Ramba Energy
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Ramba Energy |
Lemang farm-out completes |
Completion of farm-out |
Oil & gas |
3 March 2016 |
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Ramba Energy is a research client of Edison Investment Research Limited |
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Ramba subsidiary Hexindo (80% Ramba) has completed the farm-out of a net 20% interest in its Akatara block, which contains the Lemang PSC, to KKR-backed Mandala Energy. In addition to US$15m of cash payments and some back-costs, the deal could also net Hexindo an additional US$87.6m in bonus payments and carries, largely subject to production and reserves updates. We believe this is an excellent result for Ramba and its investors, especially given the company has closed the deal in turbulent market conditions. In addition to Lemang, Ramba is currently drilling two exploration wells on its West Jambi block, with results expected in Q116.
Year end |
Revenue |
EBITDA |
PBT* |
Debt |
Net cash/ |
Capex** |
12/14 |
74.4 |
(8.0) |
(11.9) |
(2.6) |
1.2 |
(5.8) |
12/15 |
64.6 |
(9.4) |
(12.1) |
(4.2) |
6.9 |
(7.5) |
12/16e |
83.0 |
(11.0) |
(14.4) |
(6.9) |
(6.9) |
0.6 |
12/17e |
115.9 |
17.2 |
11.7 |
(8.3) |
(8.3) |
(6.8) |
Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Capex includes farm-in proceeds and bonus payments relating to the Lemang farm-out.
Farm-out represents significant value creation
Hexindo acquired its 51% interest in the Lemang PSC in 2009 for US$7m, hence the farm-out deal already covers Ramba/Hexindo’s costs with a US$15m cash consideration. However, the overall deal potentially represents significant value creation in the event that Hexindo receives US$78m of additional bonus payments linked to production and reserves updates, as well as a new commercial discovery bonus of US$4.8m and US$4.8m of potential exploration well carries.
West Jambi drilling ongoing
Ramba spudded the first of two wells on the West Jambi block in late December 2015. The Kusuma-1 and Kusuma-2 wells will be drilled back-to-back. Across Ramba’s West Jambi block we estimate the company could pursue up to nine separate targets with prospective recoverable resources of 22.1mmbbl of oil and 459bcf of gas.
Valuation and financing: Updated numbers
Our RENAV drops marginally from S$0.62 to S$0.60 per share, reflecting our reduction in long-term crude prices from US$80/bbl to US$70/bbl. We consider Ramba will require c US$5-10m of additional funding for its Lemang development over the next three years. Financial forecasts from our previous research report, in which we estimated Ramba would require US$60m of funding in 2016, should be discarded as this was presented in error. In the long term, Lemang could be a highly cash-generative asset for Ramba and could allow the company to service a meaningful (c S$15-20m pa) dividend from 2019.
Valuation: Minor reduction due to macro pressures
Since our Outlook note published in December 2015, we have lowered our long-term Brent oil price forecasts from US$80/bbl to US$70/bbl. Additionally, we have reduced our short-term Brent forecasts for 2016 and 2017 to US$40/bbl and US$50/bbl respectively. Building these changes into our DCF-based fundamental valuation (12% discount rate), we arrive at a valuation of S$0.60 per share, a modest reduction on our previous RENAV of S$0.62 per share. Note that we only include the cash portion of the Mandala farm-in terms; in time this could increase by US$78m if certain targets are met regarding production and realised reserves (refer to our last Outlook note for further details).
Exhibit 1: Ramba Energy valuation summary
Asset |
Country |
Diluted WI |
CoS |
Gross |
Net |
NPV/boe |
Value |
Risked |
|
|
% |
% |
mmboe |
mmboe |
US$/boe |
US$m |
S$/share |
Net (debt)/cash end 2015 |
100% |
100% |
5 |
0.01 |
||||
SG&A |
100% |
100% |
(19) |
0.06 |
||||
Mandala Farm-In cash payment |
100% |
100% |
8 |
0.02 |
||||
Richland Logistics |
100% |
100% |
25 |
0.06 |
||||
Appraisal/development |
||||||||
Akatara |
Indonesia |
25% |
72% |
76.5 |
19.1 |
5.0 |
115 |
0.35 |
Core NAV |
|
|
|
|
|
|
126 |
0.49 |
Exploration |
||||||||
Tuba OBI / North REWJ |
Indonesia |
100% |
18% |
38.0 |
38.0 |
2.8 |
19 |
0.06 |
Wajik |
Indonesia |
25% |
14% |
97.7 |
24.4 |
5.3 |
16 |
0.05 |
Exploration NAV |
|
|
|
|
|
|
35 |
0.11 |
RENAV |
|
|
|
|
|
|
161 |
0.60 |
Source: Edison Investment Research
Financials: Modest funding requirement for Lemang development
Our financial forecasts reflect the reduction in long-term Brent forecasts. Investors should discard previous financial forecasts for 2015 and 2016 as these were previously presented in error.
The latest financial forecasts now reflect expected first production at Lemang in mid-2016. We retain the Richland Logistics business in our financial forecasts; as per our previous note we expect the logistics business to return an EBITDA of c S$6m in 2016.
Based on the Mandala farm-out terms, we estimate that Ramba will require c S$5-10m of additional funding over 2016-18 to complete the Lemang development. We expect the development to become cash generative from 2017. While Ramba is likely to seek to reinvest some of this cash flow into additional growth opportunities, we believe the company could start to pay a meaningful dividend (c S$15-20m per year) from 2019.
Exhibit 2: Financial summary
|
|
S$'000s |
2013 |
2014 |
2015 |
2016e |
2017e |
Dec |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
PROFIT & LOSS |
|||||||
Revenue |
|
|
72,872 |
74,408 |
64,586 |
83,005 |
115,894 |
Cost of Sales |
(44,364) |
(43,386) |
(34,297) |
(43,161) |
(46,807) |
||
Gross Profit |
28,508 |
31,022 |
30,289 |
39,844 |
69,088 |
||
EBITDA |
|
|
(10,080) |
(8,025) |
(9,365) |
(11,025) |
17,222 |
Operating Profit (before amort. and except.) |
(13,316) |
(11,058) |
(11,843) |
(13,764) |
12,407 |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
(265) |
(18,303) |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(13,316) |
(11,323) |
(30,146) |
(13,764) |
12,407 |
||
Net Interest |
(696) |
(845) |
(287) |
(619) |
(670) |
||
Profit Before Tax (norm) |
|
|
(14,012) |
(11,903) |
(12,130) |
(14,383) |
11,737 |
Profit Before Tax (FRS 3) |
|
|
(14,012) |
(12,168) |
(30,433) |
(14,383) |
11,737 |
Tax |
(1,655) |
(204) |
1,870 |
(2,734) |
(11,161) |
||
Profit After Tax (norm) |
(15,667) |
(12,107) |
(10,260) |
(17,117) |
576 |
||
Profit After Tax (FRS 3) |
(15,667) |
(12,372) |
(28,563) |
(17,117) |
576 |
||
Average Number of Shares Outstanding (m) |
336.6 |
370.1 |
447.3 |
469.4 |
469.4 |
||
EPS - normalised (c) |
|
|
(4.7) |
(3.3) |
(2.3) |
(3.6) |
0.1 |
EPS - (IFRS) (c) |
|
|
(4.7) |
(3.3) |
(6.4) |
(3.6) |
0.1 |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
8 |
|||||||
Gross Margin (%) |
39.1 |
41.7 |
46.9 |
48.0 |
59.6 |
||
EBITDA Margin (%) |
-13.8 |
-10.8 |
-14.5 |
-13.3 |
14.9 |
||
Operating Margin (before GW and except.) (%) |
-18.3 |
-14.9 |
-18.3 |
-16.6 |
10.7 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
80,893 |
88,685 |
81,048 |
93,022 |
100,245 |
Intangible Assets |
27,009 |
27,773 |
44,560 |
48,152 |
49,597 |
||
Tangible Assets |
9,702 |
6,485 |
5,646 |
14,028 |
19,806 |
||
Investments |
44,182 |
54,427 |
30,842 |
30,842 |
30,842 |
||
Current Assets |
|
|
26,115 |
26,040 |
34,329 |
23,221 |
23,221 |
Stocks |
121 |
180 |
205 |
205 |
205 |
||
Debtors |
18,553 |
20,496 |
21,683 |
21,683 |
21,683 |
||
Cash |
6,483 |
3,790 |
11,108 |
0 |
0 |
||
Other |
958 |
1,574 |
1,333 |
1,333 |
1,333 |
||
Current Liabilities |
|
|
(34,801) |
(34,709) |
(34,335) |
(34,165) |
(34,165) |
Creditors |
(30,491) |
(32,076) |
(34,165) |
(34,165) |
(34,165) |
||
Short term borrowings |
(4,310) |
(2,633) |
(170) |
0 |
0 |
||
Long Term Liabilities |
|
|
(13,547) |
(14,090) |
(15,564) |
(18,409) |
(19,805) |
Long term borrowings |
0 |
0 |
(4,072) |
(6,917) |
(8,313) |
||
Other long term liabilities |
(13,547) |
(14,090) |
(11,492) |
(11,492) |
(11,492) |
||
Net Assets |
|
|
58,660 |
65,926 |
65,478 |
63,669 |
69,496 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(1,113) |
(7,340) |
(7,863) |
(14,378) |
5,391 |
Net Interest |
0 |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex/ farm-out proceeds |
(17,125) |
(5,792) |
(7,480) |
595 |
(6,787) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Financing |
18,021 |
14,950 |
18,964 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(217) |
1,818 |
3,621 |
(13,783) |
(1,396) |
||
Opening net debt/(cash) |
|
|
(2,455) |
(2,173) |
(1,157) |
(6,866) |
6,917 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
(65) |
(2,834) |
2,088 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(2,173) |
(1,157) |
(6,866) |
6,917 |
8,313 |
Source: Ramba Energy accounts, Edison Investment Research
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