Reach Energy the latest oil and gas junior on the scene
KUCHING: Reach Energy Bhd (Reach Energy) is making strides in the oil and gas industry as it evolves from a special-purpose acquisition company (SPAC) into a full-fledged exploration and production (E&P) firm.
Analysts view this as quite a feat given that this is the only SPAC which managed to obtain shareholders’ approval for qualifying acquisition (QA) since the oil price crash in late 2014.
According to the research arm of Hong Leong Investment Bank Bhd ( HLIB Research), upon getting vote acceptance for QA on November 16, 2016, Reach Energy will now become a full-fledged oil junior with final adjusted Purchase Consideration worth US$175.9 million.
“Acquisition has been completed on November 26, 2016 with dissenting shareholders already being repaid,” it said in an initiation report.
Upon transforming into an E&P upstream company in Malaysia, Reach Energy would need to focus on the group’s project execution to fully realise the potential of Emiroil block concession, which is still a relatively early stage producing oil field.
“Situated in Kazakhstan, currently Emir- oil possesses four producing fields coupled with two development fields and six drillable prospects, pointing to high potential growth in pipeline of reserves.
“In addition, it also produces high value light and sweet crude oil and possesses high condensate yield in one of its producing fields, indicating more room to further monetise the acquired asset,” the research arm said.
While the oil market has been subdued for a long time, HLIB Research believed the upstream asset acquired by Reach Energy was at the lowest price possible.
The research arm noted that the acquisition price was determined on March 4, 2016 when Brent was at US$37 per barrel (bbl), not far off from its multiyear low of US$27 per bbl.
“This shows that Reach Energy would be able to reap full benefit of long term oil price recovery with minimal downsides,” it said, adding that current Brent price is at US$57.5 per bbl.
On another note, HLIB Research pointed out that MIEH (vendor for the QA) has already invested in a Central Processing Facility (CPF).
“Phase 1 is expected to be completed in several months time and upon completion of the pipelines in 2018, Reach Energy could easily double its oil production to more than 10,000 bbls per day by executing more well completion and drilling more wells in its proven areas,” the research arm said.
“Phase 2 would again bring its oil production to level in excess of 20,000 bbls per day upon completion, indicating vast opportunity to reap more value from its oil reserves.” Turn to Page B4, Col 4