UOB-KayHian - Sona Petroleum (SONA MK) which was listed back in end-July, would likely be announcing the acquisition of some qualifying assets (QA) soon. According to channel check, the company is looking at some of the O&G assets in SGX-listed RH Petrogas, which currently owned a full spectrum (i.e. from exploration to production) assets that are located in China, Indonesia and Malaysia. In line with Datuk Seri Hadian's guidance during the IPO launch, SONA would be keen to first buy up some producing assets which have steady cash flow to fund future acquisition of development and exploration blocks - which thus makes RH Petrogas 's assets do look appealing to SONA.
Not surprisingly, RH Petrogas would want to rope in a strategic partner given that sizeable capital would be required for the on going development for the Fuyu-1 block as well as continuous development and exploration drilling for the two matured basins i.e. Basin and Island PSC. With the projected capex of around US$30m to US$40m on the horizon, RH Petrogas would likely be doing few more cash call to fund the above developments, in our view.
Portfolio of RH Petrogas assets (yellow one is what SONA is keen on, in our view):
Valuations for RH Petrogas (NOT SONA OK!!):
For further detail on the assets, please refer to the appendix.
Assuming a 50% farm out from RH Petrogas on the above assets, the above acquisition (ex-block SK331) would easily cost SONA around US$79m (RM253m).We believe SONA would have no issues in funding the acquisition given the RM550m it sits on post IPO fund raising. Separately, it can't be ascertain at this juncture how much reserves is in Block SK331 given that RH Petrogas has just completed one round of seismic data on the onshore block.
The acquisition if materialize would be a positive catalyst to share price performance over the near term given that portfolio comprises of both 2P (Basin PSC in Indonesia)-cash flow generative as well as 2C (Fuyu-1 in China) - a development block on the verge of production.
Risk to our view:
1) There is a possibility fo SONA overpaying for the acquisitions in order to meet the timeline guided to the investment community given that crude oil price is at the top end. Management team would have to stay disciplined and evaluate risk return equation carefully in order to maximise returns to shareholders.
2) While we note is less riskier to acquire producing assets, the value creation is typically lower for producing assets.
3) On going capex would be extensive for the both the 2P (to maintain production rate) and 2C fields (to find new reserves) and a point to note is RH Petrogas is guiding around US$30m to US$40m for the current portfolio of assets they owned. One would expect cash call ahead for SONA.
Appendix:
1) Details of Basin PSC: The Basin PSC (Kepala Burung PSC) covers an area of 872sqkm in onshore West Papua. The PSC was inked on Oct 1970 and renewed in 1996 for another 25 years. The field is a mature field with more than 40 years in production. Based on RHPetrol announcement, the field produced 6,400bpd in 2012, up from 5,000bpd given continous development drilling to mitigate field's production decline.
Our valuation for the 2P blocks above (assuming US$6.00/brl) is largely derived from the transaction basis of RHP acquisiton of 60% and 33% interest in Basin PSC and Island PSC from Pearl Oil and Lundin Petroleum back in Sep 2010 which works out to a sum of US$74m for the 14.3m net reserves, valuing the transaction at US$5.35/brl. Note that crude oil price was around US$80/barrel back then versus US$100/barrel currently.
2) Details of Fuyu 1 block. The 254.9sqkm Fuyu 1 block is located in the Southeastern part of the Songliao Basin in Jilin Province. Songliao basin is essentially a large intracratonic rift basin hosting one of China's largest onshore petroleum producing regions. In Songliao Basin, major oil fields include Daqing, Fuyu, and Xin Min. Point to note, CNPC operated the largest Daqing field, with 2bn tonnes of oil being lifted since operation in 1960. For Fuyu 1 block, CNPC originally explored the asset in 1984 and was held back due to reservoir complexity and needs of EOR techniques which is non-existent back then.
RHP acquired the asset from Kingworld Resources (private vehicle of Tan Sri Tiong) in an RTO exercise back in 2009 for SG$110m. Our valuation on the 2C reserves is based on the current reserves of 35mmbls, which work out to be around US$2.5/barrels back then.
The field which has been under development for the pass 3 years would finally commence production late this year given the expected approval from the Chinese Government soon.
