4x FY18F P/E.

On 17 Sep 18, Rex received a non-binding indication of interest for its concessions in Norway held under its subsidiary, Lime Petroleum.

INVESTMENT HIGHLIGHTS
Targeting first oil production in Oman in 2H19. Rex aims to commence production for its Block 50 Oman oilfield in 2H19, starting with production at 5,000 bpd. Currently, Rex owns a 92.7% direct stake in this oilfield.

The key milestones before the commencement of production include:
a) independent report on the oilfield;
b) declaration of commerciality (DOC) by the Oman government;
c) exercise of option to buy a 25% stake by the Oman government; and
d) appointment of oil producing contractor.

Target production in Rolvsness, Norway in 2020. Rex expects production in the Rolvsness oilfield to commence in 2020, starting with production at 7,000 bpd and this is expected to scale up to 14,000 bpd by end-2020.

Net cash balance of S$56.9m and potential cash injection of S$34.5m. Rex was in a net cash position of S$56.9m as of 1H18. It could receive S$34.5m from the Oman government in 2019 if they exercise their option for a 25% stake.

Management thinks there is a good chance for the Oman government to exercise their option in early-19, after the issuance of the DOC in late-18.
-- UOB Kay Hian

Rex owns a 27.0% direct stake in this oilfield, while the well operator, Lundin owns a 50.0% stake. On 27 Aug 18, Lundin announced that it has drilled a 2.5km horizontal section in the reservoir.

The drilling results show good reservoir productivity and connection to significant oil volume, with production rate of up to 7,000 bopd, confirming sustainable commercial oil flow.

The next step towards commercialisation is to tie the well to the adjacent producing Edvard Grieg platform of Lundin.

Backed by Lundin Petroleum, a renowned O&G player. Lundin Petroleum is a leading Swedish O&G company with a portfolio of exploration and production (E&P) assets in Norway.

It has:
a) market cap of more than US$10b;
b) resource base of around 1b boe; and
c) oil production of 86m bpd recorded in 2017.

Full report here


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