Hibiscus Petroleum Berhad (HIBISCS) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining us for the Hibiscus Petroleum Quarter 3 Financial Year 2024. [Technical Difficulty]. Let me just introduce to you the rest of my team here today. So we have Dr. Pascal Hos, who's our Country Head of Malaysia and Vietnam; Deepak Thakur, our VP of Economics and Business Planning; and we have Andrew [indiscernible] team. The rest of the members -- our leadership team will also be joining us shortly. So this afternoon, we released our results. And on our website, we have corporate and business updates. Detailing out our financial and operational updates, we the press release and also the analyst briefing, which you will also be able to find on this Zoom chat. We will kick off with the presentation [Technical Difficulty]. [Operator Instructions] Let's just start off with the presentation. So over to Pascal.

All right. Thanks, Lily. Good afternoon, everybody. Thank you for joining us. It's nice to see a big attendance. I have the pleasure of kicking off the presentation. So let's get started. First slide of our presentation, of course, is always a disclaimer, just read through it on your own time and any timeline. So let me start off by giving you the highlights for our Q3 results. Start off with the financials. So year-to-date -- through the year-to-date figures first, our revenue is up 7.4% year-on-year. The revenue for the third quarter compared to last quarter is slightly down, and that's related to -- not sure we talk about that a bit as well, slightly lower production [Technical Difficulty]. The EBITDA numbers, year-on-year -- year-to-date is up by 8% versus for the current quarter, it's down 7.7%. Now the actual -- we actually had a write-down of 2 of our exploration wells. So if you add that back [Technical Difficulty]. We also declared our third interim dividend of $0.02 per share for fiscal year 2024. As you may recall, we gave a guidance of at least $0.075 per share. And this year, we have now declared $0.06 per share so far. And we have completed a share buyback of 6.4 million shares, and we retained these shares as treasury shares in our accounts. In terms of operational, I mentioned it already. The average production of the quarter was 21,096 barrels of oil equivalent per day, which is slightly down quarter-on-quarter and this is related to some production issues in Kinabalu [indiscernible] little bit of a highlight on that. We sold a total of 1.1 million barrels of oil and condensates. And we sold 0.7 million barrels of oil equivalent of gas. So this means we're still on track to hit our guidance target of 7.5 million to 7.8 million barrels of oil equivalent for fiscal year 2024. And so year-to-date, we have sold 5.8 million barrels of oil equivalents. In terms of projects, as you may be remembering we drilled 4 exploration wells, 4.5 or 5. You've probably heard the news and saw some announcements on the Sabah exploration wells. So recently, we've drilled another exploration well in Peninsula, Malaysia, and we made a successful discovery of Bunga Aster field. And not only we make a discovery, we also very quickly monetized it by starting production as well on the 4th of May. Moving over to the U.K. Last year, we acquired equity in the Fyne fields. And we have now received approval for the Concept Select Report for this field. from the North Sea Transition Authority, and we have received an extension from -- for our license by the authority. Last but not least, we have completed the integration of the Malaysian and Vietnamese operations. So SEA Hibiscus and HML are now integrated into one setup. Okay. I will hand over to Deepak to give you a bit additional highlights.

Before [ C Y ] starts on giving us the financial numbers. Let's look at how does our operations have performed in the last quarters. As you know, we have 4 producing assets, North Sabah, Anasuria, and in Peninsula, we have PM3 CAA and Kinabalu. So when you say Peninsula, it combines both Kinabalu and PM3 CAA PSC. On a combined basis, we produced 21,096 barrels of oil equivalent per day, slightly lower than our last quarter, and we'll talk about it later, especially lower production in Kinabalu and PM3 CAA. Kinabalu, we had [indiscernible] and then PM3 CAA, given the fact that we were drilling exploration well from the wellhead platforms. So we had to shut down the platform for few days that resulted in lower production. In terms of the total volumes of oil gas and condensate that we sold was 1.8 billion barrels of oil equivalent, which consists of 1.1 million barrels of oil and condensate and remaining 0.7 million barrel of oil equivalent of gas was sold. That's pretty much similar to the previous quarter. In terms of average realized price, the last quarter was $91.2 per barrel for liquid, oil and condensate. And once we combined the gas price, the average realized gas price for hydrocarbons was 68.61, pretty much similar to the previous quarter. The breakdown of the production. North Sabah, roughly about 5,000 barrels per day, that's we are producing. Anasuria about 2,300 barrels of oil equivalent, the remaining Peninsula Hibiscus 13,700 barrels of oil equivalent, but that mix. Total production for the group about 21,096 barrels of oil equivalent. You would have seen, if you look at the unit OpEx, which is the net OpEx per barrel or per barrel of oil equivalent, you would have seen that these numbers are lower than -- lower than the previous quarters, mostly because of the lower activity, especially the lower maintenance activities. But once we increase our maintenance activity, bulk of our maintenance activities, our annual maintenance program would be done in next quarter, which is quarter 4, you will see OpEx per barrel or OpEx per BOE about twice.. Let's go to the next slide. Before we talk about Kinabalu and PM3 CAA, I just wanted to talk about the point which [Technical Difficulty] integration of the 2 business units, as you know, when we acquired North Sabah team from Shell, the unit, which was operating SEA Hibiscus or operating North Sabah was SEA Hibiscus. And then we use Peninsula Hibiscus or -- under Peninsula Hibiscus we had Hibiscus -- HML Hibiscus Malaysia Limited as an operating entity to operate both Kinabalu and PM3 CAA. So to make sure we have -- we also enjoy the efficiency synergy between the 2 organizations. So we have completed the integration of both business units. And as part of this, we also want to have a unified culture across both organizations, that's our objective. Okay. Coming to Kinabalu. The production was 3,000 barrels per day. As you know, Kinabalu is oil -- is predominantly oil assets and lower production compared to the previous quarter because we had the high-pressure compressor outage. And then the unit OpEx per barrel was slightly lower than the preceding quarter because of [Technical Difficulty]. PM3 CAA, key activities what we done was the exploration of the -- drilling of exploration well, which was Bunga Aster Well, we announced the results. The gross production was [Technical Difficulty] barrels per day. If you look at our net entitlement in PM3 CAA is roughly about [Technical Difficulty] range. So net to Hibiscus, the production or incremental production from this well would be roughly about 450 barrels per day. Now let's go to the North Sabah asset, pretty much in line with our previous quarter in terms of production numbers. A lowered OpEx barrel because of lower maintenance activities, but these OpEx per barrel number will go up in the next quarter once we start doing bulk of the annual maintenance program. The key activities, what team is focusing in North Sabah is the SF30 Water Flood Phase 2 program, which intends drilling [Technical Difficulty] oil producers with total of 11 wells and the platforms as well. So the operations team is working very hard. And we expect to drill and complete all of the wells by the end of this year or January, February next year. That's the timeline we're working. I think let's look at the U.K. production numbers. Slightly better production numbers compared to [Technical Difficulty] uptime of the facility higher production uptime, and then we are using cycling of wells to have a better production from all of the wells. Net OpEx barrel was also lower because of higher -- slightly better production numbers. Now this is the new slide, which we added, just to give some broader idea in terms of the premium that we come on over the rent. So we are showing the actual premium of our rent percentage for all our 4 producing assets, PM3 CAA, Kinabalu, North Sabah and Anasuria. So on average, if you look at -- if you exclude Anasuria, if you look at just Malaysia and Vietnam, it's roughly in the range of 4% to 11%. So on average, it comes out to roughly about [Technical Difficulty] per barrel close to 8% premium of rent. And in Anasuria, our crude come at 2% premium over that. Okay. Let's go to the next slide. I think [ C Y ] is here, so C Y will take us through the financial highlights.

Good afternoon. So I will just run you through some of the key numbers that have been recorded for the quarter. And this chart [Technical Difficulty] better than previous quarter ended December 2023. So from a revenue perspective, the far left chart on this page consist the revenue [Technical Difficulty] between the 2 quarters. We have managed to achieve across all of our assets, oil price has exceeded $90 per barrel. And so what we're seeing here is they are fairly consistent in terms of revenue generation. Now when it comes to EBITDA, there is, obviously, I think by now, the audience is aware that we have written off some cost relating to our [Technical Difficulty] in North Sabah [Technical Difficulty] 3 wells [indiscernible], out of the 3 we have written off 2 because the analytics that came after the drilling program have been fully [indiscernible]. And there is no -- we do not pursue this so as a result of that, they have been written off. The pretax amount -- this EBITDA level, so the pretax amount for y SF Ungu subtract SF Merah total 78.9. This is pre-tax [indiscernible] post-tax number later, okay? And hence, that is the main reason why the EBITDA is lower but it's the 78.9. So EBITDA has gone up by about $225 million. So if you take this off, really EBITDA would have been higher than Q2 by about $50 million, okay? And when it comes to the margin, the EBITDA margin will have been 62.8% which is going to be -- which is actually higher than the last quarter's attainment, okay? So that's EBITDA. Now PAT is somewhat similar. The cost -- the post-tax cost because all these costs that we have incurred for the drilling, tax deductible, can be deducted for our -- when we come to our PITA competition in North Sabah, so we have accounted for that accordingly. And so the post-tax impact is not the 78.9. It is actually only -- it is 48.9%. And hence, there has been -- that is how it's reflected in the at the PAT level. So just to note, during the current -- during the quarter, we have brought back tax in Barbados of up to MYR 26.7 million. That arose because Hibiscus successfully managed to appeal to the authorities -- the tax authorities in Barbados for foreign credit [indiscernible]. So in the past when [indiscernible] was the operator, this particular assumption was not submitted. And this application was not submitted. So how this work is that, in Barbados, there is a distinct regulation that allows taxpayers or company like us to seek foreign credit -- assumption on income that has been earned in another country that has been taxed at the local level, which means, in this case, PITA being applied in Malaysia. And so we have applied since we took over from [indiscernible] in 2022. And [indiscernible] sometime in January of this year 2024, we have received formal notification from Barbados Tax Authority that the application has been successful, and this is applied -- retrospective feedback [indiscernible] that taxes were paid in the past. So upon [indiscernible] of all these number of years that we have that are relevant to us with our tax consultant we have submitted that particular -- I mean updated tax return and hence, [indiscernible] has been returned back, okay? So there's a gain to this quarter. Now if I take out the -- if we omit the write-off impact of the 2 wells, again, our profits for the quarter is actually quite high. The PAT margin would have been 16.3% instead of what is shown up there as 13.7, right? So -- and the PAT would have been higher as well because of that. So then I'll go to the next page. I think you will be -- I think most of [indiscernible] this page, it just goes -- it demonstrates the margin that we have attained across 3 of our producing assets, Peninsula and North Sabah in Malaysia and Anasuria in the U.K. Our EBITDA margins are pretty much above 50%, up to 70% at times across these quarters that have been reported in [Technical Difficulty] and that remains true, right? So then moving to balance sheet highlights. Not very different from what we have always said in the past, again, share of response has continued to grow. That's really because we have been generating profits across our own gas producing assets throughout the period. And our cash position -- our net cash position is still very healthy and at about MYR 400 million.

Okay. We talk a little bit about the outlook and the investment merits from the group, okay? Just the 2024 guidance snapshot. Again, as I mentioned before, we're on track to fulfill our financial year 2024 guidance. That relates to both sales of oil, condensate and gas, CapEx and dividends. So we mentioned the sale of oil condensate and gas. The guidance was 7.5 million to 7.8 million barrels of oil equivalent. We are looking at a total sales volume of roughly $7.8 million barrels of oil equivalent based on the planned offtakes for this quarter. The projected offtake volumes for this quarter is about 2.1 million barrels of oil equivalents. And for the first quarter of fiscal year '25, it's about 2 million barrels of oil equivalent. In terms of CapEx, guidance was about USD 202 million or roughly MYR 947.8 million -- that is split. I'll give you some highlights here, the highest CapEx needs for North Sabah, this is for the SF30 Water Flood Phase 2 project, which is currently being -- almost being installed. That's USD 98 million and for $48 million for Kinabalu. Now we have sufficient funds, both with our unrestricted cash of MYR 793.8 million as of March 2024 and the available working capital facilities [Technical Difficulty] for us. The dividends, the guidance was at least $0.075 per share. That's is essentially equivalent to 2.9% dividend yield based on the share price as of the 16th of May. The dividends are expected to increase by 20% year-on-year from fiscal year 2023 to this year. Next slide shows you the offtake schedule for the current quarter, so Q4 and gives you guidance for Q1 fiscal year 2025 as well, okay? You see we have quite a few offtakes in the current quarter, in the fourth quarter. For PM3, we have an offtake of crude oil in May. For Kinabalu, we have an offtake in June. In North Sabah, we have 2 offtakes in the fourth quarter. And Anasuria, we have one offtake for oil in June. Whereas, of course, gas sales are roughly the same as they have been over the last proceeding [Technical Difficulty] but in total, for the current quarter, we're looking at slightly under 2.1 million barrels of oil equivalents, okay? You can also see the -- essentially the guidance for the offtakes in Q1 fiscal year 2025. If you look at the total number, we're looking at roughly 2.03 million barrels of oil equivalent for the next quarter. Next slide, just reflecting back on our mission as a company and kind of translating that into the 3-year growth strategy. So we have a three-pronged approach to double our production rate and grow our 2P reserves to 100 million barrels of oil equivalent by 2026. Now if you look to top graph. So for next year, we're projected to produce roughly 24,000 barrels of oil equivalent per day, net to the company. And we have a target by 2026 to grow to between 35,000 barrels and 50,000 barrels of oil equivalent. And on the bottom, you can see our current reserves to be as of the 1st of January 2024 stand at 60.9 million barrels of oil equivalent, and we're looking to grow that to 100 million barrels by 2026. Now how are we going to do that? As I mentioned, we have a 3-pronged growth strategy. That is, first of all, it's converting development assets to producing assets. So one of the examples of that, of course, is the SF30 Water Flood Phase 2. The second prong is to enhance the output and extend the economic life of producing fields. And the third one, of course, and that's really to close the gap just to acquire new assets and new licenses that are going to provide the production levels and reserves levels to close the gap [Technical Difficulty]. Finish off with the last slide, it's just kind of a recap, the investment merits for the group. So in terms of growth, as I just mentioned, the strategy is to essentially double the daily production rate by 2026. And you look at our operations, I'd say we've built quite a strong track record of operational excellence. We've acquired fairly mature assets, fairly mature producing fields, and we continuously manage to enhance the efficiency of these assets and to continue increasing production. In terms of capital, we have a very strong cash balance. Our cash flows are strong, and we have good borrowing facilities that allow us to fill our CapEx needs and allow us to look at acquisitions. In terms of returns, we made a commitment to our shareholders, and we are holding to it with implied dividend yield of 2.9% for fiscal year 2024. In terms of valuation, we believe the company is a bit undervalued. We're currently trading at an EV over 2P reserves of 6.5 multiple versus a peer average of 6.9. particularly looking at the PE ratio, we are trading at 4.6 multiple versus our peer average of 6.2. So with that, I'd like to conclude the presentation part, and back to Lily.

[Operator Instructions] Anyone have any questions?

Jeremy here. So my first question would be, because your target sales volume -- uptake volume for this year will be 7.8 million barrels of oil equivalent. Can I know your target for FY '25?

We are currently working on the FY 2025 target, Jeremy. I think we would be in a better position to give you the target next quarter.

Probably just a general direction. Will it -- do you expect it to increase or actually decline? Or is flattish?

Let us look out the numbers from some of the projects which we are undergoing [Technical Difficulty].

Moving forward to your [indiscernible] and SF30 were the flat, can you remind us again when will be the first oil and also the net entitlement to you guys?

So SF30 Waterflood Phase 2 project is undergoing. I mean we are already on the process. And then we expect to have the first oil in quarter 3, quarter 4 this year. And then most likely in quarter 4, I would say. Yes, quarter 4, calendar year [indiscernible], November time frame. But the full incremental value would be realized only in the calendar year 2025 because this year, we will have only incremental production for only just 1 or 2 months, right? But the full production would be realized in next year, which is calendar year 2025.

So what's the net incremental barrels per day for this, SF30?

There's going to be some decline as well from the existing well. If we're looking at 2025, there would be a decline from our production. And then this -- as this particular project is expected to add roughly about 4,000 to 5,000 barrels per day, gross production, in terms of net would be roughly about 1,000 to 1,500 barrels per day that range. That would be net incremental production from this project to Hibiscus, but then there would be some reduction in the production from the older wells.

Understood. How about Teal West?

Teal West, the first oil date is November, December next year, November, December 2025. And then the incremental production is expected to be roughly about 4,000 to 5,000 barrels per day in 2026. I mean, we will have the incremental production for November, December 1 or 2 months next year as well, but the same range, 4,000 to 5,000 barrels per day. but the full production would be realized in calendar year 2026 from the Teal West.

How about the Bunga Aster?

Bunga Aster, the good thing was we already started producing it because it was -- since it was drilled from the wellhead platforms. And then it's already connected to the infrastructure. So the incremental production, also the initial -- or the initial production rate was, which we have also disclosed, 2,100 barrels per day. So if you look at net numbers, we have what -- we have 35% of working interest, and then our net entitlement is roughly about 22%. So if you do the math, you'll see roughly about 450 barrels per day. That is the incremental protection to Hibiscus from this well.

My next question would be how much growth of maintenance do you guys do in terms of nominal value in the second quarter, yes?

How much worth of -- how much is net increase in OpEx next quarter?

I mean, last quarter and maybe a guidance for fourth quarter as well.

You mean the March quarter, is it?

So, okay, the quarter in October to December 1. And then...

October to December.

Yes, meaning the previous quarter.

You want the quantum? I do have to quantum exactly actually...

We don't have the quantum, but this next quarter would be substantially higher because this quarter, we didn't have any major maintenance activities. And next quarter, we are going to go overboard here. Normally, if you look at our pattern, you will see that quarter 4, we will have the highest OpEx for BOE.

Okay, so how much worth, if you don't mind sharing?