Additional Notes
2.3mmboe  increase  in  2C  contingent  resources.  RHP  has  increased  its  2C contingent resources by 2.3mmboe  (millions of barrels of oil equivalent)  after a  field in SE Walio (in the Basin PSC) became commercially-viable. This is a small oil field southeast  of  the  main  producing Walio  block.  A  well  drilled  in  2008  saw  a  flow  of >1000 barrels per day (bpd) but  this  declined rapidly and the formation was found to be "tight".  RHP has drilled a SE-Walio-2 sidetrack well, which tested 100bpd of light oil without water. Following a "fracture study", RHP located the natural fracture zones within this block and plans to drill production wells at those locations, making the tight oil commercially viable. The  plan of  development is expected  to be approved in July 2014.

Surprisingly,  light  oil  found  in  Fuyu-1  block.  Management  said  to  its  surprise, some  light  oil  flowed  from  the  Fuyu-1  pilot  test  wells.  50  barrels  of  32-degree-API light oil flowed to the surface without the assistance of pumps over the span of two weeks, where only heavy oil had been expected. While we await further clarity, this presents potential upside to the value of the Fuyu-1 field.

Oil finds in Klagalo opens up east-of-Klalin fairway. RHP has released new maps of  the  Klagalo  prospect,  saying  that  the  well  is  being  completed  for  testing  "after encouraging results from logs and [sidewall core] run". We read this as indicating that the wireline logs and core samples have shown evidence o f oil presence.

Valuation models.  Our NPV-and-risking model incorporates a longer  term view of the  company's  valuation,  which  attaches  a  conservative  10%  risking  to  the company's exploration-stage resources. We also assume that the Fuyu-1 shallow oil field will commence production by early 2014.

Figure  6  provides  the  current  valuation  of  RHP's  assets,  ie  the  conservative estimates of the market value of its assets as of today. Note that Fuyu-1's value is halved  as  its  oil  is  still  classified  as  2C  contingent  resources,  while  zero  value  is attributed  to  the  prospective  resources.  RHP  should  still  trade  at  a  minimum  of SGD1.03 today on the back of these marketable assets

Note the addition of SE Walio and Klagalo fields  and improvements to risking percentages.  We  have  added  the  SE  Walio  field  and  its  2.34mmboe  of  2C contingent  resources,  assigning  a  NPV/boe  of  USD8.0/bbl  in  line  with  other  Basin production sharing contract (PSC)  fields. Also, the Klagalo field has been broken out of the "Basin  -  Walio & Arar"  line.  Risking percentages for the Zircon and Klagalo have zones have been raised from 10% to 20% following the oil finds. For Zircon, had the flow test been successful, we would have raised it to the 25-30% region. The Klagalo field is now at the  same stage as Zircon  -  oil finds without oil flow news as yet - and thus the risking percentage similarly rises.

Higher liquidation  value of SGD1.03 per share.  The addition of the SE Walio field has added  about USD19m of value to RHP's liquidation value.  Also,  we no longer adjust the debt for expected capex - this was erroneous on our part as the liquidation value of RHP today should not have been lowered by future expenditure. The revised liquidation  value  is  now  SGD1.03  per  share ,  implying  an  EV/(2P+2C)  valuation  of USD8.00/boe, which is at a 20% discount on the Asian average of c. USD10/boe.

Company Profile
RH Petrogas is an exploration & production company with oil & gas concessions in Indonesia, Malaysia and China. It has two producing fields in Indonesia and is currently developing the Chinese   concession for production. Exploration and appraisal wells are planned for concessions in Malaysia and Indonesia.

Source: OSK