Three New Oil & Gas Shares

Over the past few years, Singapore’s stock market has been the usual go-to place for real estate investment trusts (REITs) to list themselves on the public markets).

However, lately, the local exchanges here have been attracting a steady flow of new listings from the oil and gas exploration (E&P) sector due to a recent move by stock exchange operator Singapore Exchange to re-evaluate its listing rules to   “allow a wider spectrum of [mineral, oil and gas] companies [to] tap into Asia’s vast pool of liquidity” by floating their shares.

Three listed companies in the E&P space include Kris Energy (SGX: SK3), Linc Energy (SGX: TI6), and Rex International (SGX: 5WH).

1. Kris Energy (SGX: SK3)

KrisEnergy Ltd. is an independent upstream oil & gas company that specializes in acquiring grassroots exploration blocks, undeveloped discoveries, and producing assets across Southeast Asia. Its portfolio stretches across 16 contract areas in Bangladesh, Indonesia, Thailand, Cambodia and Vietnam with a gross acreage of over 57,900 square kilometres. With a highly experienced management team ( with 20+ years of experience), the company’s vision is to become the leading upstream oil and gas exploration and production company in Asia.

For the year ended 31 December 2013, KrisEnergy’s revenue dipped 22.9% year-on-year to US$69.05 million. As a result, the company’s EBITDAX (earnings before interest, taxation, depreciation, amortisation, geological and geophysical expenses and exploration expenses) also plunged 41.2% from US$47.61 million to US$28 million. In addition, KrisEnergy is ramping up on its exploration and development expenditure as it shot up 197.3% to US$79.38 million in 2013. According to its corporate presentation summary, the company is expected to bump up that particular expenditure even more to US$196.13 million in the current financial year..

2. Linc Energy (SGX: TI6)

Linc Energy is a diversified energy company with three business divisions: Conventional Oil And Gas; Unconventional Oil And Gas and; Coal. It also owns a significant portfolio of various oil, gas and coal assets strategically located in regions near high energy demand centres across the Asia-Pacific and the United States. According to its prospectus, Linc Energy is the only company which has employed its proprietary UCG (Underground Coal Gasification) technology to produce diesel and jet fuel from UCG syngas.

As of Dec 31 2013, revenue soared 118% from A$57 million to A$124.367 million. As a result, EBITDAX skyrocketed 201% to US$78.37 million. On the other hand, net losses actually fell from A$61.89 million to A$63.83 million with increased impairment expenses.

3. Rex International (SGX: 5WH)

Rex International is principally engaged in the business of oil and gas production. In respect of its oil and gas exploration activities, the Group applies Rex Technologies, a set of proprietary and innovative exploration technologies, which provide the ability to accurately visualise and predict the location of liquid hydrocarbons in the sub-terrain. Its main business model is to utilize its patented technology in order to gain a minority stake in concessions, providing recurring income with low capital expenditure needs.

The company currently owns concessions which are located in the Middle East, Norway and the United States of America. Rex International co-operates with several partners in the development, management and operation of its concessions and licences.

As of 31 December 2013, revenue is flat while net profits turned further south to US$8.02 million. This is due to a US$5 million increase in admin fees and general expenses as well as one-time listing costs of US$2.52 million. On a side note, Rex International has relatively tiny capital expenditures of US$91,000 as compared to the other two companies mentioned above.

Foolish Bottom-line

All told, while investors are excited about the potential growth that oil & gas exploration and development companies bring, they should be aware of the risk factors too. The business activities can involve numerous risks and substantial and uncertain costs that may not yield desired results, resources or reserves for the company. These flops may result in substantial losses and unforeseen interruptions to their operations.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.