REACH ENERGY BHD

Target price: HLIB Research analysts returned from a meeting with Reach Energy management with slightly better outlook premising on higher production in the second half of financial year 2018 (2H18) led by ESP upgrades and NK-1 & NK-2 trial production along with cost savings from logistic improvement via a new oil terminal.

Emir oil fields that are 60% owned by Reach are currently producing around 3,400 bbl per day, which is higher than average 2,900 bbl per day in the first half (1H18).

The management is targeting to increase the production to 5,000 bbl/day by year-end with several growth drivers such as electrical submersible pumps upgrades and NK-1 & NK-2 trial production period approval.

However, the company is still in need of external funding up to US$100mil (RM414mil) to repay its outstanding deferred consideration and discretionary capex.

The management has earmarked non-discretionary capex spending of US$9mil and US$14mil for financial years 2018-19 (FY18FY19) respectively which involves six exploration wells.

These amounts are only payable to the service provider 18 months later.

There are also discretionary capital expenditure (capex) of US$13mil (for completion of CPF) and US$31mil (development activities) for FY18-19, which are subject to funding availability.

Reach is looking to raise funds up to US$100mil to repay the US$44mil outstanding deferred consideration and US$44mil discretionary capex with debt financing being the