Ramba Energy — Update 2 March 2016

Ramba Energy — Update 2 March 2016

Ramba Energy

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Ramba Energy

Lemang farm-out completes

Completion of farm-out

Oil & gas

3 March 2016

Price

S$0.19

Market cap

S$89m

US$/S$1.4

Net cash (S$m) at 31 December 2015

6.9

Shares in issue

469.4m

Free float

75%

Code

R14

Primary exchange

SGX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

31.5

(3.1)

(34)

Rel (local)

24.3

2.5

(17.7)

52-week high/low

S$0.445

S$0.13

Business description

Ramba Energy is a Singapore-listed company with two key business units: Ramba oil & gas, focused on exploration and development activities in three onshore licences in Indonesia; and Richland Logistics, providing end-to-end logistics solutions across the Asia Pacific region.

Next events

West Jambi exploration drilling

Q116

Lemang first product

mid-2016

Analysts

Ian McLelland

+44 (0)20 3077 5756

Will Forbes

+44 (0)20 3077 5749

Ramba Energy is a research client of Edison Investment Research Limited

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
(S$m)

EBITDA
(S$m)

PBT*
(S$m)

Debt
(S$m)

Net cash/
(debt) (S$m)

Capex**
(S$m)

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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