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Rex to preserve cash, focus on Oman and Norway assets amid oil price downturn
REX International Holding said on Thursday it is reducing capital investments and focusing on key discovery assets in Oman and Norway to preserve cash due to the downturn in oil prices.
The oil exploration and production firm is also making organisational changes to boost its management bench strength, especially in the area of geology and geophysics, as well as to reduce operating costs.
On Wednesday, US oil prices tumbled to a fresh six-year low on the latest signs of a glut in crude supplies. Both the benchmark crude-oil price in the US and the global benchmark are at sub-US$50 a barrel. Crude prices have more than halved since their high last June.
Rex said it has moderated its drilling plans and operations budget to concentrate on assets in Oman, where it is confident of the concession's potential, and in Norway, where the intention is to stay the course with the drilling plan, given Lime Petroleum Norway's healthy acreage position.
It has further done a review of its asset portfolio to sustain these assets at the oil price of US$50 per barrel.
Management-wise, it is finalising the appointment of an industry veteran as chief operating officer. Further details will be provided in due course.
Meanwhile, Kristofer Skantze will be re-designated as business development manager to grow the clientele for Rex Technology Management and Rexonic AG.
Henceforth, both Mr Skantze and CEO Mans Lidgren will be based in Europe to be closer to and have more direct oversight of business operations in Norway and Oman, where Rex will focus its activities in the next year.
Mr Lidgren said: "Even though our oil production operations are very small, Rex's share price has been impacted by the volatility of oil prices, the potential supply of Iranian crude to the market, the Greek debt crisis, the meltdown of the China stock market and most recently, the effects of China's devaluation of the yuan on Asian bourses.
"At today's market value of the company of about US$109 million and with US$96 million in liquid assets comprising cash and cash equivalents and quoted investments, the remaining group's assets are only valued by the market at US$13 million.
"There are of course several risks involved in oil exploration but based on an asset potential alone, we believe that we have been undervalued by the market. And that is not taking into consideration our proprietary technology RVD, which may not have been ascribed much or any value by the market.
"In order to adapt to the downturn in oil prices, the volatile market outlook and smaller market capitalisation, Rex has done an in-depth cost review of its contracts with external service providers and suppliers, as well as internal operating costs to reduce costs, the effects of which would likely be seen from 2016."
All that said, Rex remains in a good financial position as at the end of the first half of 2015, with zero debt and a strong enough balance sheet to see it through its preliminary drilling plans at least up till 2017 without any short-term funding needs.
This is significant in the current environment where access to capital raising has been greatly reduced for exploration and production companies, it said.