ENRG:Reviving main asset - Mandiri

Another good achievement from Energi Mega Persada (ENRG) came from its main oil play Malacca Strait PSC, in which ENRG successfully ramp up the production by 1,924 bopd. We highly value such achievement as it will lengthen the maturing cycle of the block thus sustain a longer term production. We upgrade our FY11F and FY12F earnings by 13.5% and 3.4%, respectively. On the other hand, there is also a potential demand upside from Japan’s robust oil imports as nearly all of ENRG oil lifting flows to Japan. We are now more confident over ENRG hence decided to put down the 10% discount, resulting in new TP of Rp260. Moreover, asset-based valuation is still lucrative at EV/2P US$2.4/boe. Maintain buy.

Successfully revived the main oil play. ENRG recently reported a successful enhanced oil recovery (EOR), resulting in production ramp up of its largest oil producing asset, Malacca Strait PSC (60.5% stake), by 1,924 bopd. This proves ENRG ability in reviving assets, which has been done so far as indicated by increasing reserves amid growing production profile. We like the achievement on this project considering Malacca Strait is ENRG’s largest oil play (36% of total) and the maturing nature can be muted. We upgrade net oil lifting forecast for Malacca Strait PSC to 5,500 bopd from 4,300, resulting in upside move for FY11F and FY12F bottom line of 13.5% and 3.4%, assuming stable oil ASP and FY10 production per block as a base.

Japan’s oil-hungry mode may prompt demand. Japan's oil and gas imports gained strongly in May11 as crude imports and LNG rose by 7% after minus signs in last two months, signaling higher demand for oil to fuel its power plants. Consequently, this will likely trigger additional oil demand to Indonesia market and in the end to ENRG, as nearly 100% of its current oil lifting flows to Japan.

Inpex to finalize Ichthys FID, Masela should be next. The Australian government has granted the environmental approval to Inpex’s 8.4Mt LNG project, Ichthys Project in Browse Basin, North Australia (geologically close to Masela). This decision provides the way for Inpex to finalize its final investment decision (FID) this year. Should Inpex commit the FID in Ichthys, Masela will be the next on Inpex’s list, in our view. Nonetheless, we have yet taken Masela into our forecast as it still takes long time (2018) to commence its production activity.

No more discount, upgrade TP to Rp260. We upgrade our TP to Rp260 mainly based on our appreciation on ENRG’s production ramp up in its largest and key oil play. The ability to ramp up production also further reduces the development uncertainty. Risk relies on project delay and increasing Kangean gas cost. At still attractive EV/2P of US$2.4/boe, we maintain our buy call.