Rex International IPO: Striking Oil With Proprietary Technology

Rex International Holding is offering 142.5m new shares at $0.50 each for a Catalist listing. 140m shares is for an international placement (outside USA) and 2.5m shares is for a public offering. There will be an over-allotment option of 28m shares if exercised. The IPO will close on 29 July 12pm. The market cap prior to the over-allotment option is $488.3m and that will make it one of the top 5 Catalist companies in terms of market cap.

Principal Business
Rex is an independent oil and gas exploration and production (E&P) company. It is somewhat similar to KrisEnergy (if that is what you want to ask) except that it claimed to have access to a proprietary and innovative exploration technologies called “Rex Technologies” which helped to mitigate exploration risks and reduces costs of exploration.

Rex Technologies
According to the prospectus, the technologies were developed by the founders, Dr Karl Lidgren and Mr Hans Lidgren. It comprises of Rex Gravity, Rex Seepage and Rex Virtual Drilling.
Rex Technologies

Basically, it allows seismic responses to be interpreted and accurately pinpoints the exact location of oil reservoirs (sounds quite interesting to me but I am a layman). The application of Rex Technologies significantly reduces the need for exploration and appraisal drilling, thus reducing the time taken, risks and costs involved in the exploration process.

According to the prospectus, it has been 100 percent accurate in its prediction on 18 external tests conducted over the last 24 months and the success ratio for drills using the Rex Technologies has been in excess of 50 percent (that is pretty high in the Oil & Gas world).

The access of this technology has allowed Rex to procure concessions in the Middle East, licenses in Norway and participating interests in the USA. Below is a table demonstrating the “superior” Rex Technologies.
Advantage

Concessions
The concessions acquired by Rex is as follows:
Concessions

It is interesting to note that they have started drilling on the first well in USA on 7 May 2013 and the production is expected in Q4 2013. They will also start drilling in Middle East and Norway. Further details on the concessions are as follow:
Information

International Network of Strategic Partners
strategic partners
The company has a good panel of strategic partners.

Financials
Financials

Frankly, nothing to talk about except that this is a loss making company still trying to “get the oil flowing”. Somewhat similar to KrisEnergy except that it is even more early stage and have not incurred much exploration costs?

Use of Proceeds
We must know where the money is going into and they are mainly to pay for drilling expenses. In other words, you have to trust the management to drill the right holes.
Use of Proceeds

Shareholders
The founders will hold about 55% of the company post listing. The other shareholders as follow (assuming over-allotment in full).
Shareholders

What I like is that the Pre-IPO investors are not cashing out at the IPO price. Pre-IPO investors came in at around 40c except for Shroders who paid only low 0.87 cents! The Pre-IPO investors in Singapore consists of the “who’s who” include Tommie Goh. However, what I don’t like to see is that Asia Merchant Capital II Limited is a PE Fund related to Prime Partners, who is also acting as the Manager and Sponsor of this deal. There could be potential conflict of interest (I am not suggesting that there is). The list of Pre-IPO investors is on page 84 of the prospectus. Fram shareholders consist of some HNWs and PE funds and the list is on page 92 of the prospectus.

What I like About The Company

    • Interesting proprietary technology which they can ‘license’ out or get oil concessions.
    • Less capital intensive vis-a-vis a normal E&P company.
    • Potential to ‘struck oil’ faster.

My Concerns

  • An early stage and small company in exploration play
  • High valuation of company. Not sure is it for the concession rights or for the intellectual property of the company.
  • Oman is not known for its Oil & Gas play.
  • Rex Technologies is not ‘proven’.
  • Investors are bearing the risk of exploration.
  • Assets are located far away from Singapore and this means key management are not based here either.
  • Unlike KrisEnergy, there is no “key independent and strategic” shareholder to “validate and support” the IPO valuation.
  • Unlike KrisEnergy, the management team is not proven yet.

Mr IPO’s Views And Ratings
This IPO is riding on the “coat tail” of KrisEnergy which I have given it a 3 Chillis rating previously. KrisEnergy has performed respectably on its debut and the interest might spill over to Rex International. As mentioned, I am not an Oil & Gas expert although I do like the sector.

I am giving it a 2 Chilli ratings based purely on gut feel that the interest from KrisEnergy will spill over. (This view might change if price of KrisEnergy collapse in the coming days. If you intent to apply for the shares, you might want to do it nearer to the IPO closing date.)

Investors will need to take a leap of faith that the management will deliver in the next 12 to 24 months as they are bearing the costs of exploration.

Please note that I am vested and my intent is as what the rating mentioned – “hit and run”.



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