ENRG:No more delay - Mandiri Sekuritas

ENRG confirmed that all projects are on schedule with the signing of GSA in the Kangean TSB field attractively priced at US$5.15/boe, higher than the initial estimate of US$3.7-4.2/boe. This is a positive development after delays in the past marred ENRG’s outlook. In addition, small but meaningful flow from the Kangean PUO and Bentu PSC showed that ENRG keeps ramping up its reserves. On the other hand, we should value ENRG’s acquisition of the offshore Masela Block, which was very cheaply priced at US$0.3/boe. Valuation wise, ENRG still trades cheaply at EV/2P US$1.4/boe, the lowest among its peers. Maintain Buy at Rp180/share.

Kangean GSA has been signed. ENRG has recently signed the GSA for the Kangean PSC with PLN, Pertamina Gas (Pertagas), and Indogas. As a result of rising commodity and energy prices, gas ASP was also attractive at US$5.15/mmbtu (3% escalation), higher than the expectation of US$3.7-4.2/boe. We see the signing positively as this is a final affirmation that the Kangean TSB field (25 mboepd of gas) is on schedule to produce first gas in 1Q12. High ASP will certainly beneficial for ENRG and may also be seen as the first step to obtain deal with even higher ASP in the future.

Ramping up production continues. Previously, ENRG has also commenced oil and gas production at the Kangean PUO field and Bentu PSC totaling 2,500 boepd oil and 3,500 boepd gas, respectively. We consider this a satisfactory performance while ENRG is for the Kangean TSB’s flow next year. In addition to that, oil discovery from the Malacca Strait and Gelam TAC (totaling around 1,200 bopd) provided us high conviction that production ramp up is occurring.

Masela: one of the finest deals. Many investors have realized that Masela block contains abundant gas and condensate reserve of around 306 mmboe (net WI). Yet, the interesting part rarely exposed is that the resource-rich block (30-year worth of LNG) was bought at a very attractive price of about US$0.3/boe, much lower than 2010 deals average of US$10.6/boe (IHS Global Upstream M&A). This indicated ENRG’s good bargaining ability to acquire valuable projects. Moreover, Masela purchase not only raised ENRG reserve upward but also R/P ratio to 7.2 years (higher than peer average), which we think is fairly essential for an upstream company.

Maintain Buy recommendation at Rp180/share. Valuation wise, we view ENRG is at a very appealing level with EV/2P US$1.4/boe, which is the lowest among its peers (table 3), thanks to Masela. However, we admit concerns over its interest burden are still there although it is already minimized post rights issue last year. Hence, we maintain our Buy call on ENRG at TP of Rp180 (25% discount).