Rex International cranks up the production volume

IT'S been all sunshine and roses for mid-sized oil firm Rex International Holding lately but the stock showing of the former Catalist-listed firm on its maiden day on the Singapore Exchange's mainboard belies that.

Except for the early minutes of trading when it edged marginally higher, the counter has spent Tuesday's (Mar 8) session underwater; it finished lower S$0.025 or 5.2 per cent at S$0.455.

"It seems (that) it's not a very good day for the stock market in general. Everything is down," Rex's executive chairman Dan Broström told The Business Times. The local bourse's key Straits Times Index has dipped 1.2 per cent as Ukraine peace talks show little signs of progress.

But that's not to say the shares of Rex International has not been stellar. Just on Monday, it hit a near 8-month high of S$0.48 and has jumped 21 per cent over the last fortnight as oil prices hit the roof on the back of a push to ban Russian oil over Moscow's invasion of Ukraine.

Prior to the geopolitical conflict, oil prices were already elevated owing to robust demand and tight market conditions. "Our view is that oil prices would have been strong anyhow - supported by supply and demand - with or without Ukraine (crisis) but the last few weeks was because of the conflict," said Broström. "We believe strongly that oil prices will be at least US$75 a barrel for this year and next year."

At that price level, things should be peachy for the Singapore-headquartered company, which levelled up from being a pure oil explorer to also a producer in 2020 after its Yumna field in Oman struck first oil. Its operating break even point is low, at some US$25 a barrel.

The company is eager to step up production volumes from Oman. For January this year, production from the Yumna field amounted to 7,518 barrels per day, dragged down by maintenance works on its production system. But once the new equipment is ready by next month, there "will be a good chance that the production in Oman will automatically go up", he said.

The completion of Rex subsidiary Lime Petroleum's acquisition of a 33.8 per cent stake in the Brage field in Norway further sweetens its compelling prospects. The Brage field is currently producing around 2,496 barrels per day and is expected to remain consistent for 2022 and will bump up the company's overall production volumes.

Would the company look to raise its stake in the Norwegian field? "I think 30 per cent is a good maximum for us in an area like Norway."

The firm has added another key geography to its portfolio: Malaysia. In August 2021, it signed 2 production sharing contracts with Petronas, Malaysia's state-owned oil giant, to develop an already discovered resource base.

"What we have at the moment - Oman, Norway and Malaysia - is already a lot for a small company. We think this is what we can handle at the moment. So, I think we are not actively running around," he replied when asked if the firm is looking to expand into new markets, and then added: "But this is an open market and if someone comes along with an amazing deal, we are a very opportunistic and entreprenurial company."

The company has set an internal target to double production to 20,000 barrels per day within a year.

"This is the time when the demand is high and the supply is shy. If we can raise our production and reserves from already-owned assets, and with the high oil prices, it's just bonanza. So, to go out and buy new assets is not necessarily the thing to do. Because new assets will also have gone up in price now," he elaborated.

Rex reversed its fortunes in FY2021. Led by a near doubling of averaged realised oil price sold to US$67 a barrel from a year ago and a ramp up in production, the firm returned to the black, posting a net profit of US$67 million from a loss of US$14 million in FY2020.

With strong operating cash flows and a healthy net cash position of US$31.3 million, the company declared a maiden dividend of a proposed S$0.005 per share payable in the fourth quarter of 2022. The management said it is also considering paying an interim dividend in 2022.

Broström explained: "We did it this way to make sure we have funds available to do the planned increase in production and reserves. This is the time, when oil prices are high, not to give out all our cash that we made in 2021 in dividend straight away but to wait until the last quarter.

"In the period between now and then, we will do all the things...raise production in Oman and Norway...also in Malaysia. That is going to mean that we have to put some cash into them but we can't say exactly how much is going to be needed.

"So, we think it's prudent. If everything works out satisfactorily and we are successful, it is going to be enormously valuable."