$HIBISCS / 5199 (HIBISCUS PETROLEUM BERHAD)

messy structuring of point as most qna are please bear with it

Key Points from Hibiscus Shareholders' AGM Meeting

Operational Focus
• Kinabalu: Focus on maintaining production.
• North Sabah: Prioritize growth capex and the SF waterflood project.
• Brunei: Concentrate on catching up on maintenance to bring the asset to a healthy level.
Financial Performance
• Lower profit in the latest reported quarter due to shutdowns and lower average selling prices.
• Entry into wind power is not being considered, with a focus on Malaysia's oil and gas strengths.
• PM3CAA extension is in progress, with an increase in 2P and 2C reserves to be announced once confirmed.
• No shareholder dilution planned, and capex can be internally funded through cash flow and debt facilities.
• Dr. Kenneth is happy with the company's share buyback program and won't buy shares simultaneously.
• Hibiscus conducts yearly reserve reports, and the results of the Brunei reserves report will be disclosed, but not the entire report.

UK Asset and Tax Implications
• The UK asset experienced some issues after maintenance, leading to a longer downtime and a drop in profit.
• The profit decline is not related to taxation.
• The company aims to maximize UK tax incentives by phasing out capex.
Reserves and Capital Allocation
• As of July 1, 2024, 2P reserves were 78 million boe and 2C reserves were 122 million boe.
• 1P reserves are estimated to be 60-65% of 2P reserves.
• Cash flow sensitivity won't be disclosed as it depends on oil prices.
• The company recommends analyzing historical EBITDA margins to assess the impact of oil price fluctuations.
• The capital priority framework includes:
o Repayment of bank loans and term loans
o Commitment to dividends
o Sanctioned capex projects
o Share buyback

Share Buyback Program
• NTA and EPS calculations exclude treasury shares.
• The share buyback price range is RM1.89 to RM2.65, with an average price of RM2.16.
UK Asset and Future Plans
• The UK asset's contribution is currently 10-12%, but it's expected to increase after the Teal West project.
• The company is closely monitoring the UK tax regime, but it's not under their control.
• The company is considering various options to maximize shareholder value, including divestment, farming down, and reducing capex.
• The company believes it is undervalued, with only an analyst valuation of RM1.60 and a target price of RM2.60 by most analysts.

Project IRRs
• Anansuria project: 689% IRR, expected IRR of 36%
• North Sabah project: 298% IRR, expected IRR of 15%
• Peninsula Group project: 96% IRR, expected IRR of 46%

Brunei Asset and Future Outlook
• The expected IRR for the Brunei asset is currently 15%.
• Some stakeholders are expecting increased gas production due to decarbonization efforts.
• The company is open to exploring more oil opportunities for sale.
• There is no policy to limit oil production.
Share Price and Market Dynamics
• The share consolidation has reduced volatility and increased access to institutional investors.
• The share price has tracked Brent oil prices past year, and recent increased net short selling has depressed the share price.
• The company is cautious about IEA demand forecasts, which have been criticized for being overly optimistic and biased towards European agendas.
• The company considers forecasts from various sources, including IEA, Rystad, and internal views, and adopts a conservative stance on Brent futures, but not as conservative as the IEA.

Capital Allocation and Share Price
• The capital allocation strategy remains unchanged, with similar approaches for oil prices below $60 and above $90.
• The management team believes that company growth is the best way to increase shareholder value and attract institutional investors.
• If the share buyback exceeds the shareholder mandate, the treasury shares will be cancelled, and the company can then buy back up to 10% of the remaining shares.
• The company will adhere to its capital framework, as capital is a precious resource.