I still like SONA.

Very good article by the edge.

Hibiscus’ setback highlights risks of O&G SPACs
Business & Markets 2013
Written by Fatin Rasyiqah Mustaza and Charlotte Chong of theedgemalaysia.com   
Thursday, 02 January 2014 14:09

THE disappointing outcome of Hibiscus Petroleum Bhd’s maiden exploration activities highlights the risk associated with junior oil and gas companies. It can be a costly affair if the company does not make any significant oil discoveries.

Hibiscus became a junior oil and gas exploration company last year, graduating from the ranks of special-purpose acquisition company (SPAC).

The stock had attracted much attention until last week when the company’s oil exploration activities in Oman had to be suspended due to safety reasons. Drilling also did not reach the targeted depth and only non-commercial hydrocarbon was discovered.

Two other companies that aspire to follow in Hibiscus’ footsteps, although they are not in the same segment of the oil and gas sector, are Sona Petroleum Bhd and Cliq Energy Bhd.

Both companies are focused on acquiring oil and gas fields or assets with proven reserves to eliminate the uncertainty of whether there is commercially viable hydrocarbon.

Nevertheless, the failure of Hibiscus’ drilling activities shows that there is a huge execution risk when it comes to the oil and gas sector.

As for Hibiscus, the shares of which recovered slightly last Friday, all its hopes now lie in its concession in Australia. The company will need to ensure the West Seahorse oilfield in Australia, which has proven reserves, delivers in order for the company to see real cash flow.

“A point will come soon when investors will expect to see the company hit commercial production and see cash flow,” says a fund manager.

The West Seahorse concession, called the VIC/P57 field, has a proven discovery of nine million barrels of oil with a total field life of about 4½ years.

In November, the Australian National Offshore Petroleum Titles Administrator (NOPTA) offered Hibiscus’s wholly-owned subsidiary Carnarvon Hibiscus Pty Ltd a production licence for the West Seahorse oilfield in the offshore Gippsland Basin in Australia. NOPTA also approved the field development plan for the concession.

The next hurdle before getting the VIC/P57 concession running is the final investment decision, which is expected in early 2014. Production, which would generate revenue for Hibiscus, is targeted for 2015.

“The Australian oilfield is relatively small but has proven reserves. Hibiscus has to ensure the execution is done well to make up for the Oman episode,” says the fund manager.

Hibiscus’ exploration activities in the Masirah North North #1
(MNN #1) well in its Block 50 Oman concession are carried out by Masirah Oil Ltd. Lime Petroleum plc holds a 64% stake in Masirah while Petroci Holding owns the rest. Hibiscus has 35% equity interest in Lime Petroleum.

Hibiscus is looking to drill in a second location subject to approval from the Omani government. The group revealed last Thursday that the total estimated cost incurred by Masirah for the MNN #1 well is US$18.3 million (RM60 million) and that the Masirah consortium will have to fork out an additional US$25 million (RM83 million) for its next well in Oman.

Hibiscus also says it will not provide for the expenses incurred by the MNN #1 oilfield unless the area is abandoned and that there are no such plans at the moment. “In this event, Hibiscus would not be recognising its share of the cost of the MNN #1 well in its income statement at this time.”

Apart from its Australian asset, Hibiscus has accumulated a few more in the Norwegian Continental Shelf through its joint venture company Lime Petroleum Norway AS.

Lime Petroleum Norway is a wholly-owned subsidiary of Lime Petroleum, an entity that is jointly owned by Hibiscus, Schroder & Co Banque SA and Rex International Holding Ltd.

With the shares of Hibiscus and its partner Rex International facing headwinds after the Oman episode last week, investors of SPACs would certainly become more cautious.

Singapore-listed Rex International and Hibiscus were among the top 10 losers on their respective bourses last Thursday.

While Rex International dropped 8.59% to close at 58.5 Singapore cents after the Oman project was suspended, Hibiscus has suffered more severely in the past few weeks.

Prior to the suspension of trading in its shares on Dec 23, Hibiscus plunged 40.93% from RM2.59 on Dec 17. It closed at RM1.53 last Thursday.

Last Friday, however, Hibiscus’ shares recovered from the sell-off and closed at RM1.72. The warrants ended at RM1.16, but not before tumbling 51.6% to RM1.02 last Thursday.

Rex International fell 9.38% from Dec 24 to close at 58 Singapore cents on Friday.

A    On Oct 25, 2011, Hibiscus proposes to acquire 35% of the enlarged issued and paid-up capital of Lime Petroleum Ltd for US$55 million. Lime Petroleum’s shareholders are Rex International Holding Ltd and Schroder & Co Banque SA.

On Oct 27, its shares rise to 69.5 sen.

B     (April 10, 2012) RM1.72 — Execution of a letter of intent between Lime Petroleum plc, North Energy ASA and Rex International to acquire interests in four concessions in Norway.

C     (April 12, 2012) RM1.69 — Secures a fourth concession in the Middle East located onshore in Ras Al Khaimah in the United Arab Emirates and also revises its exploration and production sharing agreement on its existing concession, RAK North Offshore, located offshore in Ras Al Khaimah.

D    (Aug 14, 2012) RM1.88 — Proposes subscription of 13.04% of the enlarged total issued share capital of 3D Oil Ltd for a subscription amount of A$2.043 million and proposes the acquisition of a 50.1% unencumbered legal and beneficial right, title and interest in the exploration permit VIC/P57.

E    (March 21, 2013) RM1.47 — Orient Hibiscus enters into an equal JV arrangement with Rex South East Asia Ltd to pursue investments in exploration assets in 11 countries within Asia-Pacific.

F    (April 18, 2013) RM1.43 — Lime Norway selects six production licences to acquire from North Energy for US$4.93 million.

G    (May 27, 2013) RM1.53 — Hibiscus’ partner 3D Oil Ltd is awarded a new exploration permit, T/49P, in the offshore Otway Basin of Tasmania.

H    (Aug 19, 2013) RM1.57 — Lime Petroleum, through its subsidiary Masirah Oil Ltd, awards a drilling rig contract to Aban 7 Pte Ltd for the execution of its drilling programme in Hibiscus’ Block 50 Oman concession.

I    (Sept 3, 2013) RM1.39 — The Norwegian Ministry of Petroleum and Energy approves the acquisition of four production licences in the Norwegian Continental Shelf.

J    (Nov 14, 2013) RM2 — NOPTA offers Carnarvon Hibiscus a production licence, VIC/P57, for the West Seahorse oilfield in the offshore Gippsland Basin in Australia. NOPTA also approves
the field development plan for West Seahorse.

K    (Nov 25, 2013) RM2.04 — Masirah Oil starts drilling an exploration well in MNN #1.

L    (Dec 5, 2013) RM2.08 — NOPTA awards Carnarvon and 3D Oil production licence, VIC/L31, for the West Seahorse oilfield. A final investment decision is expected in the first half of 2014 with production targeted a year later.Lime Petroleum Norway also acquires a 20% stake in the seventh licence, PL 509, in Norway.

M    On Dec 24, 2013, Hibiscus suspends drilling at MNN #1 for further evaluation as there is data indicating the presence of non-commercial hydrocarbons. The counter closes at RM1.72 on
Dec 27.

This article first appeared in The Edge Malaysia Weekly, on December 30, 2013.