The Placement Shares will be listed and quoted on the Official List of the SGX-ST with effect from 9.00 a.m., 17 October 2013.

RH Petrogas - A Shot Of Adrenaline

Written By Stock Fanatic on Thursday, October 3, 2013 |

RH Petrogas (RHP) will issue 116m new shares, at SGD0.63/share, to a group of institutional investors, raising USD56m to fund drilling activities in the Basin and Island PSCs, which we expect to accelerate in FY14. 

The stock remains deeply undervalued, with current assets worth SGD0.98/share. Multiple catalysts are expected over October and 4Q13. Maintain BUY with its TP adjusted to SGD1.33 post-placement.

■ Institutional support for drilling activity

90% of the proceeds will be used in exploration, development or production activities in the Basin and Island production-sharing contracts (PSCs) in Indonesia. We believe that the large cash inflow will allow RHP to expand its drilling programme in FY14. Also, this increases RHP?s free float from 23% to 36%, which may improve its trading liquidity - thereby lowering the ?illiquidity discount?.

■ RHP should trade at SGD0.98 for today?s assets

Based on our assessment of RHP?s 2P reserves and 2C contingent resources, RHP should trade at SGD0.98 today (post-placement) to reflect the market value of its reserves and resources.

■ Multiple catalysts expected over October and 4Q13

We expect RHP to announce the results of the Zircon-1 well next week as well as the spudding of the exploration well Klagalo-1 in 4Q13. Subject to oil finds, additional appraisal wells may be drilled in the Zircon and Koi prospects this quarter. Additional catalysts would be: i) the signing of new PSCs in Myanmar/Asean region, ii) approval to commence production in Fuyu-1 in China, and potentially iii) news of exploration and production (E& P) players like Sona Petroleum (SONA MK, NR) or Rex International (REXI SP, NR) acquiring a stake in RHP.

RH Petrogas's price performances relative to STI

■ Tweaking TP to SGD1.33 for placement no change to fundamental view

We adjust our TP to SGD1.33 to reflect the new shares placement. As the cash inflow to RHP adds to its value today, this implies a dilution of less than 20%. 

The cash will be used productively in drilling new wells and raising the market value of resources by proving and then transferring them to 2P reserves. Maintain BUY with its TP adjusted to SGD1.33 based on parity to our NPV-and-risking model. (Read Report)

Source : DMG & Partners Research