Hibiscus Petroleum Berhad
Hibiscus just missed out the September oil rally.
Insights from BIMB Report
BIMB recently published Market Insight Report on Hibiscus Petroleum with a BUY call. The report shared invaluable insight concerning the business condition as well as material update on North Sabah acquisition from Hibiscus management. Of note is the completion date of North Sabah acquisition is now to be expected by end 2017 or sometime in early 2018.
BIMB also reported that Anasuria FPSO had done a crude offtake in August and was totally offline for a month from mid-Sept 2017
(Source: BIMB Market Insight Report)
What does it impact to the financial results?
Crude oil price is known to be both volatile and cyclical. Price of the crude oil benchmark at approximately the time of a scheduled offtake from the Anasuria FPSO is critical to the quantum of revenue Hibiscus is going to receive from the proceed of the sale.
(Source: Hibiscus Q417 Report)
Anasuria FPSO has storage capacity of 850k bbls, while total quarterly production around 600k bbls, so it should be just one offtake per quarter. It is reasonable to conclude that, with offtake done in August, Hibiscus had miss out the oil price rally in September. Rather than selling the oil near US$57.00~59.00, the realized price was probably nearer to US$51.50 as shown in the chart.
The Anasuria FPSO shutdown from mid-Sept 2017 is probably immaterial to oil sales in 1Q2018 (Hibiscus Financial Year begins on 1 July) but will likely see sizeable reduced oil sales in 2Q2018, only partly compensated by higher volume from the recently reopened Guillemot-P1 and Teal South P1.
1Q2018 Financial Result Forecast
Based on the above information, operating parameter and financial result forecasted for 1Q2018.
* 4Q2017A include one-off RM10.3m forex gain attributable to a revaluation of the provision for decommissioning costs and RM3.9m impairment of receivable.
** Assuming a more normalized tax rate of 35% vs 69% in 4Q2017A.
*** Higher operating costs due to startup costs related to Guillemot-P1 and Teal South P1, Anasuria FPSO's scheduled maintenance & lower production volume due to Anasuria FPSO shutdown.
Key Reflections
“The problem of oil is that there is always too much or too little”, Myron Watkins, professor of economics at New York University, wrote 80 years ago. Inelasticity of supply and demand mechanism underpinned the volatility and cyclicality nature of the oil price and ultimately affects the profitability of the industry.
Hibiscus will likely perform better in 1Q2018 compared to preceding quarter, driven mainly by normalized tax rate. However, given the elevated market expectations and particularly having missed out on the September crude oil rally, cautions against earnings disappointment are advised.
Disclaimer:
This is a simplified sensitivity analysis intended as a guidance for investor to value the share price of Hibiscus. For educational purpose only and is not a recommendation to buy or sell. Far better analysts have been humbled by actual market results compare to their forecasts. The author humbly admits to his inadequacies given the limited data sets to work on and urges readers to treat this forecast with a strong dose of skepticism. Actual released results may make this article a good joke and hopefully a good laugh heals all!!
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Discussions
2 people like this. Showing 14 of 14 comments
Now oil prices drop from its peak. Need some time to recover. I think around $45 - $47.5 like that, no need too hurry to buy in. I tin kosong, kong kong kong only, don't simply trust me.
2017-10-08 20:57
Oil prices wont go up further..
Chinese teapot refiners consumption are at the max now.
It can only go down from this level...
http://marketrealist.com/2017/06/chinas-teapot-refineries-impact-crude-oil-market/
http://energyfuse.org/international-implications-rise-chinas-teapot-refineries/
2017-10-08 21:12
Have a feeling war is imminent with NK..following Trump's recent tweets.
https://finance.yahoo.com/news/u-oil-refiners-profit-un-123712629.html
Crude Price to Fall, Gasoline Price to Benefit
A debate has ensued regarding North Korea’s possible retaliation to these sanctions. Several market watchers think Pyongyang is preparing a strong response for the United States. Overall, the energy sector will be severely affected if North Korean tensions result in conflicts with neighboring countries like China, Japan and South Korea.
According to the U.S. Energy Information Administration, South China Sea is the route through which more than 33% of worldwide crude and 50% of global liquefied natural gas are transported every year. Hence, violence following military actions in and around North Korea may stop the flow of imported oil to South Korea, Japan and China.
According to energy consultancy group, Wood Mackenzie – South Korea, Japan and China are responsible for almost 34% of global trade for crude, transported by sea. Also, data provided by World’s Top Exports (WTEx), shows that China, Japan and South Korea are among the top five oil importing countries in the world, accounting for almost 32% of worldwide crude import, with China being the largest oil importing nation. The total value of crude, imported by the three countries in 2016, was estimated at $211.2 billion by this independent education and research website.
Hence, North Korean tensions will probably lower global crude demand to a great extent. Asia’s leading refining plants, accounting for 65% of the continent’s total refining capacity, are located in China, Japan and South Korea, as per Wood Mackenzie. Therefore, any military action in North Korea might lead to significant reduction of oil demand by refiners. Either way, strong forces are working to push crude price lower.
If the flow of imported crude is cut off, China, Japan and South Korea will have to rely on their respective limited domestic crude reserves to carry out daily operations. As a result, there will be lower gasoline production by refiners. Scarcity of gasoline will likely flare up commodity prices.
2017-10-08 21:14
Lau333 d tax rate for North Sabah sld not b 38% but 25%
Petroleum income tax
Petroleum income tax is imposed at the rate of 38% on income from petroleum operations in Malaysia. An effective petroleum income tax rate of 25% applies on income from petroleum operations in marginal fields with effect from 30 November 2010. No other taxes are imposed on income from petroleum operations.
2017-10-08 22:11
OrlandoOIL, we shall know the accuracy when the next quarterly result is released. I had provide all the source from which forecast is derived. May not be the best estimate but it’s an honest attempt.
2017-10-09 18:31
I’d commented on the tax rate in other post therefore not repeating it again here.
On LCTitan, it’s a good pick and I have position in this counter too. When the investment horizon stretches beyond the shutdown cycle, it’s less of a concern.
2017-10-09 19:09
Hi Lau333,
I read your analysis on Hibiscus and the analysis is superb.
Now i find a stock which similar to hibiscus and seem it deep undervalued.
Can you share your email to me?
CHELSEA
2018-01-18 00:59
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Lau333, as usual good sensitivity analytics artical. Tq
2017-10-08 20:34