GSS Energy - RHB Invest 2018-08-20: Positive Gas Discovery With Production By 4Q18

GSS Energy - RHB Securities Research 2018-08-20: Positive Gas Discovery With Production By 4q18 GSS ENERGY LIMITED SGX:41F

GSS Energy - Positive Gas Discovery With Production By 4Q18

  • GSS Energy announced the full re-opening of well P1 in the Trembul Operating Area and discovered two gas-bearing and three oil-bearing reservoirs. With a flow rate of 2MMSCFD from the two gas-bearing reservoirs, GSS and Pertamina have agreed on a programme to produce gas from the gas reservoirs.
  • Coupled with the first well, a production of 3.5MMSCFD is expected to be completed by 4Q18F and monetized by 1Q19F. 
  • With the twin drivers both activated in FY19F, we maintain BUY with an unchanged SOTP of SGD0.22 Target Price, 64% upside.



Oil and gas discovered in well P1.

  • After the reopening of well P1 in the Trembul Operating Area, which was previously drilled by Pertamina in 2005, GSS made a hydrocarbon discovery in that well of two gas-bearing and three oil-bearing reservoirs.
  • GSS also agreed on a programme to produce gas from the gas reservoirs with Pertamina, with a flow rate of 2MMSCFD from the two gas-bearing reservoirs. Together with SGT-1, which GSS previously drilled and discovered 1.5 MMSCFD of gas, this would make a total of 3.5MMSCFD of gas which GSS would be able to monetise.



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Monetisation of gas, gives a bumper in cashflow.

  • Based on our assumptions of using an estimated selling price of USD3.5/MMBTU at a flow rate of 3.5MMSCFD, we expect GSS to add SGD5.9m as a yearly revenue stream into the group, with minimal costs since most of the extraction cost will likely be borne by the off taker. In addition, with the cost recovery stream in place, GSS will likely obtain 80% of the SGD5.9m as a part of their cost recovery agreement with Pertamina.
  • Profitability will also likely be boosted by the gas contribution of SGD1.5-2m a year, with more drilling and discovery of oil/gas wells further boosting bottom-line going forward.


Precision engineering (PE) business stronger in 2H18.

  • Precision Engineering PE business topline grew 12.1% y-o-y in 1H18. We expect a stronger 2H18, mainly due to a few key projects in the automotive and consumer segments to ramp up during this period.
  • GSS also acquired a piece of land in Batam in April to relocate its existing facility operated under an extended long lease. The new facility should help meet expanded demand as its existing factory in Batam is close to full utilisation.


Catalysts ahead, maintain BUY.

  • We view favourably GSS’ prospects and expect both twin drivers to contribute positively to the business in FY19F. With rising oil prices, especially over the last few months, GSS is expected to benefit directly.
  • We believe the group is close to securing an off-taker for its gas, and think that the current weakness represents a good opportunity to accumulate. Maintain BUY with an unchanged SOTP of SGD0.22.
  • RHB is the only broker covering this counter.





Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-08-20
SGX Stock Analyst Report BUY Maintain BUY 0.220 Same 0.220



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