Rex International – Not Much To Cheer About

Excerpts from UOBKayHian report

Rex International Holding Ltd (SGX: 5WH)

• Rex’s latest production update for Oct 23 did not provide much cause for cheer due to continued travails at its Yumna Field. At present, it is shut down with no visibility as to when production can resume.
• The Brage Field meanwhile has brought on-stream two new wells; however, we note the lack of disclosure on production numbers. In early Nov 23, Rex bought a 17% stake in the Brasse Field offshore Norway for an undisclosed sum.

Maintain SELL. Target price: S$0.10.

Yumna still hobbling towards the company’s 20,000bpd production target

In Rex International (Rex) latest production update for Oct 23, the company disclosed that its Yumna Field in offshore Block 50 in Oman (Rex equity stake: 91.81%) only managed an anaemic 1,304bpd of oil production, declining 20% mom and 65% yoy. The latest problem at Yumna was a production shutdown on 25 Oct 23 due to “damage to the internal pressure containing liner of the newly installed larger flowline”. No guidance was given as to when the field, which produced an average of nearly 11,000bpd in 2021, would be re-started. With Yumna continuing to underperform, Rex’s average production ytd stands at just over 9,000bpd and is far from its 20,000bpd target.

Lack of disclosure continues to be an issue

While it is positive that the company’s combined production from the Brage and Yme fields in Norway exceeded 10,000bpd in the last week of Oct 23, we highlight that unlike its previous production reports, the company did not present a breakdown of production. This may imply that the Yme field continues to experience problems given the higher-than-expected water cuts that have been reported by its operator in the past. Brage meanwhile has remained a strong performer with a new well brought on-stream in late-Oct 23 and another in early-Nov 23, and recently made a 1mmbbl discovery.

Valuation/Recommendation

We retain our SELL rating with a target price of S$0.10. We have elected to use a target 0.5x P/B multiple instead due to our diminished confidence in the company’s ability to execute on its oil production targets. On the asset valuation side, Rex currently trades on an EV/boe of US$16.90 per barrel which appears attractive relative to current oil prices.

You can find the full report here and the company website here.