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Kamis, 28 Juli 2011

ENRG:New powerful ally, new value creation - Mandiri

Inpex Corp has finally decided to sell 30% stake in the gas-rich Masela project to Shell. Although we have foreseen this would happen, we do not expect this to happen soon. Latest data showed that average acquisition price for upstream M&A was around US$1.0-2.0/boe, which is higher than the acquisition price of Masela by Energi Mega Persada (ENRG) US$0.3/boe. The inclusion of Shell in the project will not only improve project feasibility (i.e., Shell has strong financial capacity and upstream expertise), but also elevate ENRG’s value in Masela. Assuming acquisition price of US$1-2/boe and ENRG’s Masela acquisition price of Rp23.5/share, we estimate an upside in ENRG value by Rp73-147/share. Using the mid-price of US$1.5/boe, we arrived at our new TP of Rp360/share. Valuation wise ENRG is still attractive at EV/2P US$2.8/boe.

Inpex to sell Masela at premium. Advancing upstream M&A activities can be seen with Inpex Corp. recently announcing the intention to sell a 30% stake in Masela to global upstream giant Royal Dutch Shell. This step is sensible in our view given that Inpex would not bear development risks and costs by itself. The incorporation of Shell in Masela will be beneficial as Shell’s strong financial capacity and upstream expertise may bring great assistance to the project development and lessen the risk of potential delay in the project execution.

Potential value upside to ENRG. Not only good for the project itself, Shell inclusion is also beneficial for contract holders’ value. We then see a potential upside in ENRG value from the corporate action. Assuming acquisition price of US$1-2/boe, we estimate a potential price upside to ENRG’s price by Rp73-147/share or resulting in rounded target price range of Rp325-400/share from current price. We assume acquisition price per share of Rp23.5/share (at exchange rate of Rp9,530).

10% left for regional government. Inpex is must farm out another 10% stake to the Maluku regional government. As we believe that budget for M&A at regional government is limited, a joint-venture with local company is very likely. This might be a good opportunity for ENRG to increase its indirect stakes at Masela by participating in the JV. We estimate that the acquisition price by regional government will be below Shell’s acquisition price. Assuming acquisition price of between US$0.7-1/boe, then ENRG might need to raise US$110-155mn of fund to have a 50% participation in this JV.

Further price upgrade to Rp360/share. Overall, we highly value this plan as this add the value of the Masela project. Consequently, we upgraded our TP for ENRG to Rp355/share based on Masela’s acquisition price of US$1.5/boe (mid range of US$1-2/boe).

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