Rex International’s oil play in Malaysia hit by rising equipment cost

OIL exploration and production company Rex International Holding ’s plan to develop oil fields in Malaysia under a pact with the country’s state-owned Petronas could hit a snag – high equipment costs amid elevated oil prices are dampening the project’s prospects.

“It (the Malaysian discovery assets) is still at the evaluation stage. There are certain things in the market that are a little bit difficult ... Because oil prices have gone up, (the costs of) services and equipment have also gone up. In order for us to put the Malaysian assets into production, we must find the equipment at the price level to ensure we make a profit,” said Rex’s executive chairman Dan Brostrom in an interview with The Business Times.

He added: “All the pieces have to fit together to put the well into production. We must make sure that we can make money out of the field developing plan.”

Last year, the average annual price of Brent – the global crude benchmark – rose to above US$100 a barrel (/b) from nearly US$71/b in 2021, led by tight market conditions chiefly due to the Russia-Ukraine war. So far this year, Brent has averaged around US$82.50/b.

In late August 2021, Rex signed two production sharing contracts (PSCs) with Petronas to develop an already discovered resource base in offshore Peninsular Malaysia. The PSC terms include an up to two-year pre-development phase followed by a two-year development and a 10-year production period.

“We will have to make a decision pretty soon. We want to do it – but it’s whether we can do it. We can’t fight the market,” said Brostrom.

The Singapore Exchange mainboard-listed company has oil exploration and production assets in Norway and Oman. In the recently-released report card for its full year ended December 2022, the oil company swung into the red with a US$1 million net loss from a profit of US$67 million owing to production stoppages in both Norway and Oman.

Nonetheless, the group posted a positive adjusted earnings before interest, taxes, depreciation and amortisation for the year of US$61.7 million versus US$111.2 million in FY2021.

“We have rectified (the issues) already. When there are stoppages, it’s not like you can go in there and just turn it on, and it goes back to what it was before. It takes weeks, sometimes months before it comes back to what it was before. So we are still working our way up,” Brostrom added.

Meanwhile, Rex is continuing with its diversification strategy, propelled by the sector’s green energy transition. The diversification mandate was greenlit by shareholders back in 2019.

Its latest deal – which follows an earlier bet on a Zurich-headquartered commercial drone maker called Xer Technologies – is the proposed acquisition of a Sweden-incorporated medical-technology startup Moroxite T for a nominal US$0.10 and a capital commitment of up to US$4.12 million.

Moroxite focuses on hindering tumour progression and preventing metastasis or the development of secondary malignant growths at a distance from a primary site of cancer. Its platform for targeted cancer therapy uses a combination of nano and micro apatite particles for local delivery.

Rex’s investment in the med-tech company will, for starters, be used to fund its research and development for the application and technology of treating osteosarcoma – an aggressive form of bone cancer with a high risk of spreading – for clinical use. This is currently undergoing pre-clinical studies.

“We have key components that have already been on the market and a solid preclinical data,” said Dr Mathias Lidgren, who heads this project. He joined the board of Rex in May last year as non-independent and non-executive director. The medical doctor is the son of Hans Lidgren – Rex’s controlling shareholder – and nephew of Karl Lidgren, who is the company’s executive director and also controlling shareholder.

This latest deal is an interested person transaction as Moroxite T is being acquired from medical research firm Moroxite AB (MA), which is part owned by orthopaedic professor Lars Lidgren – one of MA’s founders and the brother of both controlling shareholders of Rex.

“Our family has quite a lot of experience with taking these types of small companies and putting them on the market. This company (Moroxite T) is essentially a culmination of 40 years of research that our family had been involved in,” said Dr Mathias Lidgren.

Rex has said it plans to raise its stake in loss-making Xer Technologies from 40 per cent to 53 per cent by coughing up an additional US$1 million while Moroxite T’s financial result was “nil” for the six months ended June 2022.

“We have two projects now. To take on another one, it has to be a really good one. But over the longer term, these are not going to be the last of the diversifications,” said Dr Lidgren.