It will soon come out of its SPAC status to become a Main Market company. Come March 21 2012, if it gets shareholders' approval for its 35% qualifying acquisition in Lime Petroleum Plc for US$55mil (RM165mil), it would transform into a Main Market company with a core business. Hibiscus will become a full-fledged oil and gas exploration and production company.
Hibiscus isn't an oilfield services provider. It is in the business of oil and gas exploration and having discovered hydrocarbons, it produces them and hence its performance is closely related to oil and gas prices.
To recap, Hibiscus bought into Lime for US$55mil in October2011 through a subscription for new shares (US$50mil) and a purchase of existing shares (US$5mil). Lime has three oil and gas concessions in the Middle East Ras Al Khaimah, Sharjah both in the United Arab Emirates (UAE), and the largest one, in terms of acreage, in Oman . The concession agreements provide for production tenure of at least 20 years.
There is also the expectation of at least one more concession to be included as part of the deal without any change in purchase price. This concession is located in the UAE.
Of most significance is the access to a technology package, developed by the major shareholders of Rex,that gives Lime a unique competitive advantage when it comes to securing concessions.
Hibiscus has also secured the project manager and technical services provider role for all current and future Lime concessions. This means that the company is going to be busy for the foreseeable future.
Shareholders' approval on 21 March 2012 will allow Hibiscus to discard its SPAC status and also allow more institutions to participate in the equity of its company.
Lime is poised to secure a fourth concession without Hibiscus having to fork out another sen under the terms of the acquisition agreement. Securing the fourth concession is a condition precedent to completing the Lime deal. This condition can be waived by Hibiscus if it wished to.
Rex Oil & Gas Ltd is the major shareholder of Lime with a 56.4% stake. Lime has five years exclusive access to these proprietary technologies in the Middle East region.
Meanwhile should Hibiscus strikes oil, it will pay US$5mil to Rex Oil after the first commercial discovery as part of the deal.
Lime is the holding company of Lime Petroleum Ltd, which in turn has substantial interest in three concession companies with concession rights in the offshore oil and gas exploration assets.
Lime Petroleum will be commencing a seismic programme soon to locate the drilling locations and these activities will enhance the value of the assets. In addition, it is working to add new concessions to Hibiscus’ portfolio.
Market observers said that the investment risk in Hibiscus will rise once Hibiscus makes it first asset purchase.
Shareholders are guaranteed a minimum refund of 90% of Hibiscus’ IPO price if the SPAC fails to identify and complete any asset acquisition within three years if investors vote against the proposed acquisitions. This is one of the listing requirements for SPAC. At least 90% of IPO proceeds must be placed in trust accounts managed by an independent custodian.
However, once a qualify acquisition is approved, the refund guarantee is no longer applicable. In other words, the risk escalate at that point when Hibiscus purchases its first asset.
MUCH WILL DEPEND ON WHETHER THEY STRIKE IN THE MIDDLE EAST!
Investors who deiced to maintain their investments will face risk factors such as lack of track record in Lime Engineering and the uncertainty of the commercialization of oil resources.
E&P companies are exposed to risk during the lifecycle of developing oilfield. Results of evaluation and production are uncertain and wells may not produce sufficient crude oil and revenues to return to positive cash flow.
Hibiscus Petroleum may need to obtain more funding in 2012 and farm out contracts to support its development. There is no assurance that additional funding will be available on acceptable terms. And any farm out could dilute the control that Lime has on the concessions.
Other possible risk factors include fluctuation oil and gas prices, which can impact revenue as well as geopolitical risks in the region.
There is also concern that other substantial shareholders might sell down their stakes in Hibiscus. Note that 265 million shares were placed out to selected investors in the IPO.
Substantial shareholders that emerged after the IPO were Lionel Lee Chye Tek (9.6%), Mercury Pacific Marine Ltd (6.7%), Picadilly Middle East Ltd (5.8%) and White Ruby Worldwide Inc (5%). While these new substantial shareholders are not subject to any moratorium, they have not sold down their stakes in the company as at Feb 2012.
Initial investors before the IPO collectively hold only 5% equity interest.
Another 20% of Hibiscus is held by the management via Hibiscus Upstream. As part of the moratorium, management is only allowed to sell, transfer and assign 50% of its held securities after the completion of the QA.
To ally shareholders’ fear, management has signed a binding agreement to discourage members from exiting the company early. If any of the management team wishes to sell his or her shares within a three year period from the listing date, then those shares must be sold to the other team members at a 30% discount to market price. In addition to the 20% stake, management also holds 83.6 million warrants, which when they fully exercised, will bump its stake to 33%.
A drilling programme is being tentatively planned for 4QFY2012. If it makes a discovery, it will seek to commercialize it soon afterwards.
Hibiscus’ 35% stake in Lime Petroleum is valued at between rm1.01 and rm1.33 per share. This is based on a 50% chance of commercialization from the estimated 157.6 million barrels of oil equivalent in the concession.
In addition, Hibiscus can add more concessions in the future.
The shareholders of Lime Petroleum are also eyeing a listing on the AIM in London . This will be after the valuation of Lime has been enhanced from drilling activities and hopefully, after the commercial discovery of hydrocarbons. This will benefit both Lime and Hibiscus as proceeds raised from the potential AIM listing will be used to fund further drilling and/or development activities.
If Lime Petroleum gets listed on AIM, Hibiscus shareholders will not have to part with cash in the future.
Hibiscus isn't an oilfield services provider. It is in the business of oil and gas exploration and having discovered hydrocarbons, it produces them and hence its performance is closely related to oil and gas prices.
To recap, Hibiscus bought into Lime for US$55mil in October2011 through a subscription for new shares (US$50mil) and a purchase of existing shares (US$5mil). Lime has three oil and gas concessions in the Middle East Ras Al Khaimah, Sharjah both in the United Arab Emirates (UAE), and the largest one, in terms of acreage, in Oman . The concession agreements provide for production tenure of at least 20 years.
There is also the expectation of at least one more concession to be included as part of the deal without any change in purchase price. This concession is located in the UAE.
Of most significance is the access to a technology package, developed by the major shareholders of Rex,that gives Lime a unique competitive advantage when it comes to securing concessions.
Hibiscus has also secured the project manager and technical services provider role for all current and future Lime concessions. This means that the company is going to be busy for the foreseeable future.
Shareholders' approval on 21 March 2012 will allow Hibiscus to discard its SPAC status and also allow more institutions to participate in the equity of its company.
Lime is poised to secure a fourth concession without Hibiscus having to fork out another sen under the terms of the acquisition agreement. Securing the fourth concession is a condition precedent to completing the Lime deal. This condition can be waived by Hibiscus if it wished to.
Rex Oil & Gas Ltd is the major shareholder of Lime with a 56.4% stake. Lime has five years exclusive access to these proprietary technologies in the Middle East region.
Meanwhile should Hibiscus strikes oil, it will pay US$5mil to Rex Oil after the first commercial discovery as part of the deal.
Lime is the holding company of Lime Petroleum Ltd, which in turn has substantial interest in three concession companies with concession rights in the offshore oil and gas exploration assets.
Lime Petroleum will be commencing a seismic programme soon to locate the drilling locations and these activities will enhance the value of the assets. In addition, it is working to add new concessions to Hibiscus’ portfolio.
Market observers said that the investment risk in Hibiscus will rise once Hibiscus makes it first asset purchase.
Shareholders are guaranteed a minimum refund of 90% of Hibiscus’ IPO price if the SPAC fails to identify and complete any asset acquisition within three years if investors vote against the proposed acquisitions. This is one of the listing requirements for SPAC. At least 90% of IPO proceeds must be placed in trust accounts managed by an independent custodian.
However, once a qualify acquisition is approved, the refund guarantee is no longer applicable. In other words, the risk escalate at that point when Hibiscus purchases its first asset.
MUCH WILL DEPEND ON WHETHER THEY STRIKE IN THE MIDDLE EAST!
Investors who deiced to maintain their investments will face risk factors such as lack of track record in Lime Engineering and the uncertainty of the commercialization of oil resources.
E&P companies are exposed to risk during the lifecycle of developing oilfield. Results of evaluation and production are uncertain and wells may not produce sufficient crude oil and revenues to return to positive cash flow.
Hibiscus Petroleum may need to obtain more funding in 2012 and farm out contracts to support its development. There is no assurance that additional funding will be available on acceptable terms. And any farm out could dilute the control that Lime has on the concessions.
Other possible risk factors include fluctuation oil and gas prices, which can impact revenue as well as geopolitical risks in the region.
There is also concern that other substantial shareholders might sell down their stakes in Hibiscus. Note that 265 million shares were placed out to selected investors in the IPO.
Substantial shareholders that emerged after the IPO were Lionel Lee Chye Tek (9.6%), Mercury Pacific Marine Ltd (6.7%), Picadilly Middle East Ltd (5.8%) and White Ruby Worldwide Inc (5%). While these new substantial shareholders are not subject to any moratorium, they have not sold down their stakes in the company as at Feb 2012.
Initial investors before the IPO collectively hold only 5% equity interest.
Another 20% of Hibiscus is held by the management via Hibiscus Upstream. As part of the moratorium, management is only allowed to sell, transfer and assign 50% of its held securities after the completion of the QA.
To ally shareholders’ fear, management has signed a binding agreement to discourage members from exiting the company early. If any of the management team wishes to sell his or her shares within a three year period from the listing date, then those shares must be sold to the other team members at a 30% discount to market price. In addition to the 20% stake, management also holds 83.6 million warrants, which when they fully exercised, will bump its stake to 33%.
A drilling programme is being tentatively planned for 4QFY2012. If it makes a discovery, it will seek to commercialize it soon afterwards.
Hibiscus’ 35% stake in Lime Petroleum is valued at between rm1.01 and rm1.33 per share. This is based on a 50% chance of commercialization from the estimated 157.6 million barrels of oil equivalent in the concession.
In addition, Hibiscus can add more concessions in the future.
The shareholders of Lime Petroleum are also eyeing a listing on the AIM in London . This will be after the valuation of Lime has been enhanced from drilling activities and hopefully, after the commercial discovery of hydrocarbons. This will benefit both Lime and Hibiscus as proceeds raised from the potential AIM listing will be used to fund further drilling and/or development activities.
If Lime Petroleum gets listed on AIM, Hibiscus shareholders will not have to part with cash in the future.
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