Upstream oil firm levels up from exploration to production becomes SGX' s most traded energy stock this year

 

MID-SIZED upstream oil firm Rex International Holding is by far the most traded energy stock on the Singapore Exchange (SGX) this year, and rising crude prices as global economies rebound is only part of its red-hot appeal.

 

Over a span of just two months, the Catalist-listed firm has dished out two big deals to keep investors satiated. It bought an oil field in Norway, marking its first production asset in western Europe' s largest oil-and-gas producer, where the firm already has several key discovery assets.

 

Two weeks ago, the tech-driven oil firm, founded and led by the Swedish Lidgren family, who are also the firm' s largest shareholders, said it was dipping into the fast-growing commercial drone business to diversify its business as the green energy transition gathers speed.

 

This followed more than a year since the Singapore-headquartered firm pulled through one of the worst years in oil' s history, and levelled up from being a pure oil explorer to also a producer after its Yumna field in Oman struck first oil and turned the firm into a full-fledged oil player.

 

" Rex pressed on amid the Covid-19 pandemic in 2020 and developed itself from a pure exploration company to an exploration and production company," its executive chairman Dan Broströ m told The Business Times.

 

" With recurring income from Oman, Rex is now in a comfortable position to undertake further investments."

 

Investors seem to have lapped up the recent moves. Of last week' s top hundred most traded stocks on the SGX, the counter enjoyed the highest net institutional and net proprietary inflow as a proportion to market capitalisation, showed data provided by SGX market strategist Geoff Howie.

 

There seems to be little to dislike about the firm' s planned acquisition of a 33.8 per cent stake in the Brage field in Norway by its 90 per cent owned subsidiary Lime Petroleum for a post-tax price of US$42.6 million. For one, it reinforces the firm' s transformation into a full-cycle exploration and production firm, this time involving its Norway subsidiary.

 

Upon completion of the Brage acquisition, some 3,440 barrels of oil equivalent per day (bpd) net to Lime Petroleum will be effective from Jan 1, 2021 - the effective date of the transaction. This will add " another leg" to the group' s current gross oil production in Oman of some 12,000 bpd.

 

" (It) will give the group a second production field, minimise production risk, and add to the reserves and contingent resources," said Mr Howie, adding that there is also upside from future drilling of " high-value near-field prospects" .

 

Lime Petroleum recently completed a US$60 million 2.5-year senior secured bond issue to partly fund the transaction. The bond issue, which was a condition precedent for the acquisition, and is targeted to be listed on the Oslo Stock Exchange, was oversubscribed by over 100 per cent.

 

" The strong market response to the bonds underscores Brage Field' s production profile, cash-flow generation, and quality in the security package of the bond provided," he added.

 

Even as the firm doubles down on oil, its eyes have been peeled on alternative investments, in the name of prudence.

 

Mr Broströ m said: " The strategy for Rex is to develop alternative businesses that can grow rapidly and be part of the group when the demand for oil subsides. In order to achieve that, we need to find investment opportunities which are early-stage that Rex can acquire and become the dominant shareholder in, so that we are involved with operating and growing the business from the start."

 

For now, its gaze has landed on the drone market with the acquisition of a 40 per cent interest in Xer Technologies for US$1 million and subsequent capital commitment of up to US$3 million subject to certain performance metrics.

 

Just this month, the newly incorporated Xer signed a deal to wholly acquire a firm that has been offering commercial drone flying search and rescue and surveillance services since 2011.

 

Once this acquisition of the drone firm is down pat, Xer hopes to launch its own heavy-duty drones, which it has been developing, sometime in the final quarter of this year to expand into selling drone hardware and associated services globally, said Rex International in a recent response to queries from the SGX on the transaction.

 

" We will continue to look for additional production as well as other alternative investment opportunities," said Mr Broströ m.

 

Indeed, the oil company seems to have arranged its businesses, which currently straddle two geographies - Oman and Norway - pretty well after a dismal 2020. High startup production costs and low oil prices had pushed the firm into the red for the year ended December 2020 with a net loss of US$14 million from a profit of US$19 million in the previous year, even as revenue jumped to US$47 million from US$140,000 led by oil sales in Oman.

 

The bad times could well be water under the bridge. Crude' s global benchmark Brent has recovered significantly on robust oil demand to an average of US$73 a barrel last month from US$40 a barrel in June 2020. In the meantime, the firm' s production costs have maintained at US$80,000 per day, said Mr Broströ m.

 

Sweetening the prospects further, offshore activity has clicked higher in its Oman operations with the addition of two production wells and three exploration wells.

 

At an average of 12,108 stock tank barrels per day from March-June this year, production in H1 2021 is almost on par with the production for the entire year of 2020, he pointed out.

 

Higher production levels translate into lower costs per barrel. Already, some investors appear to have done the math with the stock up more than 47 per cent this year after falling nearly 29 per cent in 2020.

 

The upward trend could suggest that the firm' s first-half FY2021 results due next month may be worth the wait.