Hibiscus Petroleum Berhad (HIBISCS) Earnings Call Transcript & Summary

Good evening, everyone, and welcome to Hibiscus Petroleum Quarter 1 Financial Year 2026 Results Briefing. I'm Lily Ling, VP of Corporate Development. With me today are our Managing Director, Dr. Kenneth Pereira; our CFO, Yip C.Y.; our Country Head for Malaysia and Vietnam, Dr. Pascal Hos; our Head of Corporate Finance, Joyce Vasudevan; our VP of Economics and Business Planning, Deepak Thakur; Country Head for Brunei, Farroukh; and from my team, Andrew, Adam and Zehan. Alongside our Q1 financial year 2026 results, we also announced a dividend declaration, our corporate and business update with operational performance details and the press release. All these announcements, along with today's briefing slides are on our website. With that, let's begin. Over to you, Pascal.

All right. Thanks, Lily. Good evening, everybody. Thanks for taking the time to sit through this on a Friday afternoon. Okay. So the slides are going to be fairly short today. So we give you plenty of time to ask questions later. So this first slide is talking a little bit about where we are in our growth plan for the company. The first one, I think this is an important one. We've been talking about Teal West for quite a few years. The well has finally been drilled and the preliminary interpretation of the subsurface data indicates that the 2P oil reserves are expected to be higher than the initial estimate. Initial estimate was 3.4 million barrels of oil equivalent. But with that, we're still on track to get to first oil in the middle of calendar year 2026. The second point I want to talk about is our sales volume guidance. So this quarter, we have decided to upgrade our sales volume guidance. Previously, it was from 8.8 -- between 8.8 million and 9.3 million barrels of oil equivalent, and we've revised that to 9 million to 9.4 million barrels of oil equivalent. Just for reference, the Q1 sales volume was 1.9 million barrels of oil. Okay. A little bit about the results for this quarter. The total average production was 23,700 barrels of oil equivalent per day. The PAT was lower. This was mainly due to the fact that there were no oil offtakes for PM3 CAA in the quarter, there was the offtakes that shifted to second quarter of fiscal year 2026. On top of that, there was quite a bit of planned downtime due to the maintenance in 2 of our assets, both PM3 and Kinabalu. For PM3, as I mentioned, we expected to have 2 offtakes second quarter of about 600,000 barrels. I think after this weekend, that should be all completed. Last point, talk about the dividends. We've just announced the first interim single-tier dividend of $0.02 per share. And the full year financial year 2026 minimum dividend guidance remains $0.08 to $0.10, but it's based on current oil price of between USD 65 and USD 75 per barrel.

Thanks, Pascal, and good evening, everyone. We appreciate joining us on Friday evening. Now let's look at our FY 2026 guidance as Pascal mentioned. For total oil and gas sales volume guidance for FY 2026, previously on past quarter we had given a full year guidance of 8.8 million to 9.3 million barrels of oil equivalent and then we have looked at the recent updates assets. We are revising it upward a bit to 9 million to 9.4 million barrels of oil equivalent. For production Opex and CapEx our guidance remain unchanged although we are in the process for the business plan for calendar year 2026, we are going to look at all of the CapEx projects to be executed in 2026. We will see how we can optimize CapEx for FY 2027. And on the right hand side we're showing you the last 3 years of the oil and gas -- oil, condensate and gas sales volume. So FY 2024 we sold 7.9 barrels of oil equivalent, FY 2025, we sold 8.9 and this year, we plan to sell 9 million to 9.4 million barrels of oil equivalent, out of which 1.9 million has been sold in first quarter and remaining will be sold over the next 3 quarters. Now let's look at our operational highlights and financial highlights. Our quarter 1 total production, oil, condensate and gas production was 23,656 barrels of oil equivalent per day. We delivered 1.9 million barrel of oil equivalent total sales volume. Our realized oil price was more or less in line with the last quarter, but our gas price was lower than the last quarter. And you would have seen -- you would notice that production was also slightly lower than last quarter, mainly because of the planned maintenance activities that we performed in 3 assets. As you know, PM3 CAA and Kinabalu do annual maintenance activities, which was conducted and in Block B asset in Brunei, we completed our full field shut down. And this activity, we don't do every year. It's conducted once in a 4 year. So next full field shut down could be happening in 2029. Coming to the financial highlights. Our revenue that we delivered this quarter was MYR 433 million, EBITDA of MYR 190.9 -- MYR 191 million, roughly about 44% EBITDA margin and PAT, profit after tax of MYR 20.1 million. Profit, revenue and EBITDA was significantly impacted mostly because of 2 key factors. As you know, PM3 CAA, we are producing gas and also oil. So gas, we are selling every day and the invoicing is done at the end of the month. So it's a continuous process. And then for oil, we can store our oil produced from PM3 CAA in the FSO. And there are 3 parties involved here, Hibiscus, PETRONAS Carigali, Petrovietnam and in fact, Petronas MPM as well. So effectively 4 parties. So in terms of when we forecast the offtake, depending on time, there would be some changes in the entitlement and effectively, it will impact the exact schedule of the offtake. This is what happened. So normally, you would see PM3 CAA, we are producing roughly about 3,000 barrels per day of oil, which results into roughly about 1.2 million barrels of oil in a year. So based on 300,000 barrels, roughly, you would expect that we will have 1 offtake in every quarter. But this quarter, because of this offtake was deferred, we didn't have oil offtake in quarter 1. But in next quarter, we would have 2 offtakes of 600,000, total volume of 600,000 barrels. And also the gas price was lower in this particular quarter.

Good evening, everyone. This is the cash bridge from 30th June 2025 to 30th September 2025. Now the balance is lower, and that would be due to the CapEx investments that we have put in -- that we have done throughout from July to September. You will see the list of CapEx programs on the table on the top right corner. And nothing very surprising here. We have invested a lot in the Teal West field, of which we are currently drilling in the U.K. Pascal mentioned about the prelim outlook of the production profile. Of course, in Brunei, we have the ongoing low-pressure compressor project, the LPC project and the jacket repair diving activities as well. So both something we have talked about for a while now. In Malaysia, PM3 and Kinabalu, those sort of activities as well. The revenue, the adjusted cash flows from operating activities, they're not as high as other quarters, factors mentioned earlier, one-off -- or not really one-off, but 4 years once maintenance or full field shut down in Brunei carried out during the quarter. So that was a shut down for about 19 days. And of course, in Kinabalu and PM3 as well and the offtake deferral or postponed or shifted to the October month in PM3. So the collective impact of those activities have resulted in a slightly lower adjusted cash flow from operating activities of about 153 million. If you look at some of these other items, banking facilities, not much of a net impact if you consider the repayment and net interest after some further drawdowns. So -- but what is important is our gearing ratio is well -- is within the target we have set for ourselves all this while, which is below -- which is about 30%. So right now, it's sitting at about 29%. And also very important with all these CapEx activities that are planned and that are upcoming, we have unutilized facilities at this stage of USD 250 million. And of course, something that we can tap on when we embark on all these value-enhancing activities in the next few months. So that's the cash bridge for the quarter. The next page is a quick -- a snapshot of our balance sheet. Again, nothing changed very much really from 30th of June 2025, just that debt has increased a little bit. And again, as mentioned earlier, our debt ratio stays about -- it stays to where we were lucky to be, so close to 0.3. I think that's it. I think Joyce will run through the dividends of the group.

Yes. In the -- if you look on the right-hand side, you will see that the one concern that we have is actually our dividend has been increasing year on year, we've been paying dividends for the last 5 years, since financial year 2021 and it's been increasing year over year. And as you know, our dividend practice is at the start of each financial year, we give a minimum dividend guidance based on an oil price range, just let the market do as to what dividends they can expect for the following year. And we pay the dividends on the -- we pay over dividends on absolute basis. So if you look at the left-hand side, you'll see that financial year 2024, we beat our guidance of $0.075 with $0.085 based on an average Brent of USD 84. And then in financial year 2025, we guided for $0.08 to $0.10 based on a Brent of $70 to $80. And Brent was $74 towards the lower range, but yet we paid out a dividend of $0.09 of the last $0.05 subject to shareholders [indiscernible] the AGM. And in 2025 guidance, $0.08 to $0.10, as Pascal mentioned, based on Brent of $65 to $75. And I think a good benchmark on quarter 1 this year, we paid 1 quarter of the minimum full year dividend guidance of $0.08. And another thing to note is that dividends is part of the priority spend in our capital allocation framework. After operating cash flows, we pay out loans. And then the next set of priority payments are actually the dividend payments above sanctioned CapEx. So we do prioritize dividends when we are looking at our cash flows.

Good evening, everyone. Ken here. Really appreciate the opportunity to speak with all of you on Friday evening. Okay. I want to -- Pascal mentioned the Teal West drilling. We are -- the well is inside what we call a safety envelope now. We've drilled the well. We've cased it, cemented, so the reservoir section is now protected, and we are now working towards completing the well. I just wanted to ask you all to step back a little bit and think about what this project means to us. You can see what we're saying is the estimates from the subsurface data that we collected when we drilled the well, we ran some logs and we are saying now it's going to be greater than the initial estimate. Initial estimate was 3.4 million barrels of oil equivalent. So I just want you to just take -- and of course, first of all it is expected in mid-2026. And I just want you to take a step back and think about that and kind of put it in the context of what we've done today, we are upgrading our guidance to sell -- to deliver offtakes between 9 million and 9.4 million barrels of oil equivalent. So just to give you an idea, so 9 to -- we are -- when we upgraded it from 8.8 million to 9.3 million, we upgraded it to 9 million to 9.4 million. And now we're talking about Teal West. What does it all mean? If you think about it, what we've been saying is in 2026, our production will be at 35,000 or it will be very close to 35,000 barrels of oil equivalent a day. We may miss it 1,000, 2,000 barrels a day. I'm not sure. But at this point in time, that's our target, and that's what we're intending to do. So if you look at it and think what's going to happen to the company, what Teal West does is -- and some other projects that we are working on, what it does is -- when I say some other projects, I also include the low-pressure -- LPC, the low-pressure compressor project in Brunei. What it is doing is it's setting us up for 2026, these projects that we're doing now will set us up to move our production, which is what we're saying is we're selling 9.4 million -- maybe 9 million to 9.4 million barrels even if we achieve 30,000 barrels a day, not even achieving 35,000, we will get to 11 million barrels delivered in the financial year 2027. We get closer to 35,000, we've gone past 12 million. So the growth -- this Teal West project, the low-pressure compressor project, which hopefully will be up and running in the Q1 next year -- towards the end of Q1 next year. These projects are going to deliver us production that is going to take our overall delivery of sales for FY 2026, FY 2027 past the 10 million barrel of oil equivalent mark, closer to 11 million, maybe 12 million, okay? So that is the growth the company is going to see. That is the importance of teal West. That's the importance of -- and you're going to see like nearly 20%, 25% growth. So -- that is why these projects were important. That was why Teal West was something very, very -- it was critical for the company to get it done. It's important for our U.K. asset. And now we are working very hard to bring oil to Anasuria FPSO latest by mid-2026. Even at the production rates that, that well promises to deliver, even if we can accelerate that 1 month, it will make a big difference to us. So we are working hard to do that, okay? Looking at the dividend. One -- another reason why we were able to upgrade the guidance from 9% to 9.4% is because of the amount of maintenance that we did, as Pascal mentioned, 2 of the assets, we did a whole bunch of maintenance. This was PM3 and Kinabalu. North Sabah is being done now. But because of the amount of maintenance we have done and then looking at the performance of the fields, subsequent to that, we feel confident now to be able to upgrade guidance that we're giving all of you. And obviously, when you do a lot of maintenance, it does impact the cost of sales. But I would ask you to focus on the EBITDA, EBITDA margins. I think those are the important numbers, okay? If you look at the EBITDA, EBITDA margins, they are still okay, but we had to take up a little bit, I think, on the cost of sales, we took up quite a lot for the maintenance. So I think that impacts the PAT. So -- but we are still looking forward to good -- and you see the production numbers, I think it was about 1.9 million barrels of oil equivalent this quarter. So we are not even at 25% of our targeted production. It's going to be -- there's going to be more production and lower costs coming up in the subsequent quarters. So think about those things, okay? I'm not going to spend -- Joyce has mentioned about the dividends. We're just keeping up with our commitments. We have dropped the range, the oil price range as far as -- from compared to last year. Now it's $65 to $75 range, and we're promising the same type of dividends. But really, the opportunity here is for us to at least maintain what we have paid last year, if not improve on it. And last year, we paid $0.09, okay? So our objective is to show that trend increasing. I'm not going to talk too much about the industry and media awards. I mean, it seems that after -- when you win one award, everybody winning awards, so we're getting a few awards. So we're busy attending some award ceremonies here and there. So we're working on that also. But interesting also the last point there, we have put quite a big disclosure in the CBU. I would ask you to read the CBU. I think it's towards the last second, last page of the CBU, a little bit about this strategic investment in. What's been happening, maybe kind of a spin-off from low share price is that every Tom, Dick and Harry in the world thinks that you're ripe for acquisition. So we've had a lot of people come and talk to us about potential taking up stakes, et cetera. But there are 1 or 2 who maybe we thought this is not opportunistic. This is strategic. There's a difference between an opportunistic type partner and a strategic type partner. And we have narrowed down 3 that we feel could really benefit us, understand the business, who kind of like can contribute to our growth and who also want to learn a little bit from us, okay? So people actually do think we have some kind of secret sauce. Pascal calls it the secret sauce, and he goes around trying to sell the secret sauce, he gives presentations on it to some of the large oil companies. But some of them have come and spoken to us. And amongst the many, I would say, many means more than 10, we identified 3 that we felt could really benefit and not nickel and diming about the type of pricing of our share and all of it. They're looking more at the type of assets we have, the work we do, the people in the company. They're really looking at it from a strategic perspective and what their contribution and our contribution combined in a collaboration could do. So we are pursuing discussions with them. The reason why we make this disclosure is because they have all signed nondisclosure agreements with us, 3 of them. And we are not allowed to give their names because they are reputable parties. And they know that each knows that there is another one there. So they each know that one or none or maybe several might be successful in talking to us. So I think they don't ever want their name associated with something that they did not manage to achieve. They are not one that we work with. So they don't want their names mentioned. So I think -- but we are in a good place discussing stuff with them. They are talking about intrinsic -- we are talking about intrinsic valuations of the company, not market price type things because they are strategic. They understand what are the value of our reserves, where they are located, what our plans, what our OpEx numbers mean, all of those type of things. So they understand that type of thing. So we're talking to people who understand the business. So that makes it easier, okay? So I think we had a filter through those who are opportunistic, whatever story they told us was not of interest, those who we really feel could be strategic in the mid- to long term, we are continuing a conversation, and we have taken it to the next stage. And they are also -- they are doing their background work. So they may appoint third parties to do work on behalf of them. So we didn't want information to leak. We wanted everybody to know where we were all at the same time. So that's now disclosed. So we can -- we feel a little bit more comfortable to work freely, okay? So this is not something that's going to happen in a matter of weeks. This type of work takes a few months. So just bear with us, and we are looking out for all shareholders. I think that's the most important message. We are looking out for all shareholders. We ourselves and the management team have quite a few shareholders. So we are looking out for all shareholders, okay? I think now we take some questions.

So meeting all along started -- initiated some question. Understand Brunei field was shut down in quarter 1 financial year 2026. Are the operations up and running in October onwards? Yes, how about the maintenance activities in PM3 CAA and Kinabalu?

Yes, that's all been completed, back up to full production. So that all assets all running.

Christopher Tan from Equities Trackers is asking you mentioned Teal West results are expected to exceed estimates. Can you provide a magnitude of this upgrade? Are we looking at a marginal increase or a material double-digit percentage growth?

Let's just say, if you take -- let's do first one. Teal West, if you look at the original number was 4 million barrels and take 3.4 million barrels and with the premium that we get in the North Sea, if you put $65 to that, we are looking at a revenue from Teal West over a period of time that is in excess of $220 million, I think, in that range, Deepak, about $220 million. Now if we can get a 10% increase, that's another $20 million and $220 million is MYR 1 billion, okay? So if we can get a 10% increase, that's a further $100 million, which we are not spending more. We're going to have some OpEx related to that. We have to pay a tariff for using the Anasuria FPSO, but we own half of that. So I think the increase we are looking at will be double digit, but it's -- I mean, any number above 10% is double digit, but it's about -- it's in that range, 10% to 15% at this point in time. I don't want to say more than that, okay? We would like to see the models properly evaluated, and we would like to see the -- maybe a third party look at it and give us some assurance that the numbers are good. Yes, sometime around mid-December, we will start -- we will clean up what we call clean up the well. That means we'll just do a small flow to see how the well performs. That will start giving us an idea whether -- what the production rates are going to be. I think we're looking forward to that. You might want to, carry on.

And this revenue from Teal West, which will come in next financial year, likely, will not attract any tax in the U.K. because we have all this -- we have the allowances from the capital expenditure incurred or invested in the past 1 or 2 years. So the value is expected to go right to the bottom line from a cash perspective as well.

Important well for us.

Maintenance...

Scheduled maintenance costs, there will be some.

There will be some in North Sabah.

But no reduction in production. There's no shutdowns.

No shutdowns.

No shutdowns, but some activities are still...

So we finished all 3 in PM3, Kinabalu and Block B MLJ in Brunei and the remaining one would be in North Sabah, but no shut down as Pascal said.

CapEx, Deepak, you want to take that?

So our CapEx guidance for FY '26 is about USD 205 million, roughly about, let's say, MYR 9 billion, MYR 10 billion. So at this point of time, we firmly believe it would not exceed the guidance. And we are trying to see how much we can optimize it further. We are looking at each of the projects from a technical and commercial viability perspective. We want to make sure all of those projects we mentioned is really robust, it can sustain even if the low oil price [indiscernible]. So it will definitely not exceed the guidance. In contrary, we are looking to optimize it.

And I think the next question is from [indiscernible] Asia. So you mentioned costs will be lower in the coming quarters. Could you elaborate? And what could we expect for the quarterly EBITDA for the rest of the financial year?

The December quarter, the only planned activities would be in North Sabah, as mentioned earlier. In the March quarter, we do not expect a lot of work, at least what we have planned so far. T&M shutdown in North Sabah again, only that. In June, there may be some, but not as extensive as the one in September. So if you go back to some of the quarters in the past where you look at the price hovering around mid-60s, perhaps for Brent and of course, add on the Brunei impact this time around this financial year, you probably get a good idea of where we might land. But the view is that we do not expect a quarter in terms of cost to be as expensive as September in the next 3 quarters.

Can I also just say, if you look at the offtake schedule in the CBU, if you look at the Q2 estimate from offtakes, then look at the Q3 estimate, I think nearly all the following quarters are going to be higher than where we are today. So going forward, yes, these are the offtake schedules. So if you have a look, Q2 estimate 2 -- nearly 2.5 million barrels of oil equivalent. Q3 is at 2.7 million, okay, and you can work backwards. We've given -- we've upgraded the guidance for the end of the year. So you know what Q4 is. Q1 is an actual. Even if you go between 9 million and 9.4 million, you take the low number of 9 million, you will understand that we are -- all the following quarters, offtakes are higher than the first quarter. So first quarter, because of the degree of shutdowns and all the maintenance that impacts your production. And then you will see as we go forward that, that production is not coming from anywhere else except uptime, really, extra uptime from not shutting down for maintenance. I think that is [indiscernible], U.K., there are some repair works going on, but U.K. is now 10% of our production.

10% of our...

Very small component, okay? So this additional barrels of oil equivalent coming in the subsequent quarters is coming from uptime, which is less maintenance. It's just a reflection of that, okay?

And this year, we are not -- there will definitely be no one-off huge charges coming.

Largest expected, yes.

In the U.K. from oil...

Yes, the U.K. tax was not cater to the oil industry. It was neutral to the oil and gas industry.

Chris from Equities Trackers is asking, for supplying power to data centers or the semiconductor industry, is Hibiscus aiming to be the power generation operator, i.e., selling electricity or strictly a gas supplier?

We are looking at being the project developer and operator. Yes, project developer and operator.

Power generation.

For power generation, yes, on the power generation side, yes.

How much is the CapEx for the power generation?

We are just screening projects at this point in time, okay? And so we are looking at things which are post 2027. There are obviously screening, bidding build. So not yet crystallized into a firm project just now. But the projects we are looking at are in the 30-megawatt range, I can say that, 30 megawatt. Just to give you an idea, 30 megawatts at $1.5 million a megawatt is normally the development cost between $1.5 million and $2 million. So your CapEx, if you are 100% owner is in the range of maximum $6 million, okay? Just to give you an idea.

So just thank you for joining us this evening. For those in Malaysia and Singapore, please stay safe in this heavy rain. For everyone else who's joining from other regions, please continue to keep well also. Yes for any follow-up questions, just reach out to anyone of us. Take care, everyone.