Hibiscus Petroleum Berhad (HIBISCS) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Hibiscus Petroleum's Quarter 4 Financial Year 2026 Results Briefing. Thank you for taking the time to join us this afternoon, especially ahead of the Merdeka long weekend. I'm Lily Ling, VP of Corporate Development. Joining me today are Dr. Kenneth Pereira, our Managing Director; Yip CY, our CFO; Dr. Pascal Hos, our Country Head for Malaysia and Vietnam; Shaun, our Senior Manager of Corporate Finance; Deepak Thakur, our SVP Economics and Business Planning; and Song, our Country Head Brunei, both joining us online; and from my team, Andrew, [ Jehan ] and Adam. Earlier today, we released our Q4 and full year financial year 2026 results, together with our corporate and business update, press release and dividend declaration. All the announcements are available on our website, and the presentation deck for today's briefing is also available here in the Teams chat. As this is our final results briefing for financial year 2026, we'll take you through the group's full year performance as well as the latest operational and business updates. With that, let's begin. CY, over to you.

Thanks, Lily, and good afternoon to everyone. So FY 2026 is done, and we have got some good numbers, hopefully, to share and we will explain each one of them. Again, thanks for joining us. So I'll just go straight into this slide. On the -- firstly, 2 very important metrics to us from a numbers perspective from the P&L. The first one is revenue and the second one is the EBITDA. So we have achieved MYR 2.3 billion in terms -- for group -- in terms of group revenue. And that represents the fourth consecutive financial year that we have exceeded the MYR 2 billion mark. So something that we are quite happy to report. From an EBITDA perspective, at MYR 1.1 billion for the year, that would be the fifth consecutive financial year that we have exceeded the MYR 1 billion mark. Again, it's a very, very strong achievement given that oil price -- oil prices during this period, these few years have been quite volatile. Even this year has been volatile, except for Q4 really that there were some upsides that we have obviously quite lucky to monetize. We are going into a little detail in the later slide. But those are the 2 very important milestones for us. And the third one, which we -- which I think sort of exceeded even the first 2 would be the total oil and gas volumes sold. We sold 9.3 million barrels of oil equivalent for FY 2026 and that is the first time the Hibiscus Group has managed to exceed the 9 million barrels of oil equivalent mark. This is the first time we exceeded 9 million. So that is another strong, I would say, a good milestone to record for FY 2026. Now going further down the P&L line, we come to this results after tax metric. At MYR 361 million, that represents an increase of 207% compared to FY 2025. If you look at all the numbers, we can summarize this into 3 broad categories that have driven this improvement. The first one would be the higher average oil and gas selling prices. Well, for your information, up to year-to-date 9 months, March 2026, compared to FY 2025 same period, it was -- in fact, the prices were a little bit lower. But that obviously changed after Q4. The Q4 prices were fairly high, and that tilted the average to a good stage. So you'll see later, but the average prices that we have generated for our sale of crude oil was about 7% higher than what we attained in FY 2025. The second important contributor we have to -- I would like to emphasize is our -- is the contribution from the Brunei asset. We bought the asset in October 2024. And that would mean in FY 2025, that represented only 8.5 months of impact. And in that year was a year where we were trying to streamline and obviously getting ourselves familiarized with the operations in the Block MLJ -- Block B MLJ field in the country. In FY 2026, the LPC project, the low-pressure compressor project that was executed -- that was being executed since we took over in October 2024. That was completed in April, and it went on stream after that time. The results after April '26 touch wood have been quite positive. We will talk about a little bit more later in one of the slides later. But basically, the 12 months impact from Brunei versus 8.5 months in FY '25 plus the contribution from the LPC project starting from April '26 have enabled us to report higher profits in Brunei. Now the Brunei numbers for the year, the PAT at least was MYR 82 million FY '26 compared to MYR 56 million in FY 2025. A third element, this is noncash, but nevertheless, important was that in this current year, there wasn't any one-off adjustments, noncash relating to the U.K.'s Energy Profits Levy. In 2025, we had an adjustment of MYR 173 million that was charged to the tax numbers in the U.K. because of legislative updates and some -- and changes relating to the EPL in the U.K. So that was taken up in FY '25, nothing similar recurred in this year. So going to cash flow, we have generated -- the group generated throughout all our -- throughout the entire portfolio of assets, MYR 850 million worth of cash flows from its operations. So that represents a 14% year-on-year increase. Again, this is something that has given us a boost in terms of availability of cash. And you'll see later that we have -- we are in a very healthy cash position as well as at 30th of June 2026. From a dividend perspective, so now we have guided -- we have had some guidance in the past and again explain it later. But in short, we have declared, including the fourth interim dividend of MYR 0.02 that we have just announced this today -- earlier today, we have -- that made it about MYR 0.09 -- up to MYR 0.09 declared in 4 financial quarters. But at the same time, we have also announced that we have recommended MYR 0.01 final dividend to be approved by the shareholders at the upcoming AGM in December. So in total, that will make it MYR 0.10 per share, and that would be the highest dividend payout in a single financial year throughout the Hibiscus Group history. All right. So that's the first page, a lot of important numbers. But so here, slightly more granular. On the left-hand side will be the operational numbers. Production has gone up. Our production has gone up by 4%. So annual production from 9 MMboe to 9.4 MMboe. Sales volume tracking very closely to this production because we sell gas, obviously, on the day-to-day and our [indiscernible] has been tracking very closely to our production volume. So also up by 4%. I mentioned earlier, oil price increased by about close to 9%, close to 10%. A lot was down to the upsides that we managed to monetize and record in the last financial quarter. So a little bit of luck, but yes, it has helped us a lot in this regard. Gas price, about 2%. Now this ForEx, now the PAT would have been a lot -- would be higher actually, if not for the lower exchange rate. But this is not, in any way, putting us in a very, very adverse position given that a lot of the translation from a P&L perspective is for reporting purposes. So what we have done is -- so this particular drop has resulted in us recording our net profits from our generation of revenue in U.S. dollars to be a bit lower compared to what we have done for FY '25. So the exchange rate have given us some -- has unfortunately given us a little bit of downside, but largely noncash because they are unrealized in nature. The -- so a lot of operations -- operational, I would say, movements during the year. But despite all that has happened, the group has managed to sort of -- to match what we have attained in the prior -- in the previous financial year in terms of our total -- our net OpEx per BOE across all assets. They have not moved very much. So I think that's a good thing to also take note of because during the year, we have had some operations -- operational challenges in the U.K. We were undergoing a lot of projects. We executed the LPC project in Brunei. And so prior to that, operations were not that great. Performance was a little bit more adverse than what you see now. But all in all, the Malaysian assets held their own quite well despite all these planned activities and unplanned interruptions across all assets, especially I say in the U.K. The benefit of us having different assets in different jurisdictions and different types of assets oil and gas have enabled us to contain our OpEx per BOE quite well and so more predictable in the long term. CapEx, very similar. And this CapEx has included the amounts that we have incurred for the 2, I would say, most likely easily the 2 largest CapEx programs that we have undertaken, which is the Teal West well in the U.K., which went -- which first oil date was achieved on 4th of July and also the LPC project in Brunei. So all the big ones have been completed and included here and recognized accordingly. So a little bit on the financial summary. I mentioned this earlier. So revenue, EBITDA, PAT all went up. And again, the adjusted operating cash flow has increased by more than 10% -- I mean, by about 14%. So all in all, you would -- the summary could be that can be termed as a fairly good year after a fairly rocky start to the financial year because of low oil prices, somehow we are able to now come to a good landing at the end of it. Then I'll move on to the next slide, and this is a summary of the cash bridge for the whole year. The headline is that you will see that our cash and cash equivalents have increased from MYR 320 million to about MYR 565 million at the end of 30th of June 2026. Our cash flows from activities is very healthy, and we have invested a good part of it into hopefully production enhancement projects. You see that most of our CapEx is something that will bring forward -- bring us additional production in the future. So you have 2 wells. We have the infill and appraisal wells drilling campaign in Malaysia, LPC, as I mentioned earlier, and debottlenecking activities also in Kinabalu in Malaysia. So one thing to note is that, at the end of FY 2026, our unutilized facilities stood at USD 211 million. If you combine that to the cash and cash equivalents of MYR 565 million, you basically come to a landing of what, close to USD 330, USD 350 equivalent of available cash for us to move into the next phase of our group's growth or our KPIs. Gearing ratio has gone down a little bit if you compare to FY 2025 from 0.28x, it is now on 0.22x. And our shareholders' funds is now very, very close, it's almost close to MYR 3 billion now. Okay? So the next page, I think [ Shaun ] is going to take us through. Yes.

Thank you, CY. So moving on to dividends. Financial year 2026 has been another strong year for shareholders' returns. As CY mentioned earlier, we declared MYR 0.09 per share in dividends to date in total and also another final dividend of MYR 0.01 per share, subject to shareholders' approval. So this will be our highest full year dividends declared to date for the group and also in line with our higher end of our dividend guidance where the Brent is averaging about $76 a barrel for 2026. So based on yesterday's closing price, this translates to about a dividend yield of about 5% and Hibiscus continues to offer an attractive mix of capital appreciation and also growing dividends.

All right. If you recall, we had set ourselves a target and a mission to achieve 35,000 barrels of oil equivalent in 2026. We've since already set a new target because we were reasonably comfortable we would achieve the target in 2026. So where are we now? You see at the fiscal year -- financial year, we haven't quite achieved that 35,000 barrels a day. But what's happened since essentially July, the first one was the Teal West well. We've updated the investors a number of times along the way where we were. On the 4th of July, the well officially came on stream and came on stream with an average production of 6,000 barrels a day. Currently, there's been a number of upsets in the Anasuria system. So we've not been able to stabilize the well. So we're still working to optimize the production. We're doing quite a bit of surveillance and making sure that all the operating envelopes and the production envelopes are optimal for this well. So there will be more information coming forward in the next few quarters. The second project really contributing to the extra production is in second quarter calendar year, we completed the LPC project, the low-pressure compressor project in Brunei. This has had a major impact on our production there. So both gas and condensate production in Brunei has increased by 52% to 7,619 barrels of oil equivalent per day. Now in July itself, we achieved actually 8,400 barrels of oil equivalent per day, which is a significant increase over what we were producing when we first took over the asset. So you add all that up on top of the existing production from the Malaysian assets. We are getting quite close to the 35,000 barrels of oil equivalent per day. Okay. Our next big project coming up is the PKNB development. PKNB is -- was the latest PSC we signed in Malaysia. It's been 2 years now. And in the first 2 years, what we've done is we've achieved the field development plan that was submitted to PETRONAS in June. We've received approval for the development of the PK, the Pertang-Kenarong fields in July. So we are now working to a final investment decision, which is expected to be taken in the fourth quarter of this year. What that means is that after we take FID, the 2C resources, which is 8 million barrels of oil equivalent will be reclassified to 2P reserves. The execution -- so all the preparation is happening now. Some of the tenders have already gone out. The execution will start sometime in the second quarter of calendar year 2028. Looking forward to first gas somewhere in Q3 of 2028. All that gas, if you remember, is going to be processed through PM3. So we will install a wellhead platform, drill 3 wells and install a pipeline to the PM3CAA facilities where all the gas gets processed from which the gas gets sold.

Okay. Good afternoon, everyone. Thanks for joining us. So I think my job here is to kind of provide a little bit of a performance check on what we guided last year and then versus what we've actually delivered. And then maybe also talk a little bit about 2027 guidance. So I think from a sales volume perspective, I think the guidance was we'd be between 9 million and 9.4 million barrels of oil equivalent for the year. And I think we have come in on the higher side of that guidance at 9.3 million barrels of oil equivalent. From a production perspective, we said 9.1 million to 9.5 million barrels of oil equivalent. We're coming in at around 9.4 million barrels of oil equivalent. And then OpEx, we said somewhere in the range of $20 to $25 per BOE, and we're coming in around $22, so right in the middle of the range. CapEx, we are a little bit lower than planned. But I think some of it will get deferred to 2027. So I think this one, we leave it. And as far as dividends are concerned, I think we are spot on, we plan to above a $75 per barrel oil price. We committed to declaring about MYR 0.10 per share, and we will be doing so with -- so I think in terms of guidance versus actual performance, I don't think we are out on any of the main metrics. Now looking ahead to financial year 2027. So we are looking at about 10% to -- sorry, 15% to maybe 20% increase in production -- in sales volume and production. So we're looking at that type of number. And OpEx, we're trying to keep it in the same range. There will be some spillover of CapEx from 2026 to 2027. So our CapEx guidance for 2027 is around $134 million. And what we're doing with the dividend is we're saying between $75 and $80 oil, we will continue with the MYR 0.10 per share. But if our average is above $80, then we'll go up to MYR 0.11 per share. So I think that's really the type of numbers we want to leave you with as you plan ahead. And these numbers are based on, I think, reasonably robust numbers that we have. So I think quite confident to say that it's gone through quite a few filters here through the operations and all the various teams. So hopefully, we'll be able to continue in this vein in terms of performance. If we come in at these type of numbers, then the 2027 will be the first time we exceed 10 million barrels of oil equivalent a [ day ] by production numbers and sales. So hopefully, we can get there. Okay. Now the last slide, I think just to close off today's presentation. I think just to say that it was a strong quarter, a strong last quarter and coupled with good production, especially coming from Brunei in the last quarter, so I think it helped us -- good oil prices, good production numbers, helped us with closing out the year in a strong way, okay? CY said, revenue crossed MYR 2 billion, EBITDA crossed MYR 1 billion again. So quite happy with the performance. And of course, profit after tax, notwithstanding the fact that last year, we did have some tax numbers that kind of brought down the figures from last year. But all the same, this year, we don't have any of that impacting us is straight operational profits. And I think sales volume, we think it's going to continue to rise. We will be -- Teal West has started strong, but these wells, they will tail off. That's what we were projecting. So we will see that drop. And -- but we still think we will be around the 32,000, 33,000 barrels a day type production number. So that is, I think, the foundation for us to suggest that -- or to guide that 10.7 million to 11.2 million barrels of oil equivalent next year will be a good number to aim for in terms of sales volume, okay? Again, dividend this year, a strong dividend, 5% yield, as [ Shaun ] mentioned earlier, and we hope we'll be able to continue that trend next year with the -- if the oil prices stay at a reasonable level. It's around $88 now. I think it's kind of settling down in this space irrespective of all the volatility around the Middle East and all that people just have come to accept that. There's going to be a lot of catch-up to do. A lot of the strategic reserves of various countries have been released. These have got to be refilled. There are a lot of things -- a lot of repairs ongoing. Qatar is still impacted. LNG prices are not going down too fast. So things like that, we think oil prices will remain in this range. Anything between $75 and $90 is a good oil price for us, okay? I think from the project perspective, I think that was the most important thing for us to deliver this year. Teal West was a big commitment in the North Sea and the LPC project was a big commitment in Southeast Asia. So both projects have now come on stream. So that's -- those 2 projects in terms of gross CapEx probably the same size as our company actually. So Teal West was around $150 million project and Brunei, our share of Brunei was about $50 million, I think. So combined, those 2 projects alone, almost the size of our company. So we had to deliver those projects and deliver them on time. So very, very happy with the performances of both teams operationally. And from a performance -- from the -- what we can see, the Brunei wells are responding to this low-pressure compressor project very well. I think the strategic investors with the oil prices a little bit volatile, it's really difficult to land on a proper valuation of the company and all of that. But hopefully, we don't have to wait too long now to provide some updates. I think we are getting to the point where we have in our mind an idea what we're going to do. And hopefully, we will very soon be able to provide an update, material update on that. Let's hope for the best. So I think that's what we have to say, I think, for this financial year results and quarter results. I think happy to take some questions.

[Operator Instructions]

David, go ahead.

Really a great year for you, a great set of numbers. But especially as I am being a London-based analyst, I look at your U.K. portfolio and despite kind of bringing Teal West on stream, I've seen many of your peers kind of opt for a larger portfolio, trying to seek out operational and fiscal synergies to try and make the most of their U.K. assets and that being a fairly mature region. I'm wondering kind of what discussions have taken place within your Board regarding those kind of capital allocation decisions, how the U.K. ranks be it the kind of size it is against your opportunities in Southeast Asia?

Yes. So the U.K. is -- the situation in the U.K. is a perennial kind of question mark in our mind. And we are forever hoping that something will change from a common sense perspective, I would say, okay? And maybe we can get a little bit more value for the assets we have there. You're right, it's not extremely material now in our portfolio. And what we don't want to do is kind of add to it -- add more to it. We've got the Marigold project, and we're keeping a close eye on how the government responds to Rosebank and Jackdaw, I think. So that's a question mark for us again. I mean, hopefully, they get their consents to get into production because if they don't, then that's going to be a little bit of a disappointment for a lot of people. So I think we're looking to see what happens with Jackdaw and Rosebank then take kind of make a decision on what we do in the U.K. We hope that between now and there's normally call it, an autumn budget, I think, when the Chancellor goes out and say something about what he's going to do. Hopefully, there will be a little bit of respite for our industry, hopefully.

[indiscernible]

Congratulations for the results. Just wonder why this time doesn't happen [indiscernible] Is there a potential proposal for special dividend this year?

No. We want to just be, I would say, disciplined in our whole financial approach, make sure that our gearing levels at the right level. We want to make sure that the -- we are always preparing for -- as fast as oil prices can go up, they can go down. So we kind of just want to keep the company in a good way, I would say. So I think the important thing is give you some guidance what we're going to do and then also deliver on that guidance and perform as best we can. We also like to keep some -- when the oil prices went up, we look to see if we could do some extra work. And I think on the Hibiscus Malaysia side, a couple of additional wells are being drilled towards the end of this year. And these were not originally in our CapEx plan for the calendar year 2026. But by having a little bit of extra cash in hand generated from operations, it gives us a little bit of optionality. We are also able -- we are a little bit more agile than some of the companies here operating in this area. So when we see rigs becoming free, there are some rig slots free and we get good rates, we're ready to quickly jump in and take these and try to spend some money now so that if oil prices go further up and rig rates go up, we protect -- we have done a little bit of work when the rates are reasonable. And also, I think the other thing we're thinking about is do work now that will help us if oil prices go down. So we want to be able to make sure that we're doing work at this point in time so that if we have to defer some work later, it won't hurt our production numbers. I think that's really in our strategy. So I would just say capital allocation, a bit of this capital allocation discipline, I would say. Anything you want to add CY or Deepak, do you want to add anything?

No, I think you are right that the oil price is volatile. So you really don't know where it's going to hit in the coming months. The cash, if we do not draw down any further, there is -- we would like to rely on what the cash that we have generated. But in the coming 12 months also, there are some outstanding facilities that would be -- will become due. So at this stage, I think given that the oil price is still quite volatile, we would like to just -- our approach is to hopefully be a little bit prudent, see how it takes us in the next few months.

I see. Just I wonder -- this time, you all didn't provide your dividend guidance for FY '27.

We did.

Sorry, maybe I didn't. Sorry. Sorry, sorry.

Yes, just I can reiterate it now. But long and short is -- if oil prices are between $75 and $80, we will keep it at MYR 0.10 and above $80, we will move to MYR 0.11. That's basically average oil price. That's where we...

I see because most of -- because I saw this time, PM3 has less oil offtake and more gas offtake. So is it the reason gas prices are better or better selling prices, so you increased production on gas and not more on oil?

I wouldn't say that. Pascal, do you want to do that? I think it's about demand from the clients.

I mean, oil is driven by natural decline in the fields. So year-on-year, the fields will produce less and less unless you drill more wells, okay? Simple as that. Gas is slightly different. So gas is driven by demand from buyers. And in our case, that's Petrovietnam and PETRONAS. We do have some extra availability of gas, so we can turn it up and down as required for demand.

I see. So your maintenance, I still remember when I discussed your first half of the year, you have been discussing that you have to lock in some of the very favorable rates before the geopolitical tension in Iran erupted. So for upcoming '27, do you all see your suppliers are actually demanding for increase in oil price?

Some prices have increased already, and that's primarily because of, for example, for offshore operations, diesel use. And it's only fair to -- for contractors to have to be compensated for that because that's straight-up cost to them. But overall, for future contracts, we have not seen a huge increase, I must say. We've been cutting quite a lot of contracts this year. We've not seen a really big change in cost.

I see. I see. So going forward, do you -- what is your maintenance schedule for FY '27? Your big maintenance PETRONAS and all of them are actually delaying turnarounds until next year. So are you following PETRONAS' prospects or you continue to do your regular maintenance as well? And yes, do you all start to reserve rigs for the PKNB? Yes, these are my questions.

So the big maintenance program that's coming up is the PM3 that's happening in September. We are not deferring that. What we've done is we've shortened the overall program because, I mean, some of the work simply needs to be done. This is -- whenever you have an asset that delivers gas that is critical, you got to do your shutdown every year. But what we can do is we can optimize it. In terms of locking in rates for PKNB, for example, we are running the tenders as we speak. So we're still -- I mean we're still dependent on market pricing. But we have enough buffer in our plan and budget that we think will be fine in terms of the economics of the project.

All right. David Mirzai is asking, can I follow up on the matters regarding the progress of the new significant investor or shareholders that are going to invest into Hibiscus as discussed by the management over last few months ago, referring to the strategic investors?