Thursday, January 29, 2009

The global leader in the resources industry

Formed from a merger between BHP and Billiton, the company is a leader in the extraction and sales of most natural resources, and is particularily strong in Iron Ore, Coking and Thermal Coal, Copper, Zinc, Oil & Gas, Diamonds and most materials key to the production of steel.

BHP Billiton is master of its own destiny
by Fat Prophets

Whilst it is inevitable that the flow of negative economic and corporate news that underpinned the volatility will continue this year, we believe that much of this bad news has already been factored into share price of mining giant BHP Billiton (LSE, BLT). 

As many get distracted by the short term noise, we are always looking at the bigger picture. With this in mind we remain strong supporters of the ongoing secular bull market in commodities and whilst BHP remains the best-placed of all the resource sector heavyweights, it too is facing its near-term challenges.
One of these challenges will be this year’s iron ore contract price negotiations. The Chinese are looking for a 40 percent cut in contract prices, which would take prices back to 2007/08 levels. 
Nevertheless, BHP will still continue to generate attractive returns even at these levels. Moreover, we do not believe the fall from last year’s peak prices in the commodity sector is indicative of a sustained change in trend over the longer-term.
There are already tentative signs that demand for steel (and therefore iron ore) is lifting. The various infrastructure spending based stimulus packages will provide further support to this. We therefore view 2009 as likely to be a consolidation period for commodity prices, rather than a continuation of downward momentum.
That’s not to say of course that there is substantial pain being felt in the resources sector. Indeed, many projects are uneconomic at current prices, leading to production development cutbacks. The current commodity price weakness is sowing the seeds of future price strength.

The companies best placed to capitalise on this will be those that are able to maintain their development in the interim and expand their industry footprint. Companies that fall into this category will broadly speaking not be weighed down by excessive debt and enjoy the flexibility of a diversified production base.

Indeed, with a comfortable net debt to equity ratio of 21.6 percent at June 30 2008, BHP is master of its own destiny rather than having to dance to the tune of lenders. The company is therefore able to expand their future production profile by taking advantage of distressed asset sales which could even prove a more attractive option than pursuing existing development projects.

Thursday, January 22, 2009

Regal Petroleum – The Dawn of a New Era

Regal Petroleum's primary assets are two large gas and condensate fields in Ukraine - the Mekhediviska-Golotvschinska (MEX-GOL) field and the Svyrydivske (SV) field located in the prolific Dneipner-Donets basin in the north east of Ukraine. Regal is the operator of the assets and there are currently 5 production wells on the assets. Secondary to this, but still significant, are two large exploration blocks in Romania, the Barlad and Suceava Blocks, where Regal holds a 100% and 50% interest respectively. Regal Petroleum also has a 25% non-operated joint venture in Egypt with Apache Khalda Corporation LDC, where an exploration well tested positively for oil in September 2007 and was tied in as a producing well in June 2008.

Being a shareholder in Regal Petroleum certainly keeps you on your toes. The company which has recently been rebranded, refinanced and well resourced appears to be leaving its colourful past behind though and the next twelve months should see production increase rapidly from its key assets in the Ukraine. So far the development is proceeding to plan but the market value of the company has sunk to less than the value of its cash reserves.

Regal floated on AIM back in 2002 when it was led by Frank Timis. Massive hype regarding a potential billion-barrel find in Greece saw its shares soar to over 500p. The well turned out to be non-commercial and the shares slumped. Then the company was involved in an ownership dispute regarding its Ukrainian licences. The shares fell again but the dispute was eventually resolved in Regal’s favour at the end of 2006.

Timis resigned from the company in the middle of 2005. He’s still the company’s largest shareholder however, owning a 12.5% stake. Since Timis departed there have been a number of management teams at Regal. The previous incumbents were keen to attract an experienced partner as an operator for Ukraine. Two memoranda of understandings were signed, the second one with Shell in November 2007.

Shell was due to pay $50m for a 51% stake in Regal’s Mekhediviska-Golotvschinska ('MEX-GOL') and Svyrydivske ('SV') gas and condensate fields plus the first $360m of capital expenditure. But some shareholders felt this was undervaluing their potential and wanted Regal to operate the fields itself. So a new management team was installed, led by David Greer, who had himself spent 28 years at Shell working all around the world in challenging assignments as well as being Shell’s Global Director of E&P Projects. 

Within days, Shell had withdrawn and Greer set about transforming the Company and raising the funds required to make a start on its own development plans. Regal raised £80m in January of this year and a further £20m in July to secure two brand new rigs for 5 years. These will be able to drill deeper and more quickly than the rigs traditionally used in the Ukraine.

External interest in Regal’s assets has continued. In April the company said it was early-stage discussions with potential partners but nothing was finalised. Meanwhile the share price soared to 300p. Then in October the company denied rumours that Shell had approached the company regarding a takeover. Press stories mentioned 300p as the take-out price but investors appeared doubtful. The shares only touched 125p before the rumour was quashed.

So what’s in the Ukraine that has caused some much corporate commotion? The MEX-GOL and SV licences lie about 200km east of Kiev and gas was initially discovered there in the 1960s. The fields were partially appraised over the next couple of decades before Regal took an interest in 1999 and then a 100% 20-year production licence in July 2004.

Since the fields were first discovered over 20 wells have been drilled. A handful of these have been in production for a while and in 2007 their output averaged around 1,000 barrels a day of oil equivalent. This year production has declined steadily to around 500, according to a recent Regal presentation. Following an extensive 3D seismic programme, one new well (MEX 103) and two work overs (MEX 102 and GOL 2) have recently been completed. 

MEX 102 exceeded expectations and is producing nearly 1,200 barrels of oil equivalent a day. This should mean Regal will hit its year-end production target of 2,000 barrels per day. Two more new wells (MEX 106 and SV 58) will spud soon and an additional work over (GOL 1) should also be completed in the near future. 

The initial development plan includes 15 new wells, split equally between the two new rigs and a third that is close to being secured. In total, around 70 wells could be drilled and peak production is estimated at 50,000 barrels plus in 2015-18. 

The wells will take several months to drill, even with the new rigs, and could cost in the region of $20m each according to some analysts. A new gas processing plant with ten times the current capacity is being planned and could cost a further $100m, taking the total development cost to around $1.5bn. The current plant’s capacity is 25 million cubic feet and 1,250 barrels of condensate per day. The gas is taken via a 13km pipeline to the main Kursk/Kiev Majestral pipeline. 

A reserve report was produced by Ryder Scott in 2005 and estimated proven and probable reserves for MEX-GOL and SV at 169 million barrels of oil equivalent. An updated report is expected around the middle of next year. The gas lies between 4,800m and 6,000m below the surface and the 2005 report only examined the shallower ‘B’ sands. Including the deeper ‘T’ sands could increase the reserve figures considerably, with some analysts reckoning both reserves and estimated peak production could double.

Following Regal’s July placing the company had net cash of $174m. At the time of writing this is greater than its market capitalisation but it looks like all this cash and more could be spent bringing the Ukrainian portfolio into full production. A farm out to share some of the development costs looks like the most likely way forward. 

Although the focus is very much on the Ukraine, Regal also has interests in Romania and Egypt and these should also be included in the updated reserve report scheduled for next year.  

In Romania Regal has a 100% interest in the Barlad licence and 50% in Suceava. At Barlad, a shallow well was successfully flow tested at 3.7 million cubic feet of gas per day in December 2007 over a 5m interval. A second larger interval of 13m did not flow and a follow up appraisal well was plugged and abandoned last month. Regal had been planning two further wells if the follow up proved successful but is now likely to be reassessing its plans. 

At Suceava, where Regal is partnering with Aurelian Oil and Gas, a gas discovery of 0.9 million cubic feet per day was made last year which was to be tied into production during 2008. However, no further plans for this licence have been announced since.

In Egypt Regal has a 25% interest in the East Ras Budran concession. The ERB-A-1X well was tied into production in June of this year and was initially producing around 1,100 barrels of oil a day. Two subsequent wells found no hydrocarbons however and were plugged and abandoned. 

While not for the faint of heart, Regal’s prospects look far more favourable than the share price is currently suggesting. The new management team has delivered to date and if a suitably deep-pocketed partner can be secured and initial production targets are hit, the market may soon reconsider its valuation of the company.
By : by Stuart Watson;

Friday, January 16, 2009

Exxon Mobil’s Natuna claim ends here: Minister

The government has officially turned down a plan of development (POD) for gas-rich Natuna block filed by U.S. Energy giant Exxon Mobil Corp. 

Concern, however, is raised whether the government’s decision will result in another tedious 
battle with ExxonMobil, such as in the dispute over Cepu block, the nation’s largest oil reserve ever found. 

After three years of reciting his decision to end ExxonMobil’s right in managing the Natuna D-Alpha block, Energy and Mineral Resources Minister Purnomo Yusgiantoro ended Friday once and for all speculations and debate over the block

"Upstream oil and gas regulator BPMigas has sent a formal letter of rejection of ExxonMobil in POD January 14," said Purnomo.

“Every year ExxonMobil’s submitted its working budget and program for Natuna, but we never processed them as the company’s contract (for the block) has been expired since 2005.” 

In a cabinet meeting last year, the government had appointed state oil and gas company PT Pertamina to take over the block and seek bigger partner to develop it. 

According to Purnomo, ExxonMobil’s contract was automatically terminated as it failed to submit a feasibility study document before the deadline on Jan 6. 2005. 

“As stipulated in the contract, the contractors are required to submit feasibility study to evaluate whether the block development are economically feasible,” Purnomo said. 

As reported earlier, the government’s decision not to extend the 2005 contract is also due to ExxonMobil’s failure to seriously develop the block -- an accusation strongly denied by ExxonMobil which claimed of already investing US$400 million for the block. 

The government seems to have already gearing up to face possibility that ExxonMobil would bring the case before the international arbitration court to claim damages. 

“Of course anybody can file arbitration, but in this case ExxonMobil has no legal basis to do so. The deadline was not fulfilled so the contract was terminated automatically,” BPMigas’s head of legal division Alan Frederik said. 

ExxonMobil’s spokesman Maman Budiman said the company was “respectfully disagree with the government”. 

“We remain interested in a resolution which allows development of this resource to proceed with the support from the government,” he said. 

“ExxonMobil is uniquely positioned to develop this project efficiently in partnership with Pertamina.” Despite an assurance from Purnomo, Pertamina has repeatedly complained it faced difficulties to access the block’s exploration data. 

Purnomo, however, insisted the government had the data, and it was a state document. 

“All contractors must give the data to the government otherwise they can be criminalized with maximum punishment of one year jail term and maximum fine Rp 10 billion,” he said. 

BPMigas chairman Raden Priyono blamed Pertamina’s lack of data management for not having the Natuna data. 

“As a partner, Pertamina is suppossed to have the data. I think the problem is with Pertamina’s data management” 

Located in Riau Islands, the Natuna D-Alpha block is estimated to contain 46 trillion cubic feet of gas, making it the bigest reserve in Asia. However, the block has a high-degree of CO2, making it difficult for exploration unless it is handled by energy companies with advance technology. 

Purnomo insisted Pertamina, having 40 percent interest in Natuna, to proceed with selecting partners to develop the block
Source: Alfian , THE JAKARTA POST , JAKARTA | Sat, 01/17/2009 11:51 AM | Business 

Friday, January 2, 2009

Bapepam to revise IPO rules to protect companies

The Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) plans revision of the regulations on its initial public offering (IPO) scheme to ensure that firms wanting to go public are better protected from negative impacts of the global economic downturn. 

The revised regulation is expected to be issued in the first quarter of 2009, Bapepam chairman Fuad Rachmany said recently. 

Under the proposed regulation, companies planning to offer their shares to the public for the first time will be given a period of three months after securing Bapepam's approval to implement their plan. 

This is aimed at providing more time for reviewing the feasibility of their IPO, and to give time for reassurance that market conditions would be favorable for generating the expected proceeds despite the uncertainties in the global equity market. 

"We don't want that the market fails to absorb the shares due to unfavorable market conditions once the companies execute their plan for the IPO," Fuad said. 

Under the existing regulation, companies holding Bappepam's IPO approval are required to offer their shares to the public as soon as possible. 

The proposed regulation is a response to the October stock market collapse, in which several companies had to unexpectedly drop their IPO plans over concerns that the sales of their shares could not be fully absorbed by investors. 

While targeting some 25 companies to go public last year, the Indonesia Stock Exchange (IDX) only completed IPO procedures for 19 of them by the end of 2008. 

IDX president director Erry Firmansyah said earlier that 15 companies were planning to launch an IPO during 2009, with 11 of them already in the pipeline, including integrated oil and gas service provider PT Prime Petroservices and telecommunication network service provider PT Power Telecom. 

The stock market has yet to become a fully alternative financing option for the corporate sector in Indonesia, as the role of the banking sector is still considered predominant. 

Around 70 percent of funding for the corporate sector is still therefore being supplied by the banks, with the rest coming from the stock market and bonds. 

The revised IPO regulation will also require firms to get approval from the Bapepam before issuing a full public disclosure on their IPO plan, known also as the prospectus. 

The watchdog will examine the prospectus for any legal and future problems which may potentially cause losses to investors. 

Under the existing regulation, companies can distribute their prospectus to Bapepam and the public at the same time. 

"We don't want a case like PT Adaro Energy to reoccur, in which the public (has) already read the prospectus while Bapepam is still checking it, creating pressures on us later to grant the IPO approval," Fuad said. 

Bapepam drew criticism from analysts over its decision to give approval for the Adaro IPO, which was made in July last year. 

Although the IPO was a success for Adaro, gaining proceeds of Rp 12.3 trillion (US$1.08 billion), some investors thought the company did not merit the permit as it was still involved in a number of unresolved legal disputes. Bapepam will also shorten the selling period from a minimum of five days to only one day to make the IPO process more effective and efficient.

Source:Ika Krismantari, , The Jakarta Post, , Jakarta | Sat, 01/03/2009 10:33 AM | Business