Key takeaways from regional oil and gas conference

VALUATION - Maintain BUY and target price of S$1.27 

WHAT’S NEW - UOB Kay Hian hosted a regional oil & gas conference in Singapore on 10-11 March. Key takeaways from the meetings with Rex’s management.

- KEY TAKEAWAYS FROM CONFERENCE
- Light crude oil discovery with good production flow. After reporting East Oman’s first oil discovery in the last 30 years, Rex had a successful flow test of up to 3,000 stock tank barrels per day (stb/day) of very light oil during a 48-hour test period. Pressure was stable with no water production.

- Valuation re-rating upon further proof of commerciality. Following Oman’s oil discovery, the next course of action will likely be the proof of commerciality, including further well testing, getting the necessary approvals from respective authorities and a development plan for the concession. Following which, the resources may be upgraded from
prospective to contingent resources that will have a higher attached value to it. Rex intends to farm out a portion of the concession as the value of the asset matures with the proof of commerciality. Already, it has seen interest from fellow operators in the area.

- Cash flow and cost recovery. While steps are taken to prove up the resources, Rex is expected to prepare for early well production as it starts sourcing for floating production, storage and offloading (FPSO) vessels. We estimate Rex to start early production of the Oman well at the end of this year.

- Cheaper, better, faster. With its innovative RT, Rex is able to scan more concessions at a cheaper and faster rate than typical mid-cap E&P companies. Selecting the best concessions from a larger sample population, together with its RT, Rex claims an exploration success of more than 50%, as compared to the industry’s average of 10-15%.

- Target 30 concessions by end-14. With its oil discovery in Oman, we believe RT may gain further traction among industry players, in particular national oil companies. Rex is expected to scan 200 concessions in 2014, and hopes to increase its concessions from 23 to 30 at end-14.