Year of adventure for Hibiscus (5199)

IT has been roughly one year since Hibiscus Petroleum Bhd, Malaysia's first special purpose acquisition company (SPAC) and independent oil and gas exploration and production (E&P) company took its place on Bursa Malaysia.

On April 18 it became a full-fledged Main Market company with a core business after receiving 99% shareholders' approval for its 35% qualifying acquisition in Lime Petroleum Plc for US$55mil (RM165mil).

Come July 25, Hibiscus will be celebrating its first birthday.

Via its 35% equity stake in Lime Petroleum, Hibiscus secured four concessions in the Middle East and access to another four concessions in Norway over eight months.


All smiles: (from left) Rex Oil & Gas Ltd CEO Hans Lindgren, Pereira, Lime Petroleum Ltd chairman Svein Kjellesvik and Hibiscus chairman Zainul Rahim Mohd Zain after the successful AGM for Hibiscus’ Lime Petroleum acquisition.
Hibiscus' shareholder list also became longer, with such personalities as Roushan Arumugam, who has an 8.8% stake and Lionel Lee Chye Tek, the managing director of Singapore-listed Ezra Holdings Ltd with a 9.13% stake. Roushan's stake is primarily via Littleton Holdings Pte Ltd and Sri Inderajaya Holdings Sdn Bhd.

In fact, several of Hibiscus' initial public offering shareholders have increased their equity holdings over the last year.

“Our shareholders seem to appreciate what we are doing. The Lime Petroleum acquisition may have exceeded people's expectations. I think, initially, people probably did not expect Hibiscus to have the ability to secure Lime Petroleum's concessions in terms of size, prospectivity and location in an mature oil province,” Hibiscus Petroleum managing director Dr Kenneth Pereira tells StarBizWeek.

With some eight concessions to work on, you would think that Pereira would be satisfied to rein in the expansion phase for the moment.

That does not appear to be the case though.

“Lets just say that by the end of the year, Hibiscus will look quite different. It won't just be about Lime Petroleum anymore,” Pereira says without elaborating.


In a hint of what may be coming, Pereira says that previously, all of Hibiscus' concessions were secured via Lime Petroleum.

“Moving forward, we want to put new things just under Hibiscus. We are looking at other development and producing opportunities. We have some RM40mil from our IPO exercise that we can utilise after taking into account working capital requirements over the medium term,” says Pereira.

PPereira says that in Norway, the ruling is for E&P companies to be first qualified before they are able to acquire interests in concessions and also independently bid for jobs.

“We have embarked on a qualifying process in Norway, and this should be completed by year-end. Once we are qualified, Lime will get to bid for oil and gas projects on its own in Norway,” says Pereira.

Hibiscus was one of the best performing stocks last year, and its market capitalisation has grown to RM687.6mil from RM266.7mil in one year. If one were to take into account the warrants which are now capitalised at RM333.4mil, Hibiscus already has a market capitalisation of over RM1bil.

The achievements so far

Sceptics and cynics were certainly aplenty when Hibiscus first announced that it was seeking a listing as a special-purpose acquisition company last year.

It was a shell company with no historical operations, no assets and no track record. What it did have was a management team that knew about the business.

Pereira's involvement in the sector spans over two decades. He was Sapura Crest Petroleum Bhd chief operating officer until 2008. Meanwhile, Zainol Izzet Ishak, who is presently Perisai Petroleum Bhd managing director and SapuraCrest former CEO is Hibiscus' independent director.

With the pessimism in the early days, it was not surprising that Hibiscus' shares and warrants fell by 11% on its first day of listing from 75 sen to a combined share and warrant price of 66.5 sen.

However, within three months of its listing, Hibiscus announced that it was acquiring a 35% stake in Lime Petroleum as its qualifying acquisition. Since then, its share price has literally not looked back.

Hibiscus utilised some US$55mil (RM170mil) from the RM234mil it had raised from its listing exercise for the Lime acquisition through a subscription for new shares (US$50mil) and a purchase of existing shares (US$5mil) for three concessions in the Middle East.

These concessions were a 59% stake in Ras Al Khaimah (RAK) (1,200sq km), a 100% stake in Sharjah (1,600 sq km) and a 64% stake (previously 35%) in Oman (16,900 sq km). Each concession is for 20 years after commercial discovery of oil.

Subsequently as a bonus, Hibiscus gained excess to another concession in RAK covering an area of 886 sq km and four more concessions in Norway.

Hibiscus was not required to pay anything more for these concessions as under its earlier agreement with Lime, any future acquisitions would only be paid by Lime.

The fourth concession in the Middle East was a condition precedent to completing the Lime deal.

The Norwegian concessions came about because Lime signed a letter of intent with North Energy ASA and Rex Oil & Gas Ltd to acquire a proportion of North Energy's interest in four concessions, located in the Norwegian Continental Shelf offshore Norway. The concessions identified were Valberget (PL 503), Zapffe (PL 518), Vgar (PL 526) and Heilo (PL 530).

For the Norway concessions, the key services to be delivered will be the interpretation of seismic data held by North Energy using Rex Technologies which detects and verifies the presence and type of hydrocarbons.

Rex Oil is the 56.4% majority shareholder of Lime Petroleum.

Lime has a five-year exclusive access to Rex Technologies in the Middle East while North Energy will have access to these technologies in the Norwegian Concessions up to Dec 31, 2012 through the proposed acquisition of Norwegian interests by Lime.

“It is the access to this technology package, developed by our major shareholder Rex, that gives Lime a unique competitive advantage when it comes to securing concessions,” says Pereira.

Time To Deliver

On its existing concessions in the Middle East and Norway, Pereira says the company is working hard on project execution.

Lime has identified four high prospectivity drilling sites in the Middle East, three in Oman, and one in the United Arab Emirates (UAE). Seismic acquisition to finalise the optimum drilling sites has started on all three concessions since the third week of February.

“The seismic work has been done in RAK. We expect to start drilling in Omanby the fourth quarter of this year,” says Pereira.

Several potential drilling locations were identified using conventional and Rex Virtual Drilling technologies. The Rex Virtual Drilling technique uses seismic data to identify the fluid sub-surface without having to drill a well.

Three out of four wells drilled globally are normally dry. Thus, the Rex technology gives Lime a competitive advantage as it allows the company to spend its funds only on drilling wells that it believes have a high chance of finding hydrocarbon accumulation.

While Hibiscus' chances of striking oil through Lim are unknown, the adjacent block in Oman, which is being operated by another company, discovered oil last year.

In Block Three and Four of Oman, which is adjacent to Hibiscus' block (Oman Block 50), Tethy's Oil AB struck oil last year. Those two blocks are now producing more than 6,000 barrels of oil collectively per day.

Should Hibiscus strike oil through Lime, it will pay US$5mil to Rex Oil after the first commercial discovery as part of the deal.

Presently, the Middle East contains more than 50% of the world's oil reserves and approximately 40% of the world's gas reserves. The UAE ranks eighth and Oman ranks 23rd among the major oil producing nations as at 2010.