Singapore-listed Rex International Holding Limited (Rex International Holding, Rex or the Company, and together with its subsidiaries, the Group) announced Thursday that the firm is reducing capital investments and focusing on key discovery assets in Oman and Norway to preserve cash due to the downturn in oil prices. The Company is making organizational changes to boost the Company’s management bench strength, especially in the area of geology and geophysics, as well as to reduce operating costs.
Inherent Value in Rex Despite Oil Price Headwinds
Mans Lidgren, CEO of Rex International Holding, said, “Even though our oil production operations are very small, Rex’s share price has been impacted by the volatility of oil prices, the potential supply of Iranian crude to the market, the Greek debt crisis, the meltdown of the China stock market and most recently, the effects of China’s devaluation of the yuan on Asian bourses. Rex International Holding remains in a good financial position as at the end of the first half of 2015, despite these macro-economic headwinds.”
He added, “First, the Company has zero debt, giving us flexibility should we at a later date choose to tap into debt funding to fund potential development of discoveries. Second, as at June 30, our liquid assets comprising cash and cash equivalents and quoted investments were $96.0 million. We have ample funds to see us through our preliminary drilling plans at least up till 2017 and do not see any need to raise funds in the short term, especially in the current environment where access to capital raising has been greatly reduced for exploration and production companies.”
“Third, our portfolio of some 20 assets include yet-to-be-tapped discoveries, namely, in Block 50, Oman, in the Rolvsnes prospect in PL338C, Norway and in the northern part of PL616, Norway. Block 50 Oman has estimated unrisked prospective resources of 4,743 million barrels of oil equivalent (MMboe) (Source: Hibiscus Petroleum Bhd; Aker Geo and Pareto Asia, Feb. 28, 2012). Rex is expected to have an eventual stake of approximately 30 percent in the concession (after declaration of commerciality). At current oil price of about $50 per barrel, the concession remains a viable asset. Needless to say, Rex also believes that with the use of Rex Virtual Drilling (RVD), it will be possible to achieve a much higher chance of success.”
“However, at today’s market value of the Company of about $109 million and with $96 million in liquid assets comprising cash and cash equivalents and quoted investments, the remaining Group’s assets are only valued by the market at $13 million. There are of course several risks involved in oil exploration but based on an asset potential alone, we believe that we have been undervalued by the market. And that is not taking into consideration our proprietary technology RVD, which may not have been ascribed much or any value by the market,” he continued.
In order to adapt to the downturn in oil prices, the volatile market outlook and smaller market capitalization, Rex has done an in-depth cost review of its contracts with external service providers and suppliers, as well as internal operating costs to reduce costs, the effects of which would likely be seen from 2016. Further, the Company has moderated its drilling plans and operations budget to concentrate on assets in Oman, where Rex is confident of the concession’s potential, and in Norway, where the intention is to stay the course with the drilling plan, given Lime Petroleum Norway’s healthy acreage position.
Technical Development in Rex Virtual Drilling; New Technical Review Group Formed
The drilling results of the Zumba prospect in PL591 and the Haribo prospect in PL616 in Norway, though disappointing from a commercial aspect, proved that RVD indications of liquid hydrocarbons in the two prospects were right, except that in both unsuccessful wells, porosity and permeability estimates in the geological models were inaccurate. As previously stated, the use of RVD is exposed to erroneous or corrupted primary data.
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