See: Rex International gets Oman approval to fully develop oilfield
Analyst Llelleythan Tan believes that this deal is significant as Rex can now fully develop Yumna while continuing to explore the rest of Block 50 Oman. Also, the concession period has been extended by 20 years.
According to a Qualified Person’s Report done by oil services company AkerGeo in 2011, the prospective resources found in Yumna could only represent 0.5% of the total prospective resources in Block 50 Oman.
Having already produced more than 1 million barrels of oil in 2020 YTD, Yumna is currently producing over 8,000 bbl/day through a one-inch choke. Rex has also released the drilling rig from Yumna and replaced it with a Mobile Offshore Production Unit (MOPU), which, together with an Aframax storage tanker, is expected to reduce production costs.
Rex has already sold its first three cargoes of crude oil in April, May and Jun this year and will continue to do so for 2H20.
“Assuming an all-in production cost of US$25/bbl, we expect Yumna to generate around US$20 million cash flow for 2H20. Also, Rex is targeting to drill a second hole in Yumna in early-2021 to further increase its production. Our oil price assumptions are US$35.00/bbl, US$40.00/bbl, US$42.00/bbl for 2020, 2021 and 2022 respectively,” says Tan in a July 22 report.
Meanwhile, Rex currently hold interest in 10 licences in Norway, up by five from 4Q19.
“If these prospects are discovered to contain oil, Rex could unlock huge value through divestment or entering oil production,” says Tan. Looking forward, Rex is set to participate in the drilling of the Appolonia Prospect, the Fat Canyon Well and Orkja Prospect. Discovery of oil in any of these prospects would unlock more value for Rex.
Currently, the stock is trading at about 14 times FY20 PE, which is slightly above peers’ average PE mean of 11.4 times. But this is largely attributed to a delay in oil production for 2020.
Looking forward to 2021 when there is full-year contribution from Yumna, Rex’s 6.1 times FY21 PE is materially below peers’ average PE mean of 17.7 times. Tan believes this is unjustified, based on its strong net cash position and earnings compared with peers as well as its undervalued assets in Oman and Norway.
As at 1.20pm, shares in Rex are trading at 19 cents or 1.2 times FY20 book.
