Rex International - UOB Kay Hian 2021-10-11: Expect A Spectacular Year From Favourable Oil Prices & New Oil Field

REX INTERNATIONAL HOLDING LTD (SGX:5WH)

Rex International - Expect A Spectacular Year From Favourable Oil Prices And New Oil Field

Rex International’s 2021 earnings are expected to reach US$50m, vs a US$14m loss in 2020, from much higher oil prices. Rex International’s US$43m acquisition of Brage field would help boost production volumes by 3,440 bbl/day. We raise our SOTP-based target price by 53%, after increasing our oil price assumption from US$40 to US$63/bbl and 2021 earnings by 102%. We see potential upside surprise to our forecasts given our conservative oil price assumption.

As more countries complete their vaccination mandates and reopen their economies, this should help sustain oil demand and support Brent oil price, which has increased by around 60% year-to-date. Rex International (SGX:5WH) reported robust 1H21 results as production from Oman has ramped up, supported by a y-o-y increase in oil price and oil liftings. 1H21 revenue beat our expectations as averaged realised oil price sold increased to S$62/bbl in 1H21 from S$23/bbl in 1H20. Also, about US$58m revenue from July and August liftings was recognised in 1H21, reflected under trade receivables. We estimate this would provide an estimated US$40m boost to Rex International’s cash war chest.
With two additional production wells, production volumes have increased to 11,000 bbl/day. Rex International has managed to maintain consistent operating costs of US$80,000/day throughout production even as production volumes increase, giving Rex International higher operating leverage. Furthermore, Rex International’s 34% acquisition of the producing Brage Field is expected to add 3,440 bbl of oil to overall production volumes.

As production volumes from producing oil fields tend to naturally soften over time, Rex International’s 33.8% acquisition of producing Brage field for US$42.6m would help boost overall production volumes by 3,440 bbl/day upon approval. In order to fund the acquisition, Rex International has successfully raised a US$60m secured bond. We expect approval to be obtained by end-Oct 21 or early-Nov 21. Once approved, the effective transaction date would be 1 Jan 21, implying that revenue generated since then would be retrospectively incorporated to Rex International’s overall 2021 revenue.
Additionally, Rex International owns interests in several discovery assets (PL1125 Falk, PL433 Fogelberg, PL838 Shrek) that may move into production in the coming years. The addition of the Brage field would add an estimated net 2P reserves of 7.3mmboe to current 2C contingent resources of 27.7mmboe from the three discovery assets.
Rex International has also participated in the exploratory drilling of the Fat Canyon Prospect on 29 September. If successful, it would boost Rex International’s Norwegian portfolio moving forward.

As global economies start to reopen tailwinds, we expect Rex International to develop these assets further into production moving forward.

Rex International was awarded two production sharing interest and would leverage on its experience in Oman to develop these assets into production moving forward.

We have adjusted our revenue and net profit estimates for Rex International in 2021-22 based on higher oil valuation of the Omani assets. We reckon re-rating catalysts would be the approval of the Brage field acquisition and successful development/drilling of the Norwegian assets.
See
Catalysts to Rex International's share price:
- Stronger-than-expected oil production volume from Oman and crude oil prices.
- Unlocking value from Norwegian discovery assets.
- Successful exploration drilling of the Fat Canyon Prospect.

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-10-11

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