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Transcript of Rex i 230913
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7/27/2019 Rex i 230913
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www.dbsvickers.com
ed: JS / sa: YM
BUY S$0.85 STI : 3,237.53(Initiating Coverage)
Price Target : 12-Month S$ 1.27Reason for Report : Initiating CoveragePotential Catalyst: Newsflow on licence awards, successful well hitsAnalystSuvro SARKAR +65 6398 [email protected]
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R e x In t er n at io n a l H o l d in g s (L H S ) R e la t iv e S T I IN D E X ( R H S )
Forecasts and Valuation
FY Dec (S$ m) 2012A 2013F 2014F 2015FTurnover 0 0 6 22EBITDA (1) (11) 19 77Pre-tax Profit (1) (11) 19 77Net Profit (1) (11) 17 72Net Pft (Pre Ex.) (1) (11) 17 72EPS (S cts) (0.1) (1.1) 1.7 7.1EPS Pre Ex. (S cts) (0.1) (1.1) 1.7 7.1EPS Gth (%) nm (824) nm 310EPS Gth Pre Ex (%) nm (824) nm 310Diluted EPS (S cts) (0.1) (1.1) 1.7 7.1Net DPS (S cts) 0.0 0.0 0.0 4.0BV Per Share (S cts) 0.0 12.2 13.9 17.1PE (X) nm nm 49.0 11.9
PE Pre Ex. (X) nm nm 49.0 11.9P/Cash Flow (X) N/A nm nm nmEV/EBITDA (X) nm nm 41.7 10.4Net Div Yield (%) 0.0 0.0 0.0 4.7P/Book Value (X) N/A 7.0 6.1 5.0Net Debt/Equity (X) CASH CASH CASH CASHROAE (%) N/A (17.8) 13.3 45.9
Other Broker Recs: B: 0 S: 0 H: 0ICB Industry :Oil & GasICB Sector: Oil & Gas ProducersPrincipal Business: Rex Int'l Holdings is an oil exploration &production company with concessions in Norway, ME and the US
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P
At A Glance Issued Capital (m shrs) 1,005Mkt. Cap (S$m/US$m) 854 / 683Major Shareholders
Rex Partners (%) 55.4Schroders Plc (%) 8.6
Free Float (%) 36.0Avg. Daily Vol.(000) 24,579
DBS Group Research . Equity 23 Sep 2013
Singapore Company Focus
Rex International HoldingBloomberg: REXI SP | Reuters: REXI.SI Refer to important disclosures at the end of this report
Game changer in the making Independent E&P player armed with potentially
revolutionary exploration technology
First mover advantage in seeing oil gives it a headstart in cherry picking attractive licences
Potential multi-bagger as it buys assets cheap andspins off successful discoveries
Initiate with BUY and S$1.27 TP; catalysts to come
from licence adds, oil hits
More than your average independent oil & gas E&P company.
Rex International Holding (RIH) will have access to proprietary oil &
gas exploration technologies, including Rex Virtual Drilling (VD),
which uses resonance frequency theory to identify and characterise
reservoirs in the areas to be drilled, thereby substantially lowering the
chances of hitting a dry well. RIH is positioned to capture the highest
value in the E&P value chain through successful discoveries and
limiting capex requirements in expensive offshore areas. We estimate
that the use of Rex VD could yield success rates in excess of 50%,
compared to global average of around 15% using traditional
methods, thus potentially boosting project ROIs to >100%.
Diversified asset portfolio provides strong growth platform.
The Group currently has stakes in 15 concession areas in mature oil
& gas development areas - the USA, Caribbean, Norway, Oman and
UAE - with plans to expand the portfolio further. The trust from
partners and governments demonstrates the credibility of the
technology, which has recently been further enhanced by validation
from Norwegian partner North Energy, who reported an 85%
success rate in using Rex VD to predict drilling results in 41 prospects
over a 2 year timeframe.
Initiate with BUY, expect catalysts from continuous positive
news flow. Based on a sum-of-the-parts valuation using
conservative chances of success, we arrive at a TP of S$1.27 for RIH,which implies close to 50% upside at current levels. Over the next 2
years, we expect RIH to rapidly add on to its licence portfolio, while
also delivering on its drilling programmes at various regions, with the
first well results from Oman likely in early-2014.
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Company Focus
Rex International Holding
Page 2
SWOT AnalysisStrengths Weakness Access to Rex Technologies to scan prospects. The use of Rex
Technologies mitigates exploration risks by increasing theprobability of discovery, thereby enabling exploration to becompleted in a shorter time frame and reduces costs involvedin the exploration process. Access to Rex Technologies alsoenables RIH to procure concessions and participate in farm-ins more easily, and at lower costs.
Location of assets. Current concessions are located inpolitically stable countries with well-developed oil & gasinfrastructure. Operating in a stable environment reduces any
risks from civil wars, coups, guerrilla activities and terroristattacks. The assets are also in areas like US, Norway andMiddle East, close to known reservoirs of oil & gas.
Diversified asset base. The Groups portfolio is spread acrossconcessions in the US, Caribbean, Norway and Middle East.No single project is a very significant contributor to valuation.
Business model limits financial commitments. Oil & gasprospecting is usually a capital intensive game. Broadly, RIHsmodel is to farm into concessions with minority stakes at anearly stage at low costs in return for using its proprietarytechnologies. In areas like the ME where it holds majoritystakes, it will seek to farm out stakes to partners before theproject reaches the development phase.
Endorsement by strategic partners. Strong partnerships withexisting local and international players give RIH access tofunding as well as operational expertise.
Limited track record. The Group has limited track record ofonly 2 years, and there is no past performance todemonstrate.
No oil production as yet. Most of the Groups concessionsare in the exploratory or development phase, and nocommercial production of oil has started yet. This againlimits visibility.
Rex Technologies has not led to successful well yet. Todate, the Group is yet to drill a well based on location
arrived at after using Rex Technologies suite of software,limiting the visibility to an extent. However, we would liketo point out that the technology has had 85% success inpredicting drilling results in 41 cases over a 2 year timeframe, as reported by its Norwegian partner, North Energy.
Rex Technologies may not work if data is inaccurate. Theaccurate use of Rex Technologies depends on the qualityof raw seismic data, which may not be always verifiablebeforehand.
Dependence on success at Oman 50 Block. Given that thisis the first offshore well Rex would be drilling with the useof its Virtual Drilling technology, significant failure to findoil here could dampen investor sentiment.
No O&G operating expertise. RIH will not be the operatorat any of its concession areas. However, it will havesignificant influence on drilling decisions.
Opportunities Threats Build reputation as a technology leader. The successful use of
Rex Technologies to make new oil & gas discoveries within ashort time frame should firmly establish RIH as a nicheindependent E&P player and put more opportunities in itspath.
Grow by seeking new concessions. RIH aims to continuallygrow and diversify its portfolio of oil & gas licences.
Farm out ownership of concessions. Farming out ownershipto strong strategic partners will allow for additional fundingwhile crystallising the value of the concession to an extent.
Spin off successful discoveries. If the Group is able to recordsuccess through its upcoming drilling schedule in Norway andthe Middle East, it will consider selling or spinning off theseassets and increase value to shareholders.
Acquire complementary technologies. The Group may look toinvest or form JVs with other technology providers in the field
Dry wells are a reality in the oil & gas industry. While RexTechnologies likely improves the chance of a successfuldiscovery, failures cant be ruled out, which can lead tosignificant capital losses.
Technology could be replicated by third parties. While useof Rex Technologies could give the Group a head start insecuring lucrative concessions, other players may catch up
fast if the technology is proved to very successful.
Regulatory and environmental risks. Regulations, especiallythose related to environment and safety are very tight inthe industry and vary across countries. Failure to meetnorms could result in losses.
Risks to oil price sustainability. Any potential decline in oilprices in the future will affect earnings and valuations.Particularly, the successful development of shale gasformations in the US/ Canada over the medium to longterm could pose significant risks to oil prices.
Source: DBS Vickers
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Company Focus
Rex International Holding
Page 3
Investment Summary
The key lies in use of unique technologies. Rex InternationalHolding Pte Ltd. (Rex International Holding or RIH) will have
access to oil & gas exploration technologies developed by the
founders of Rex Partners. Rex Partners, founded by industry
veterans Dr. Karl Lidgren, Mr. Hans Lidgren and Mr. Svein
Kjellesvik, has pioneered the development of innovative
exploration technologies (collectively the Rex Technologies),
which potentially increases the possibility of finding
hydrocarbon reserves and reduces the duration of, as well as
the risks and costs involved in the exploration process. RIH
holds a portfolio of oil & gas exploration & production (E&P)
licences in different geographies like the US, Norway and
Middle East and will be applying this set of unique proprietary
technologies to extract maximum value from its concessions.
Significantly higher success ratios in exploration drilling willimprove ROI massively. The use of Rex Technologies suite ofproducts, and especially the Rex Virtual Drilling package,
could substantially reduce the costs of exploration (lower
probability of dry wells) by identifying and characterising the
reservoirs in the areas to be drilled. While most blind tests
carried out by Rex and its partners have been 100% accurate
so far, management estimates worldwide success ratios in
exploration drilling using Rex Technologies to be at least in
excess of 50%, which is arguably much higher than theaverage worldwide success ratio of around 10-15%. In terms
of ROI calculations for a drilling programme over time, we
estimate that use of Rex Technologies could yield ROIs as high
as 150%, compared to breakeven or negative ROI using
traditional methods.
Visualising the impact of Rex Technologies
Source: DBS Vickers
The technology has been tested and is deemed credible. Onemain concern for investors would be the short track record of
RIH and the absence of any discovery attributable to RIH so far
through the use of these technologies. But we take heart
from the fact that the technology has proved 85% accurate in
predicting results in a series of 41 live drilling tests studied by
its partner North Energy over the last 2 years (including 96%
accuracy in determining dry wells). Also, the fact that a small
independent oil & gas E&P player like RIH has been able to
secure a number of concessions in the Middle East countries,which is not usually a market that we see junior E&P players
in, is testament to the credibility of the technology and the
team. Renowned geologists like Dr. Rabi Bastia have also
turned believers in the technology, which should be a
reassuring sign for investors.
RIH will drive higher value addition in the first 2 phases of E&P lifecycle exploration to discovery to development
Source: Company, DBS Vickers
Traditional Methods ROI negative to breakeven
Rex Technologies ROI 120-150%
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Company Focus
Rex International Holding
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RIH is positioned to capture the highest value in the E&P valuechain i.e. looking for oil. Due to the speculative nature of theupstream oil & gas industry, E&P companies experience the
highest growth in value in the exploration stage if and when
discoveries of resources are made. This is exactly where RIH
will apply Rex Technologies and this fits in nicely with the fact
that most of RIHs current concessions are in the exploration
phase, and hence there is significant upside to value as and
when actual hydrocarbon discoveries are made.
Limited investments required. RIHs business model is to farmin partial stake in concessions where it believes there is
potential for a significant reservoir find. By farming in at
strategic early stages of the concession, it seeks to minimise
investment cost, and only pay for its share of drilling cost in
drilling locations confirmed by using Rex Technologies. Thus,access to this breakthrough technology should help it to farm
in to new concessions more easily and at lower costs.
Exit strategy in place facilitates quick turns of assets/capex.We reckon RIH will not necessarily be involved in operating
the assets once oil is found. Rather, we believe it will focus on
what it can do best finding oil. With the use of Rex
Technologies, the lead time between investment in
concessions and proving up oil reserves will be as low as
possible, and once oil is discovered and reserves are proven,
we believe RIH will look to farm out its ownership in certain or
all of its concessions. The flipping of oil & gas assets will not
only crystallise value for shareholders, but also provide RIH the
financial muscle to identify and drill more concession areas.
The Rex International Holding business model
Source: DBS Vickers
Diversified asset portfolio provides strong growth platform.The Group currently has stakes in 15 concession areas in
mature oil & gas development regions - the USA, Caribbean,
Norway, Oman and UAE - with plans to expand each portfolio
aggressively. The details of each concession asset and plansfor the same are outlined in the table on the following page.
US assets close to production. Drilling at the US concessionshas commenced with a plan to drill 80 wells within 24 months
of commencement of drilling operations in the 2 concession
areas in Colorado and North Dakota. The Group is identifying
best possible locations to drill these 80 wells using existing
geological information coupled with use of Rex Technologies.
In our opinion, first oil is likely by end-2013, with ramp up
over the next 3 years. With the US assets coming into
production phase, we are of the view that the Group will have
a steady recurrent stream of cash flows from 2014 onwards
to support its exploration activities in other regions.
Drilling programmes in place for other regions. Over the next2-3 years, the Group has in place an exciting plan of activities,
which include identifying and drilling about 3 to 5 wells in
Norway in 2013-14, spudding of first well in Oman and Ras
al-Khaimah offshore in 2013/14, acquisition of seismic for Ras
al-Khaimah onshore in 2014/15, and spudding of first well in
Sharjah by 2014, followed by plans to farm out part of its
equity interest.
Acquire high qualityseismic data
Take minority stake inconcession
Drill exploration wells
Drill appraisal wellsSpin off new business orfarm out concessions
Reinvest and reiteratemodel from beginning
Pinpoint drill locationwith Rex Technolo ies
Screen data withRex Technolo ies
If hydrocarbon findconfirmed
Refine and developreserves values
Dividends toshareholders
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Company Focus
Rex International Holding
Page 5
Snapshot of current concession areas/ assets of RIH Group
Asset Signed/Awarded Terms(years) WorkingInterest(%)Operator Plans &programs Type ofreserve/resource
Grossreserves/resourcesUSA: Colorado +
N. Dakota
2012 As long asproducing
20.0% Fram Operating 2Q-2013: 80well programstarted
2P reserves
2C contingentresources
20.4
0.27
Norway: PL503 2009 10+20 8.1% Lotos
3-5 wells in2013 and 2014
Net unriskedresources*
Unknown
Norway: PL503B 2011 10+20 8.1% LotosNorway: PL616 2012 10+20 3.3% Edison S.P.ANorway: PL498 2009 10+20 3.3% LotosNorway: PL707 2013 5 10.0% Edison S.P.A
Norway: PL708 2013 5 10.0% Lundin
Oman: Block 50 2011 3+3+20 64.0% Lime Petroleum 2013: 2 wells
Net unriskedresources*
2276.7
UAE: RAK Onshore 2012 1.5+2+20 100.0% Lime Petroleum 2H13: Seismicacquisition
Unknown
UAE: RAK Offshore 2010 3+3+20 59.0% Lime Petroleum1H14: 1 well
60.9
UAE: Sharjah 2011 3+20 100% Lime Petroleum 426.0
Trinidad & Tobago:
Inniss-Trinity 2013 100.0% Rex Caribbean
South Erin 2013 75.0% Rex Caribbean OOIP 20.0
Cory Moruga Block E 2013 51.0% Rex Caribbean 2 commitmentwells in 2013/14
OOIP 40.0
* Net unrisked resources as disclosed by Hibiscus Petroleum, which owns 35% of Lime Petroleum and is RIHs partner in ME/ Norway assets
Note: For an insight into the oil & gas reserve classification framework, please refer toAppendix A. OOIP refers to Original Oil in Place.
Source: Company, DBS Vickers
Further growth from development of licence portfolio. TheGroup has further ambitions to farm into new concession areas
over the next 3 years. The target is to hold stakes in about 20
licences by end-2013. The Groups JV in South-East Asia, HiRex,
has already begun screening potential drilling locations in
mature field opportunities in South East Asia, Australia and New
Zealand. HiRex expects to participate in 5 to 6 licences in these
areas within the next 18 months.
A diversified, well financed portfolio at different stages ofdevelopment means constant news flow. We believe news flowis essential to drive a valuation re-rating for a junior E&P player
like RIH. Investors would want to know the progress of RIHs
investments. A diversified, well financed portfolio at different
stages of development provides for just that. Over the next two
years, RIH is poised to deliver constant news flow in relation to
drilling of wells, seismic acquisition, addition of new licences
and partnerships, some of which are summarised in the table
above.
We believe asset sales will be a key earnings driver. In terms ofnumbers, we estimate that RIH will record steadily growing oil
sales revenues from its US assets from 2014 onwards. More
significant would be net sales proceeds from potential
divestments or farming out of any successful discoveries in
Norway and ME assets over 2014-15. We estimate successful
discoveries could be in the range of 25 to 40mmbbls reservoir
size each, and sale of these assets net of drilling and other
exploration costs will be key revenue and earnings drivers
from 2014 onwards. For an overview of valuation for RIH,
please refer to the next section.
Based on our sum of the parts valuation for existing explorationand development assets of RIH, we derive a TP of S$1.27 forRIH. For the US and Caribbean assets, we used a discountedcash flow framework, given that these assets are already under
development, with commercial production starting within the
next 12 months. For the Lime Petroleum assets in ME and
Norway, we did a risked asset valuation of the net unrisked
prospective resources contained in the portfolio.
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Company Focus
Rex International Holding
Page 6
The History of Rex International Holding
The technology came first. Since the start of the 1980s, Dr. KarlLidgren and Mr. Hans Lidgren have utilised satellite altimeter
data in oil exploration activities which enabled major oil and gas
findings. Surveys produced by them made way for major
discoveries such as the Haltenbanken area in Norway and the
Bukha field in Oman. Mr Svein Kjellesvik is also an expert in the
use of 3D seismic technologies in oil and gas exploration and
has more than 30 years of relevant industry experience.
Together, they have developed Rex Technologies.
Leading to this vehicle for creating value. Rex Technologies is aset of unique proprietary and innovative oil and gas exploration
technologies, which can be applied to increase the chances of
hydrocarbon discovery. This forms the core principle behind
farming into oil & gas concession areas and setting up an
independent oil & gas exploration outfit. Rex International
Holding Pte Ltd. (RIH) was established to hold the Groups oil &
gas exploration and development assets across the Middle East,
Norway and USA, and further investments in future.
Key milestones in the short history of Rex Oil & Gas/ Rex International Holding Pte. Ltd.
2010/2011 Rex acquires offshore licence in Ras al-Khaimah (RAK) offshore block in Oman, and offshore concession off Fujairah (Sharjah, UAE) Lime Plc established to own the 3 existing Middle East Assets (Offshore Oman, Sharjah and RAK) Schroders becomes minority shareholder in Lime Hibiscus Petroleum picks up significant stake in Lime
2012 Lime signs onshore RAK south licence agreement Initial farm-in agreement proposed with North Energy making Lime a licence holder in Norway Rex signs agreement with Fram and Loyz Energy to jointly develop concessions in the US with an 80 well drilling campaign Rex together with Loyz purchases two onshore drill ing rigs to be deployed in the US
2013 Entered into HiRex joint venture with partner Hibiscus Petroleum for investments in exploration assets in the Asia-Pacific region Finalised partnership agreement with North Energy to secure 50% of North Energys interest in 6 Norwegian licences Successfully listed on the SGX Catal ist Board, raising close to S$90m Entered into term sheet to access three onshore E&P opportunities in Trinidad & Tobago
Source: Company
Sequence of events for RIH Middle East concessions camefirst. On 10 June 2011, Lime Petroleum Limited (Lime) wasincorporated by Rex Oil & Gas under the laws of the British
Virgin Islands. Later, Schroder and Co. Banque S.A. became a
minority shareholder in Lime. In July-August 2011, Rex Oil &
Gas/ Lime secured the concessions for Sharjah, RAK Offshore
North, and Oman Block 50, with RAK Onshore concession
secured in January 2012. Lime holds majority interests in theseMiddle East concessions. The detailed ownership structure is
shown on the figure in the following page.
Partnership with Hibiscus Petroleum followed. On 24 October2011, Gulf Hibiscus, the wholly-owned subsidiary of Hibiscus
Petroleum, a company listed on Bursa Malaysia, entered into an
agreement with Rex Oil & Gas, Schroders and Lime Petroleum
Plc, for the purposes of acquiring an aggregate of 35.0% of the
enlarged issued and paid-up share capital of Lime. Hibiscus
Oilfield, a wholly-owned subsidiary of Hibiscus Petroleum,
would provide project management and technical services to
Lime in relation to its existing and future oil and gas concessions
in the Middle East region.
On to the US assets. On 28 August 2012, Rex Oil & Gas enteredinto the Participation and Exploration Agreement with Fram and
Loyz Oil in relation to the US concessions, a portfolio of onshore
petroleum leases in the states of Colorado and North Dakota.
Based on the agreement, RIH will have a 20% direct
participation interest derived from a planned drilling campaign
of 80 Commitment Wells. Through a share swap agreement,
RIH also has a direct 24% stake in Fram Exploration, which hasan effective 60% interest in the US concessions.
And finally Norway. On 17 April 2013, Lime entered into a finalpartnership agreement with North Energy, a company listed on
the Oslo Stock Exchange, to secure 50.0% of North Energy's
interest in six Norwegian concessions for a purchase
consideration of US$4.9m. Limes participating interest in each
Norwegian Concession ranges from 3.3% to 10.0%.
Caribbean calling post IPO. In August 2013, the Group signed aterm sheet to acquire 52% interest in Rex Caribbean for
US$9m, which would give it access to 3 interesting onshore E&P
opportunities in the island nation of Trinidad & Tobago.
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Company Focus
Rex International Holding
Page 7
Structure of Rex International Holding post restructuring exercise
Notes:
1.Fram is the holding company of companies that own and operate oil & gas assets in the US and in Trinidad & Tobago, including FramOperating. RIHs interests in Fram may be diluted in future when convertible bonds issued by Fram to other parties are due to be converted into
shares in Fram in 2014.
2.Schroder & Co. Banque S.A. holds 8.6% of Lime Petroleum Plc on a fiduciary basis for Rex Oil & Gas. The remaining 56.4% in Lime Petroleum isheld directly by Rex Oil & Gas.
3.HiRex is a JV established with Hibiscus Petroleum to explore concessions in SE Asia.4.Lime Petroleum Plc is a jointly-controlled entity as its shareholders, through their nominee directors, have equal voting rights in respect of
certain board reserved matters. Accordingly, the subsidiaries of Lime Petroleum Plc are also jointly-controlled entities. Dahan and Masirah are
also jointly-controlled entities as their shareholders have equal voting rights in respect of certain board reserved matters.
5.Upon successful discovery in Oman, the Government of the Sultanate of Oman has an option in the shares of Masirah Oil Limited (Masirah),which would reduce Lime Petroleum Ltds shareholding in Masirah to no less than 48%
6.The participation interests in the US Concessions are held through Rex US Ventures, which is a party to the Participation and ExplorationAgreement entered into between Rex US Ventures, Fram and Loyz Oil in relation to the implementation of a drilling plan for 80 commitment
wells. RIH will receive 20% direct interest derived from the drilling campaign of the 80 commitment wells.
Source: Company
Rex InternationalInvestments
Rex International Holding Pte. Ltd.
24%100%
Fram1
Rex International BVI
100%
Rex South East AsiaLtd
Rex Oil & Gas
HiRex3
Lime Petroleum PLC4
Lime Petroleum Ltd
Rex US Ltd
Rex US Ventures LLC
DahanPetroleum
Limited
Zubara
PetroleumLimited
BaqalPetroleum
Limited
Masirah OilLimited
Lime
PetroleumNorway
USConcessions
6
Loyz RexDrilling
Services LLC
RAK OffshoreNorth
Concession
SharjahConcession
RAK OnshoreSouth
Concession
Oman Block50
Concession
NorwegianConcessions
100%
41%
100%
100%
100%
49%
59% 100% 100% 64%5
100%
65%2
100% 100% 100%
100%
Rex Caribbean
52%
Trinidad &Tobago
Concessions
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Company Focus
Rex International Holding
Page 8
The Rex Business Model
RIH is principally involved in the business of oil and gasexploration and production. Its concessions are located in theMiddle East, Norway and the USA. RIH usually focuses on the
exploration operations and thus co-operates with several
partners that operate the concessions. To recap, the Middle
East and Norwegian operations are carried out by Lime
Petroleum Plc, a 65%-owned subsidiary of RIH. In the Middle
East, Lime holds between 59% and 100% of four different
concessions in the UAE and the Sultanate of Oman. In
Norway, Lime holds between 5% and 33.3% in six different
concessions in the Norwegian Continental Shelf. RIH is also
entitled to a profit-sharing participation of 20% in the
exploration and production of the US concessions. Through a
share swap agreement, RIH also has a direct 24% stake in
Fram Exploration, which has an effective 60% profit-sharing
participation in the US concessions. RIH has also recently
established a JV with Malaysia-listed Hibiscus Petroleum to
explore concession opportunities in South East Asia.
Summary of the key value drivers for RIH currently
20% direct interest in US concessions 24% direct equity stake in Fram Exploration 65% stake in Lime Petroleum 52% stake in Rex Caribbean
Source: DBS Vickers
The key lies in use of unique technologies. As stated earlier,Rex Partners, founded by Dr. Karl Lidgren, Mr. Hans Lidgren
and Mr. Svein Kjellesvik, has pioneered the development of
innovative exploration technologies, which potentially
increases the possibility of finding hydrocarbon reserves and
reduces the duration of, as well as the risks and costs involved
in the exploration process. In respect of the oil and gas
exploration activities at its key concession areas, RIH will apply
this set of unique proprietary technologies developed by Rex
Partners, which are collectively referred to as the Rex
Technologies.
RIH will add value in the exploration phase. Due to thespeculative nature of the upstream oil & gas industry,
companies involved in exploration and development of
concession areas will experience the higher growth in value in
the exploration stage if and when discoveries of resources are
made. As we highlighted earlier, RIH will apply Rex
Technologies to increase the chances of success in the
exploration phase. This fits in nicely with the fact that most of
RIHs current concessions are in the exploration phase, while a
part of the US assets are in the early development phase, and
hence there is significant upside to value as and when actual
hydrocarbon discoveries are made.
RIH seeks for value addition in the exploration and development phases
Source: Company
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Company Focus
Rex International Holding
Page 9
Technology is a key enabler in the exploration process
The typical oil and gas exploration process is divided into three
main stages, namely, detection, prospect definition and
characterisation and verification of the reservoir.
According to management, the following chart sets out the
workflow involved in the stages stated above in coming to a
decision to explore a certain area.
Steps to come to an exploration decision
Source: Company
This is where Rex Technologies come in. Developed by by Dr.Karl Lidgren, Mr. Hans Lidgren and Mr. Svein Kjellesvik, it
comprised the following key technologies:
Rex Gravity. This is used to detect possible hydrocarbonaccumulations through use of satellite altimetry and
bathymetry to map out hydrocarbon prospects. Rex
Gravity relies on density differences between hydrocarbons
and the surrounding crust to detect anomalies. It is beneficial
over traditional imaging technologies as it provides a potential
anomaly map based on satellite gravity data, compensates for
water depth, has a high correlation with known hydrocarbon
accumulations and is cost efficient.
Rex Seepage. This is used to verify hydrocarbon presence atsea surface through the use of thermal imagery satellite
information. Oil seepage is a natural occurrence and an
analysis of thermal infrared spectrum emitted from the top
ocean layer can indicate the likelihood of the presence of
hydrocarbon reservoir in the seabed below the ocean. As thin
oil layers absorb and emit solar energy differently from sea
water without oil sheens, this difference can be detected by
satellite infrared sensors and the information can be used to
create maps of hydrocarbon leaking areas offshore.
The advantage of Rex Seepage as compared to traditionalimaging technologies is that it produces high resolution
images and these images are obtained through a much larger
set of satellite images taken at frequent intervals and over
many years, unlike traditional seepage imaging technologies
which typically only capture oil seepages in one or a few
images per area of interest. This allows Rex Seepage to be
more accurate than many similar technologies in use today.
Rex Virtual Drilling. This is used to locate liquid hydrocarbonaccumulations using seismic data interpretation techniques.
Seismic responses are characterised and the exact location and
formation of oil reservoirs can be pinpointed. The results
provide information about the location of the oil reservoir,
quality of oil and acts as a base for volumetric calculations.
Rex Virtual Drilling's advantages over traditional imagingtechnology lies in its ability to use regular seismic data to carryout advanced seismic data analysis to accurately visualise and
predict the location of liquid hydrocarbons in the sub-terrain
and thereby accurately pinpoint reservoir locations, formations
and size. This in turn leads to a significantly reduced need for
exploration and appraisal drilling and shortened exploration
time, thereby reducing the duration of, as well as the risks and
costs involved in the exploration process. The use of RexVirtual Drilling provides RIH the ability to "see the oil in theground" which is a clear differentiation from other seismicinterpretation products presently available in the market.
Detection:Data acquisition
(gravimetric, infrared,seismic)
Detection:Raw data processing
Detection:Review by geological
and geophysical experts
Prospect Definition andCharacterisation:Area selection forfurther detailing
Prospect Definition andCharacterisation:Detailed data processing
Reservoir Verification:Exploration decision
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RIH holds a licence to the right to use Rex Technologies, whichhas been granted by Rex Technology Management under theIP Licence Agreements (see Appendix B). Rex Technology
Management will provide the use of Rex Technologies to RIH
for as long as Rex Partners and its associates and Dr. Karl
Lidgren and Mr. Hans Lidgren and their associates hold in
aggregate, a direct or deemed controlling interest in the issued
and paid-up capital of RIH. The provision of Rex Technologies
by Rex Technology Management to RIH is on terms that are
more favourable than normal commercial terms and not
prejudicial to the interests of RIH and its minority shareholders.
Detection is done with Rex Gravity Detection of ahydrocarbon reserves in a concession occurs in three main
steps, namely, anomaly detection, oil presence identification
and geological outlining. With data which the Group acquires
from third parties, it will process the raw data and carry out
anomaly detection through the use of Rex Gravity. Rex Gravity
relies on density differences between hydrocarbons and the
surrounding crust to detect anomalies.
and Rex Seepage. Oil presence identification is done withRex Seepage, which verifies hydrocarbon presence at seasurface through the use of thermal imagery satellite
information. Traditional imaging is difficult to interpret due to
factors such as currents or man-made oil leaks and the satellite
must capture the oil slick before it is spread out over a large
area. Rex Seepage is advantageous as it is unaffected by
timing and is highly sensitive and as a result, is more effective
than traditional imaging.
Key features of Rex Gravity technology
Based on satellite gravity data Water depth compensation High correlation with known hydrocarbon accumulations Highly cost efficientSource: Company
Overview of Rex Gravity technology
Source: Company
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Advanced offshore seepage measurements using Rex Seepage
Source: Company
Next step is prospect definition. Prospect definition is carriedout through detailed data processing with the use of seismic
surveys in more specific areas for further detailing. Sound
waves are sent into the ground and depending on the
different rock layers, these sound waves are reflected back at
different time intervals. This helps determine how deep the
reflecting layers of rock are. The recorded seismic data will be
processed real-time and interpreted by programmes whichmap out estimated images of the underlying surveyed rock
layers which may reveal oil and gas prospects.
Finally, we come to reservoir characterisation and the drill-or-drop decision using Rex Virtual Drilling technology. Afterprospect definition, we come to the reservoir characterisation
process, and this is where RIH has the advantage of using the
Rex Virtual Drilling tool, which, as we have highlighted earlier,
can accurately visualise and predict the location of liquid
hydrocarbons in the sub-terrain. We believe this is the crucial
step in the whole exploration process, where the concession
owner must decide whether to invest in the expensive process
of drilling at all, and if so, where to drill.
The science behind Rex Virtual Drilling
Source: Company
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Key features of Rex Virtual Drilling technology
Detects the presence of hydrocarbon accumulations aswell as migration paths
Provides information about the fluid type (oil/ brine) Provides volumetric reserve information Adds valuable information to the probability of success
estimation method
Works on both onshore and offshore seismic dataSource: Company
Quality of raw data is important. Raw data acquired isprocessed with Rex Technologies and after analyses carriedout, the results entail information such as the depth of the
reservoir from sea level, the volume present in the reservoir
and the exact location of these reservoirs. Rex Technologies
are able to analyse and obtain such results with 2D or 3D data.
If 3D data is made available, the amount of information it is
able to obtain from the data would be in greater detail.
Additionally, the results will be able to accurately indicate
where drilling should take place. Precision is of utmost
importance and should the drilling location be inaccurate, the
underlying reservoirwould not be detected even if drillingtakes place. With this information, RIH or the concessionowner can then make a decision whether exploratory drillingshould be undertaken.
An example of Traditional vs. Rex Virtual Drilling - higher Technical to Commercial Chance of Success using Rex
Technologies
Source: Hibiscus Petroleum (company presentation dated 21st
March 2013)
Partner Hibiscus Petroleum points out that Rex Virtual Drillingcan improve probability of finding oil. In the charts above, asextracted from a recent investor presentation from partner
Hibiscus Petroleum, we can see an example of seismic
representation of geological stratigraphy as derived fromconventional methods as well as Rex Virtual Drilling
technology. As evident from the charts, conventional analysis
may result in a low probability of discovery. However, Rex
Virtual Drilling provides an additional attribute of data which
significantly improves the probabilities associated with the
majority of the risk factors.
This increased probability is mathematically expressed on the
following page, by highlighting a specific example as in the
above case. Note that these probabilities are not exactly
representative and cannot be extrapolated, but rather shows
that Rex Virtual Drilling can potentially increase the chances of
discovery significantly. Usually, conventional analysis delivers a
geological chance of success (GCoS) of between 10 and 35%.Anything less than 10% is generally not drilled, while higher
probabilities may be drilled based on factors like the expected
size of reservoir, cost of drilling, geography etc. While using
the Rex Virtual Drilling software, however, elements used to
calculate GCOS are better defined leading to an improved
geological assessment, thus increasing the chance ofcommercial success if hydrocarbons are detected or saving ofthe risk capital employed to dril l a well if hydrocarbons areabsent.
Application ofRex VirtualDrilling showshydrocarbonaccumulations
undetected byconventionalmethods
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Example of Traditional vs. Rex Virtual Drilling higher Technical to Commercial Chance of Success using Rex
TechnologiesRisk Category Risk Factor Risk Weight Risk Category Risk Factor Risk WeightP trap P trap geometry 0.60 P trap P trap geometry 0.95
P seal 0.80 P seal 0.99
P reservoir P reservoir presence 0.80 P reservoir P reservoir presence 0.99
P reservoir quality 0.80 P reservoir quality 0.80
P source P charge 0.60 P source P charge 0.99
P discovery 0.16 P discovery 0.74
Note: This is an example and these numbers are not representative of actual results obtainable in future using Rex Technologies
Source: Hibiscus Petroleum (company presentation dated 21st
March 2013)
Rex will participate in the exploratory drilling phase. Once anexploration decision has been made, reservoir verification is
done through exploration drilling. An exploratory well is drilled
to determine whether oil or gas exists underground. Various
instruments are then used to collect data on the rocks and
fluid layers beneath ground level for further analysis. This is
done by way of running a core through selected portions of
the exploration well. If the core reveals presence of a good
quality reservoir along with evidence of hydrocarbons, the
prospective zone is then perforated and tested. This step
requires significant capex commitments as oil rigs are required
for drilling. Drilling costs could range from US$1m per well in
onshore USA to US$100m per well in offshore Norway.
Most of the value creation in the upstream E&P space will becaptured in the aforementioned steps. Upon the completion ofall these steps, RIH will then determine, along with its
partners, whether extraction of the available oil and gas at a
reservoir is commercially viable. If so, the locations to
commence oil and gas production are determined, along with
a plan to optimise production rates efficiently and
economically. Oil wells are drilled, and extraction, separation,
storage and transportation facilities are connected. RIH may or
may not participate in the production phase of the assets, and
we believe RIH could look to farm out or divest its stakes in
producing or mature assets in the future, to recycle capital and
invest in more exploratory assets.
To summarise this is the basic business model of Rex International Holding
PRE - ENTRY
RIH will look to farm-in to concessions or seek licences in areas where there is high quality ofdata available, preferably 3D seismic data, so that it can make efficient use of Rex Technologies.
We believe RIH will only take positions in licences where it believes there is potential forsignificant hydrocarbon findings.
If the area has potential, RIH will take equity stakes in these concessions, while considering otherrisks like environmental, regulatory, financial, political etc.
ENTRY
RIH will not be involved in the operatorship. RIH will focus on what it does best finding oil. Drilling and related services is a commodity that can be outsourced. RIH will hence, focus on
partnership with well established players who can operate the fields.
RIH will endeavour to establish exploration hubs in different parts of the world by partnershipwith local players like North Energy in Norway and Hibiscus Petroleum in South East Asia.
RIH will try to reduce financial burden on itself as local partners take on the cost of RexTechnologies as well provide substantial deal-flow and operational experience.
EXIT
The lead time between investment and proving up reserves will be as low as possible, and onceoil is discovered and reserves are proved, RIH will look to farm out the ownership in these
concessions.
RIH will consider spinning out assets as new businesses. The flipping of assets not only crystallises value for minority shareholders, but will also provide
RIH the financial muscle to take on more concession areas.
Source: Company, DBS Vickers
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Virtual Drilling screening analysis by North Energy enhances credibility of Rex Technologies
In the second quarter results presentation, partner North
Energy recently shared that they had screened and analysed
59 prospects in the North Sea region using Rex Virtual Drilling
maps over the past two years. This is part of North Energys
strategy to save drilling costs by using the Virtual Drilling
technology and eliminating the possibility of dry wells to a
large extent.
Out of the 41 live wells which have been drilled since (by
North Energy and other operators), 35 predictions arrived at by
using Rex Virtual Drilling were spot on. We believe this 85%
success rate (96% success in predicting dry wells in 24 out of
25 drillings and 69% success in predicting presence of
commercial oil in 11 out of 16 drillings) is strong validation of
the effectiveness of Rex Technologies. Out of the 18 remaining
positive predictions yet to be drilled, 5 lie in North Energys
acreage and it remains to be seen whether RIH picks up a
stake in those concessions.
North Energys implementation plan of Rex Virtual
Drilling
Source: North Energy 2Q13 results presentation
Success rate of 85% over 41 data points so far
No of prospects analysed over 2 years: 59
No of prospects predicted positive by North Energy using Rex VD maps: 34
No of prospects predicted positive by North Energy using Rex VD maps: 25
No of prospects drilled to date: 41
No of positives drilled to date: 16
No of wells hit commercial oil: 11
Rex VD success rate: 69%
No of negatives drilled to date: 25
No of dry wells: 24
Rex VD success rate: 96%
No of positives yet to be drilled: 18
In 3rd party acreage 6
In North Energy acreage 5
In open acreage 7
Overall success rate of Rex VD screening: 85%
Source: North Energy 2Q13 results presentation
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The technology has already received the thumbs up from partners and experts
The technology has many believers already. As we have seenso far, the use of Rex Technologies suite of products, and
especially the Rex Virtual Drilling package, could substantially
reduce the risks of exploration (probability of dry wells) by
identifying and characterizing the reservoirs in the areas to be
drilled. Now, the key concern for investors may be the short
track record of RIH, and the lack of any discovery attributable
to RIH to date through the use of these technologies. But we
take heart from the results of both live tests (as shown in
preceding page) and blind tests (where only seismic data was
provided with no information about the location) carried out
by its partners and the belief that some of the experts in the
E&P field have already shown in this technology.
The accuracy of Rex Technologies is reflected in the blind testscarried out for North Energy and other partners. During 2012and early 2013, North Energy designed eight controlled blind
tests in order to assess the accuracy of the use of Rex
Technologies. Anonymous seismic information was provided
for the tests, which utilised Rex Technologies to draw
conclusions based on the available data. Based on the eight
controlled blind tests set out by North Energy, Rex
Technologies showed 100% accuracy in its predictions, which
included whether a certain area was a dry well, and if not, the
exact location of the reservoirs and the depth of such reservoirand the volume present in the reservoir. Rex had also
successfully carried out blind tests for Hibiscus Petroleum and
Fram in the past, pursuant to which the Group subsequently
entered into the current partnerships with them.
Rex Technologies has been used during four live tests forNorth Energy on wells that were about to be drilled and to
which no party had access to the final data as such data was
not yet available. After actual completion of drilling carried out
by North Energy on these four wells, the predictions from the
use of Rex Technologies were proven to be100% accurate.
Thus, though the Group has not yet drilled a successful well
using Rex Technologies, we believe it has already saved
significant capex by deciding not to participate in unsuccessful
wells. Following the positive results of these blind and live
tests, North Energy entered into a strategic long-term
partnership with Lime Petroleum Norway.
The support of governments and experts is crucial as well. Thefact that a small independent E&P player like RIH has been
able to win concessions in ME countries, which is not usually a
market that we see junior E&P players in, is testament to the
credibility of the technology. Also, renowned experts like Dr.
Rabi Bastia and Dr. Kenneth Pereira have turned believers in
the technology, which is a reassuring sign for investors.
Significantly higher success ratios in exploration drilling usingRex Technologies. While most blind tests carried out so farhave been 100% accurate, management estimates worldwide
success ratios in exploration drilling using Rex Technologies tobe in excess of 50%, which is arguably much higher than the
average worldwide success ratio of around 10-15%. Visualizethis advantage of Rex Technologies in the ROI calculationsover time that we have shown in the following page.
Results of 18 external tests carried out using Rex Virtual Drilling over the last 24 months show 100% accuracy
Test No Type of Test Test Location Prediction Results1 Blind Test Norway Hydrocarbon Find Correct and verified by testing party
2 Blind Test Norway Hydrocarbon Find Correct and verified by testing party
3 Blind Test New Zealand Hydrocarbon Show Correct and verified by testing party4 Blind Test India Hydrocarbon Find Correct and verified by testing party
5 Blind Test USA (onshore) Hydrocarbon Find Correct and verified by testing party
6-13 Blind Tests Norway Various Correct and verified by testing party
14 Live Test Ras al-Khaimah Hydrocarbon Show Correct and published information
15 Live Test Norway Dry Well Correct and published information
16 Live Test Norway Dry Well Correct and published information
17 Live Test Norway Hydrocarbon Show Correct and published information
18 Live Test Norway Dry Well Correct and published information
Source: Company, DBS Vickers
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Visualise the potential value added by Rex Technologies over a period of time
Example of success rates with Rex Technologies and traditional methods
Source: DBS Vickers
Impact on ROI with and without the use of Rex Technologies an example
Traditional methods Rex Technology
Minimum size of reservoir (mmboe) 50 Minimum size of reservoir (mmboe) 50
Price of oil in the ground (US$/boe) 5 Price of oil in the ground (US$/boe) 5
Value of discovery (US$m) 250 Value of discovery (US$m) 250
Drilling capex/ investment (US$m) 50 Drilling capex/ investment (US$m) 50
Chance of success 10% Chance of success 50%No of wells drilled 10 No of wells drilled 10
Successful well per 10 wells drilled 1 Successful well per 10 wells drilled 5
Total value of discovery (US$m) 250 Total value of discovery (US$m) 1,250
Total investment (US$m) 500 Total investment (US$m) 500
Net returns (250) Net returns 750
ROI (%) -50% ROI (%) 150%Source: DBS Vickers
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Current assets of RIH details and growth prospects
Where are RIHs current concessions located?
Note: SeeAppendix Cfor a description of the oil & gas fiscal regimes in each of these geographies
Source: Company
The US Participation Rights
Fram's aggregate net interests in the Colorado Concessionand the North Dakota Concession span approximately 60,102acres. The Colorado Concession comprises Fram's oil and gasinterests in Colorado, which is located in the Whitewater
Federal Production Unit in Mesa and Delta counties,
geologically situated in the Uinta-Piceance Basins.
The US Concessions have both reserves and contingentresources and the current drilling programme is already fully
funded.
Extensive work had been previously undertaken to understand
the sedimentary evolution, structural setting, and the
distribution of reservoir properties of the Dakota Formation.
RIH is responsible for providing the drilling locations. Pursuantto the Participation and Exploration Agreement with Fram, RIH
and Loyz Oil are responsible for the implementation of a
drilling plan for the 80 Commitment Wells, which are to bedrilled within a period of 24 months commencing from the
date the first well was drilled, being 7 May 2013.
Overview of RIHs oil & gas interests in the US
Concession Location Type Lime Stake Operator Date of initial investmentWhitewater Federal Production Unit,Piceance Basin, Mesa and Deltacounties
Colorado,USA
Onshore, oil &gas
20% direct interest in 80commitment wells
Fram Operating 28-Aug-12
Williston Basin, Renville and Wardcounties
North Dakota,USA
Onshore, oil 20% direct interest in 80commitment wells
Fram Operating 28-Aug-12
Source: Company
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RIH also has a direct 24% stake in Frams assets in the US
Location Type Area (acres) Minimum NRI (%) Expiry DateWhitewater, CO Lease 47,294 81.25% Held by production
Coury Ranch, CO Lease 1,848 87.50% Mar-16
Hamilton Ranch, CO Lease 1,306 87.50% Sep-16
South Greene Field, ND Lease 695 80.00% 530 HBP, 160 exp 4/2014
Culver Area, ND Lease 709 75.00% Various
Other ND Lease 8,250 80.00% Various
Source: Company
The Dakota Formation is the main reservoir in the Whitewaterarea and is estimated to hold 20.4mmbbls of 2P reserves.Studies carried out include regional surface mapping and
outcrop reservoir section logging, analyses of cores and
cuttings from wells and the interpretation of electric and
image logs of wells. This approach allows the definition of the
dimensions and stacking patterns of channel sands that are
the main reservoir rocks. It has been observed that three types
of channel systems exist, namely stacked channels, channel
systems with lateral accretion and incised valley channels,
eroding into the current formation. In the Dakota Formation,
systems with lateral accretion are seen to be dominating.
Individual channels with rippled beds are also observed.
The Whitewater (Colorado) reserves
Reserve Classification Gross Net to RIH1P 14.9 4.1
2P 20.4 5.7
3P 26.5 7.4
Source: OPK Resources
The Williston Basin (North Dakota) contingent
resources
Reserve Classification Gross Net to RIH1C 0.16 0.044
2C 0.27 0.074
3C 0.38 0.105
Source: OPK Resources
Drilling at the US Concessions has commenced as of 7 May2013 and the plan is to drill 80 wells within 24 months of the
commencement of the drilling operations in Colorado and
North Dakota. The Group will be continually identifying and
optimising best possible locations for the 80 wells through
geological and geophysical information coupled with the use
of Rex Technologies.
The table below sets out the tentative drilling plan in the US
concessions, which may be subject to change over the course
of operations.
The proposed 80 well drilling programme in the US
Drilling programme 2013 2014 2015Whitewater 26 35 9
Williston Basin 4 5 1
Total 30 40 10
Source: OPK Resources
As per independent geologists report, the forecast end-of-
year production per day estimates are shown below.
End-of-year production estimates for US concessions
Production (bpd) 2013 2014 2015Whitewater 1,320 2,928 2,936
Williston 209 410 328
Total 1,529 3,338 3,264
Source: OPK Resources
The expected capital expenditure for drilling and other
activities in the US Concessions attributable to RIH is
approximately US$18.4m over the 24-month drilling projectperiod. These sums will be used primarily for drilling and well
completion activities as well as tank battery installations.
Capex estimates attributable to RIH for US concessions
2013 2014 2015Capex (US$m) 6.4 8.9 3.1
Source: OPK Resources
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The Caribbean concessions
First transaction since IPO shows intent. In August 2013, theGroup signed a term sheet with Norwegian Private equity
investor Pareto Staur to access three new E&P opportunities in
the island nation of Trinidad & Tobago. Rex International
Holding will invest US$9m for a 51.99% stake in Rex
Caribbean Oil Company Ltd (Rex Caribbean)while ParetoStaur will invest USD 6.5 million for a 34.76% stake. Other
institutional shareholders will hold 12.18% and Mr Geoffrey
Leid, CEO-designate of Rex Caribbean, will hold 1.1% in his
personal capacity.
Transaction involves 3 onshore blocks. The transaction willinvolve the initial investment into three E&P licences in the
proven prolific hydrocarbon basin of Trinidad & Tobago,
namely, the Inniss-Trinity field, the South Erin Block and the
Cory Moruga Block E. These assets already have producing
discoveries and Rex Caribbean will, after completion of the
farm-in activities, hold 100% of the Inniss-Trinity field and
working interest of 75% in the South Erin Block and 51% in
the Cory Moruga Block E. The transaction is expected to be
completed in the coming weeks, subject to regulatory due
diligence.
The Inniss-Trinity field was initially developed as twoneighbouring fields - the Innis field first drilled by Shell in 1946and put on production in 1961 while the Antilles-Trinity field
was drilled by Texaco in 1956. Both fields were taken over by
Petrotrin in the early 1980s, and were part of several of
Petrotrins onshore assets put up for bidding in the 2009 as a
production service contract. The Inniss-Trinity field is currently
producing an average of 45 bopd with no new wells being
drilled since 2009. Cumulative oil production has exceeded
16.5 million barrels of oil.
The South Erin Block is located in south-west Trinidad, which ispart of the highly productive Southern Basin that geologically
represents the eastern prolongation of the Eastern Venezuelan
Basin. The South Erin Block has a current production average
of about 80 bopd from four shallow wells. The 1,350-acre
block, reportedly under-explored, is estimated to have a large
potential. The 1ER98 Area which constitutes only a small part
of the South Erin Block, is estimated to hold more than 20
million barrels of Oil in Place and continuous exploration of the
block will likely increase that number significantly. The South
Erin Block lies adjacent to the producing Erin/Palo Seco
oilfields. An ambitious drilling campaign is planned to start in
December 2013.
The Cory Moruga Block E field is located in the southernbasin, onshore Trinidad. The 7,442-acre block (gross) had 15
wells drilled in the 1950s. The current operator spudded a new
well in 2010, drilled to an approved depth of 8,600 feet. The
well penetrated and encountered hydrocarbon bearing zones
in both the primary and secondary objectives in the Herrera
formation. The well produced 37 degree API gravity oil at a
rate stabilising above 500 bopd. The well is currently locked in,but will be put on production soon.
Progress on track. As per latest updates, initial due diligencehas been completed at the assets, and a drilling programme
has been firmed up. Management estimates that a multi-well
campaign will start at the end of 2013 or early-2014.
Selected details of key concession assets in Trinidad & Tobago held under Rex Caribbean Oil Company Ltd
Concession Size(sq km) Signed/Awarded Working Interest(Rex Caribbean) Operator Reserves/ resourcesInniss-Trinity 5 2013 100.0% Rex Caribbean N/A
South Erin 5 2013 75.0% Rex Caribbean 20mmbbl OOIP
Cory Moruga Block E 30 2013 51.0% Rex Caribbean 40mmbbl OOIP
Source: Company
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The Middle East concessions
The Middle East Concessions are held through Lime Petroleum
Plc in which RIH holds a shareholding interest of 65%.
The RAK North Concession is located on the west coast of Rasal-Khaimah, an emirate of the UAE in the east of the Persian
Gulf. It covers an area of 1,200 sq km and encompasses the
Saleh field, which has been producing oil and gas for the past
ten years.
The RAK Onshore Concession covers an area of 886 sq km inthe southern region of Ras al-Khaimah.
The Sharjah Concession spans 1,600 sq km on the east coastof Sharjah, an emirate in the UAE.
The Block 50 Oman Concession covers an area of 16,903 sqkm and is situated in the south east coast of the Sultanate of
Oman.
Selected details of key concession assets held by RIH through its 65%-owned JV Lime Petroleum
Concession Size (sqkm) Signed/Awarded Term(years) WorkingInterest (Lime) Operator Remarks
Oman Block 50 16,903 2011 3+3+20 64.0%* Hibiscus Oilfield Preparation for drilling during 2013
UAE: RAKOffshore North 1,200 2010 3+3+20 59.0% Hibiscus Oilfield Interpretation of acquired seismic
UAE: RAKOnshore South 886 2012 1.5+2+20 100.0% Hibiscus Oilfield
Preparation of seismic campaign tocommence 2013
UAE: SharjahCentral 1,600 2011 3+20 100.0% Hibiscus Oilfield
Interpretation of acquired seismicand preparation of farm-out
* Upon successful discovery in Oman, the Government of the Sultanate of Oman has an option in the shares of Masirah Oil Limited (Masirah),
which would reduce Lime Petroleum Ltds shareholding in Masirah to no less than 48%
Source: Company
The Middle East Concessions are governed by exploration andproduction sharing agreements and a concession agreement,which sets out the rights and obligations of the parties under
the respective agreements.
The Middle East Concessions are managed by Hibiscus Oilfield under the terms of the PMTSA. Hibiscus Oilfield is a wholly-
owned subsidiary of Hibiscus Petroleum, which holds the
remaining 35% interest in Lime Petroleum Plc. Pursuant to the
PMTSA, Lime Petroleum Plc shall pay project management feesto the project manager on an actual cost basis plus a margin
of 7% on a monthly basis.
Plans for exploratory drilling in the Middle East Concessionsare in place for 2013 and 2014. The Group has planned todrill two wells in the Block 50 Oman Concession in 2013.
Contingent upon positive well results from the drilling
operations, it may consider drilling additional exploration or
appraisal wells in 2014 and 2015 in Oman. It also intends to
drill its first exploration well in the Sharjah Concession by June
2014. Contingent upon positive well results from the drilling
operations, it may consider drilling additional exploration or
appraisal wells in 2014 and 2015.
In respect of the RAK North Concession, the plan is to drill the
first well in the offshore areas of Ras al-Khaimah by early
2014. In case of a discovery, the Group will undertake a
commercial evaluation and decide and implement further
exploration and development plans. We believe these plans
may include immediate commercial development or an
appraisal well in 2015.
Additionally, seismic information will be obtained on the RAK
Onshore Concession, and should there be positive findings,the plan is to spud the first onshore well in Ras al-Khaimah by
the end of 2014.
The Group intends to farm-out part of its equity in the MiddleEast Concession companies in turn for funding to progresswith further drilling, and it has entered into discussions with
some potential investors. The Group intends to carry out the
aforementioned scheduled spudding with such additional
funding. Some capital expenditure may also be required for in
the acquisition of new seismic information for the Middle East
Concessions.
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Page 21
The Norway concessions
On 17 April 2013, Lime Petroleum entered into a partnershipagreement with North Energy, a company listed on the OsloStock Exchange, to secure 50.0% of North Energy's interest in
6 Norwegian licences for a purchase consideration of about
US$4.9 million. The purchase consideration was based on the
proportional share of the exploration costs incurred up to date
by North Energy in the Norwegian Concessions with a slight
premium.
Lime Petroleum's participating interest in each NorwegianConcession ranges from 3.3% to 10%, as shown below in thetable. The Norwegian Concessions cover an aggregate area of
approximately 3,509 sq km. The Group will utilise Rex
Technologies on the Norwegian Concessions to enhance the
chances of successful drilling operations.
Selected details of key concession assets held by RIH through its 65%-owned JV Lime Petroleum
Concession Location Size (sq km) Signed/ Awarded Term(years) WorkingInterest (Lime) OperatorPL503 (Valberget) North Sea 977 2009 10+20 8.1% Lotos E&P
PL503B Valberget) North Sea 432 2011 10+20 8.1% Lotos E&P
PL616 (Skagastol) North Sea 333 2012 10+20 3.3% Edison S.p.A
PL498 (Skagen) North Sea 278 2009 10+20 3.3% Lotos E&P
PL707 (Seiland West) Barents Sea 982 2013 5 10.0% Edison S.p.a
PL708 (Seiland East) Barents Sea 507 2013 5 10.0% Lundin Petroleum
Source: Company
Norway is an attractive market for E&P activities. E&P activitiesin Norway are subject to a reimbursement in respect of
development costs which amount to approximately 78% of
total expenses, which provides further support to RIHs effort
to minimise its financial risk in the Norwegian Concessions.The long-term objective for RIH is also to co-operate with
prominent and established partners in the Norwegian market
such as Grupa Lotos SA, Edison S.p.A and North Energy in the
development, management and operation of the Groups
Norwegian Concessions, so that operational risk is minimised.
Potential to farm-in stakes in other existing concessions ofNorth Energy. Rex extended its collaboration with NorthEnergy in 1Q 2013, whereby it has the right to 50% of any of
the 35 concessions which North Energy has title to, pursuant
to screening of these concessions with the use of Rex
Technologies. RIH will have the discretion to decide which
concessions it wishes to participate in, further to which it will
invest in the drilling operations of these concessions. The use
of Rex Technologies has been agreed between Rex Technology
Management and North Energy, and will be at no cost to RIH.
Current concessions in proven areas. Of the six licences inwhich RIH has an interest, two are located in the southern
region of the North Sea, with Ekofisk and Valhall as the bestknown oil fields in that area. Two of the licences lie 45 km
south-east of the famous recent discovery of Johan Sverdrup
at the latitude of Stavanger. The last two licences are located
in the Barents Sea, in close proximity to the coast on the
Finmark east platform and are part of the 6 l icences awarded
to North Energy in the 22nd licensing round recently concluded
by the Norwegian Oil & Energy Department in June 2013.
Will start drilling soon. RIH, through its subsidiary, LimePetroleum Norway, intends to participate in the drilling of
three to five new offshore wells within the next 18 months,
such locations to be determined by the results of screening of
various locations, as discussed earlier. North Energy will be the
operator for the drilling operations. As such, Limes operationsin the Norwegian Concessions are in the preliminary
exploration stages and it has not commissioned an
independent assessment of the resources in the Norwegian
Concessions.
Intends to bid for more licences in Norway. The Groupssubsidiary, Lime Petroleum Norway, has on 8 February 2013
obtained pre-qualification status as a licencee in Norway. It
intends to participate in a greater number of screenings of
potential licences, and apply for an additional eight to 12
licences over the next 2 years. The first well in Norway is
estimated to be drilled in 2014.
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Rex International Holding
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Strong management team adds further credibility
The Board of Directors is led by Mr Dan Brostrm as Chairmanand Executive Director. Mr. Bostrom has been with the RexGroup since 2011. Prior to that, Mr Brostrm was a senior
partner at MVI Holdings Ltd between 1993 and 2005, where
as a consultant, he was assisted Swedish companies that
intended to set up business in Singapore through fund-raising
activities and sourcing for suitable business partners for these
companies. Mr Brostrm has also held senior positions in the
real estate and shipping industries in the past.
The Board will also include Dr. Karl Lidgren, one of thefounders of controlling shareholder Rex Partners. Dr KarlLidgren is the brother of Mr Hans Lidgren, another controlling
shareholder of Rex Partners. He is also the father of CEO Mr.
Mans Lidgren. Dr Karl Lidgren is a nominee of Rex Partners
and Mr Bernt sthus is a nominee of Fram on the Board of
RIH. There will also be three Independent Directors nominated
to the Board of Directors. The day-to-day operations will be
carried out by a team of executive officers, as outlined below.
Composition of Board of Directors
Name Age Resident Position RemarksMr. Dan Brostrm 70 Singapore Chairman & Executive Director
Dr. Karl Lidgren 65 Monaco Non-Executive Director Rex Partners nominee
Mr. Bernt Osthus 42 Norway Non-Executive Director Fram nominee
Mr. Sameer Khan 60 Singapore Independent Director
Mr. Abderahmane Fodil 39 Saudi Arabia Independent Director
Source: Company
The day-to-day operations of the Group are carried out by ateam of key Executive Officers headed by CEO Mr. MansLidgren, who is the son of Rex Partners co-founder Dr. Karl
Lidgren and the nephew of Mr. Hans Lidgren. Mr. Hans
Lidgrens daughter, Mrs. Lina Berntsen, is the Rex
Technologies expert on the management team of RIH. The
Group has a flat management structure and there are many
other officers working closely together with the Executive
Officers. The particulars of the key Executive Officers of RIH
are set out in the following page.
Rex International Technology Committee (RIT Committee)provides management oversight. The RIT Committee is incharge of, among others, monitoring the work programme of
the Groups various concessions, including the Middle East
Concessions. The founders of Rex Partners, Mr. Hans Lidgren
and Mr. Svein Kjellesvik, who is also the chief executive officer
of Lime Petroleum Plc, and RIHs Chief Technology Officer,
Mrs. Lina Berntsen, are on the RIT Committee. The committee
will meet on a bi-monthly basis to assess the conditions and
work progress of the concessions, and reports directly to RIHs
CEO, Mr. Mans Lidgren. The minutes of the RIT Committee
meetings are circulated to the Board of Directors.Management Reporting Structure of RIH
Source: Company
Chief ExecutiveOfficer
Chief FinancialOfficer
Chief OperatingOfficer
Chief TechnologyOfficer
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Key Executive Officers
Name Position Key Experience / PositionMr. Mans Lidgren Chief Executive Officer Mr. Lidgren graduated from Lund University in Sweden with a Bachelor of Science and a
Master of Science, both in Business Administration and Economics in 1999 and 2000
respectively. From 2002 to 2007, he joined his family business in private investments, and from
2005 to 2007, he assumed the position of senior investment manager in his family's business,
and carried out portfolio management, liaison with partner banks and private equity
transactions. Mr. Lidgren subsequently joined Credit Suisse in January 2008 as a vice president
of business development. After leaving Credit Suisse in August 2009, he re-joined his family's
business where he was chief financial officer until August 2011. He later joined Lime Petroleum
Plc from August 2011 to December 2012, and took on the roles of interim chief executive
officer and director. Mr. Lidgren joined RIH in January 2013 as Chief Executive Officer.
Mr. Kristofer Skantze Chief Operating Officer Prior to joining RIH, Mr. Skantze was the head of sales and marketing at HeiQ Materials AG
from 2007 to 2012, a privately-owned textile chemical company, where he forged partner
alliances with well-known textile brands. From 2000 to 2007, Mr. Skantze held various
positions within the Anoto Group AB, a Swedish high-tech company. Mr. Skantze was the
business development manager of Anoto Inc. at Boston from 2005 to August 2007, where he
managed the partner network and was responsible for all new North American customers.
Before his stint in the United States of America, Mr. Skantze held positions of key account
manager, technical project manager and project manager in sales and business development at
the headquarters of the Anoto Group AB in Lund in Sweden from 2000 to 2005. Mr. Skantze
obtained a Master's degree in Engineering Physics from the Faculty of Engineering of University
of Lund in Sweden.
Mr. Ake Knutsson Chief Financial Officer Mr. Knutsson joined the Group in 2011 as the Chief Financial Officer of subsidiary, Lime
Petroleum Plc, and was subsequently appointed RIHs Chief Financial Officer in 2013. Prior to
joining the Group, Mr. Knutsson was the Chief Financial Officer of the Prestando Group since
2009, a supplier of pressed high-grade steel parts to the automotive industry in Europe and the
USA. Before that, Mr Knutsson held senior management positions in A Clean Partner
International AB and Biomet Cementing Technologies AB. Mr Knutsson had earlier worked in
various entities as a financial manager. Mr Knutsson graduated from the University of Lund in
Sweden with a degree in Business Administration with International Orientation.
Mrs. Lina Berntsen Chief Technology Officer Mrs. Bernsten obtained a Master of Science in Chemical Engineering from the University of
Lund in Sweden in 2007. She started work with a biotechnology company, Chemel AB, from
2004 to 2006. She was the marketing coordinator in Chemel AB and also worked on product
development. From 2008 to 2010, Mrs. Bernsten worked as a development engineer in
Gambro Lundia AB, a global medical technology company, where she was responsible for
product development and design control relating to dialysis technology. After her stint at
Gambro Lundia AB, Mrs. Bernsten joined Rex Oil & Gas as the Rex Virtual Drilling specialist and
oversaw the operations and coordinated analyses in relation to the use of Rex Virtual Drilling,
until 2011. She later left to join Equus Consulting AB which she partly-owns. Equus Consulting
AB is in the business of advanced mathematical analysis and Mrs. Bernsten provided
consultancy services to the RexGroup as a technology specialist from 2011 to 2012. In 2012,
Mrs. Bernsten re-joined the Rex Group where she continued working as the Rex Virtual Drilling
specialist to Lime Petroleum Norway.
Source: Company
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Rex International Holding
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To summarise, competitive strengths of the RIH Group are as follows:
Access to Rex Technologies to scan prospects. The use of RexTechnologies mitigates exploration risks by increasing the
probability of discovery, thereby enabling exploration to be
completed in a shorter time frame and reducing costs involved
in the exploration process. The likelihood of drilling a dry well
is reduced and as such, the Group can acquire equity stakes in
exploration assets/ concessions cheaply in return for offering
the benefits from such cost savings. The average cost of
drilling a well in the areas where the US Concessions are
located is approximately US$1m, approximately US$50m in
areas where the Middle East Concessions are located, whereas
it could be as high as US$100m in Norway. Thus, the potential
advantages of drilling the well at the right location using Rex
Technologies are a potential deal clincher for the Group.
Rex Technologies is an important factor in securing moreconcessions to drive the Groups future growth. Rex has so farbeen successful in procuring concessions in the Middle East,
Norway and participating interests in the USA mainly because
of the use of Rex Technologies. Rex Technologies currently has
the capacity to screen and process geological data, and RIH
can select potential bids for new licences or farm-in to existing
exploration permits based on this data.
Locations of existing portfolio of assets provide comfort.Current concessions are located in politically stable countries
with well-developed oil & gas infrastructure. Operating in a
stable environment reduces any operating risks stemming from
politically instability, including civil wars, coups, guerrilla
activities and terrorist attacks. In addition, the existing
concessions have access to well-developed oil and gas
infrastructures including oil and gas pipelines.
These are also areas with potential. The aggregate area inwhich the Group holds rights to explore in the ME, Norway
and US is approximately 24,422.6 sq km. These concessions
are located in areas where there are known reservoirs of oiland gas. The United Arab Emirates and Oman are among the
largest crude oil producers in the Middle East. Further, the US
Concessions are proven to have oil and gas resources, and the
Norwegian Concessions are located in a region in Norway
where several oil and gas discoveries have already been made.
Thus, there is potential for successful explorations in the
current exploration areas. This belief is further enhanced with
positive results obtained from the use of Rex Technologies in
certain of the concession areas.
Location of ME assets on map
Source: Hibiscus Petroleum Annual Report
Location of Norway assets on map
Source: Hibiscus Petroleum Annual Report
Diversified asset base. The Groups portfolio is spread acrossconcessions in the US, Norway and Middle East. While the
concessions are currently located in politically stable countries,
a geographically diversified portfolio spreads out any potential
political or jurisdiction-related risks further. Also, the current
diversification across development assets in the US and
exploration assets in the ME and Norway provides a potential
structure of a recurrent earnings base plus value creation from
oil & gas discoveries.
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Rex International Holding
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Business model limits financial commitments. Oil & gasprospecting is usually a capital intensive game. Broadly, RIHsmodel is to farm into concessions at an early stage at low costs
in return for using its proprietary technologies. In Norway, the
operations are supported by the Norwegian petroleum fiscal
system with the reimbursement of 78% of exploration
expenses every year, regardless of production.
In areas like the ME where it holds majority stakes, it will seek
to farm out stakes to partners before the project reaches the
development phase. Lime Petroleum Plc, has already, by
attracting investors, raised approximately US$90 million to be
used toward exploration activities in the ME Concessions. Lime
Petroleum Plc will not require any additional financing in the
near term as it has sufficient funds for its current purposes in
2013. Over the longer term, sale of stakes to strategic partners
will help raise funds for drilling capex.
The activities in the USA also require minimal additional
financial commitments due to the partnership with Fram andLoyz Oil. In terms of operations, the Group is able to limit risks
by provision of drilling services through its joint venture with
Loyz USA.
Strong commitment from strategic partners. As discussedearlier, RIH has partnered with Fram and Loyz Oil in relation to
the US Concessions, and with Hibiscus Petroleum and Petroci
Holding in relation to Lime Petroleum Plc, and also North
Energy in relation to the Norwegian concessions. These
partnerships allow RIH to build an international network to
source for new investment opportunities and work with
funding made available from partners who are financially
strong, which in turn reduces the Group's risk exposure. The
Group is also able to tap into deep operational expertise of
these local partners and management of the concessions is
carried out efficiently with requisite experience and personnel.
Selected strategic partners of Rex International Holding
Partner Involvement BusinessFram Exploration ASA Partner in US leases Fram exploration Is a Norwegian oil company with mature assets in the
US and in Trinidad.
Loyz Energy Partner in US leases and drilling JV Loyz Energy is a Singapore-based company on its way to establishing
itself as a junior independent oil & gas player across the Asia-Pacific
region.
Petroci Partner in Oman Petroci is the national oil company of Cote DIvore (Ivory Coast) active in
the whole value chain of the O&G industry from exploration to
production.
North Energy ASA Partner in Norway North Energy is a Norwegian oil company focusing on assets located on
the Norwegian Continental Shelf. North Energy is quoted on the Oslo
Stock Exchange. The company is partner in more than 20 offshore
licences in Norway.
Hibiscus Petroleum Strategic investor in Lime Hibiscus Petroleum is a listed Special Purpose Acquisition Company
(SPAC) targeting low risk Exploration and
Production onshore and shallow water offshore opportunities that have
high upside potential.Schroders Investor Schroders is a private bank which manages US$327bn on behalf of
institutional and retail investors, financial institutions and high net worth
clients from around the world.
BGP Seismic data provider BGP is a leading seismic company providing seismic acquisition and
processing. Lime and BGP have cooperated on complex marine surveys
in Oman, Sharjah and Ras al-Khaimah in the Middle East.
Source: DBS Vickers
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Key Risks
Limited track record. The Group has limited track record ofonly 2 years, and there is no past performance to analyse and
extrapolate for investors.
No oil production as yet. Most of the Groups concessions arein the exploratory or development phase, and no commercial
production of oil has started yet. This again limits future
visibility to an extent.
Validation of Rex Technologies still has some way to go. Whilethe technology has a lot of believers already and to date has
delivered 100% accurate blind and live test (where the Groupdecided not to invest) results, the Group is yet to invest its
own money to drill a well based on location arrived at after
using Rex Technologies suite of software. Though blind tests
on existing well locations and no go on live tests have proved
very accurate, a concrete track record of successful wells using
the proprietary technology is yet to be demonstrated.
Rex Technologies may not work if data is inaccurate. Theaccurate use of Rex Technologies depends on the quality of
raw seismic data, which may not be always verifiable
beforehand.
Technology could be replicated by third parties. While use ofRex Technologies could give the Group a head start in securing
lucrative concessions, other players may catch up fast if the
technology is proved to very su