HLIB Research starts coverage on Reach Energy with ‘buy’

PETALING JAYA: HLIB Research has initiated coverage on Reach Energy Bhd with a “buy” call and a target price of 83 sen, offering a 22% upside from its current price.
Reach Energy closed higher by 3.03% or 2 sen yesterday at 68 sen, with some 10 million shares traded.
The special purpose acquisition company had recently completed the acquisition of a 60% stake in Palaeontol BV, which is the owner of the onshore oil and gas field called Emir-Oil LLP in Kazakhstan, for US$154.89 million (RM640.54 million).
In a report yesterday, HLIB Research said Emir-oil currently possesses four producing fields coupled with two development fields and six drillable prospects, pointing to high potential growth in pipeline of reserves.
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.
“While the oil market has been subdued for a long time, we believe the upstream asset acquired by Reach was at the lowest price possible,” it said.
HLIB Research said the acquisition price was determined 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 would be able to reap full benefit of long term oil price recovery with minimal downsides,” it added, noting that the current Brent price is at US$57.50 per bbl.
In addition, the research house said the company 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.
“We are of the view that oil prices would eventually recover to US$57 per bbl beyond the implied level as oil market rebalances while cost of oil production is expected to rise in the long run,” it added.