Hibiscus Petroleum's outlook brightens with contract extension

PETALING JAYA: BIMB Securities Research is positive with Hibiscus Petroleum Bhd’s contract extension as this will provide earnings visibility beyond the initial expiry date of end-2027.

Hibiscus recently signed a key principle agreement with Petroliam Nasional Bhd (PETRONAS) and Vietnam Oil and Gas Group for the continuation of the PM3 Commercial Arrangement Area Production Sharing Contract (PM3 CAA PSC) and Upstream Gas Sales Agreement (UGSA) for 20 years commencing Jan 1, 2028.

“This is vital to enable Hibiscus’ plan to develop gas resources in nearby PKNB

Cluster PSC using existing PM3 CAA infrastructure. Consequently, there will be additional 2P reserves and 2C resources to be unlocked at zero purchase consideration following the contract extension,” the research house said.

The PKNB Cluster PSC comprises four discovered gas fields, namely Pertang, Kenarong, Noring and Bedong, which are located in shallow waters offshore the east coast of Peninsular Malaysia.

BIMB Research reckoned that the extension was granted to enable the establishment of PM3 Hub Master Plan which targets to monetise the gas resources within the area for gas-to-power projects in the region.

It said the asset has a considerable 2C gas resources amounting to 47.3 million barrels of oil equivalent (boe) with licence expiry in 2048.

“Besides that, the hub will also include PM327 PSC which is the largest exploration block offshore West Malaysia,” it added.

The research house has revised its FY25, FY26 and FY27 earnings to RM331mil, RM515mil and RM430mil respectively after tweaking lower oil price assumption by US$5 per barrel (bbl).

“However, we expect earnings to remain robust as sales volume is expected to grow at a three-year compound annual growth rate of 9% over FY24-FY27 to 10.2 million boe from 7.9 million boe ( mainly driven by higher gas sales from Block B MLJ field in Brunei,” it said.

The research house has reiterated its “buy” call on Hibiscus with a lower target price of RM2.72 from RM3.20.

“Despite its strong growth and robust earnings outlook, the stock price trades at merely 2.1 times FY26 price earnings which is not justified in our view. Note that the company still generates substantial cash flow at lower oil price with a cast cost of around US$30-US40/bbl,” it said.