Perusahaan Gas Negara Shale Gas Acquisition a Fair Deal
We view PGN’s USD5.50/boe shale gas acquisition as a fair deal and should not harm its balance sheet. In fact, it is a wise move to secure gas supply for future pipeline expansion, which reinforces our thesis that PGN is the main beneficiary of the rise in gas infrastructure. Maintain BUY but upgrade our SOTP-based TP to IDR6,600 (from TP IDR6,400) as we factor in the shale gas upstream asset to our valuation.
The shale gas deal is settled
Perusahaan Gas Negara (PGN), through its Saka Energi Indonesia (SEI) subsidiary, settled a 36% stake acquisition worth USD175m with Swift Energy Co (Swift) (SFY US, NR) on 15 July. This gives the company a participating interest in the Fasken shale gas area in the US. Of the acquisition value, 71% (or USD125m) was paid at the close of the deal while the 29% balance (USD50m) will be paid by SEI over time to carry a portion of Swift’s field development costs incurred since 1 Jan.
A premium price given strong asset monetisation
At end-2013, the Fasken field’s natural gas reserves amounted to 87.6m barrels of oil equivalent (mmboe). We value the transaction at USD5.50/boe, ie a premium vis-à-vis PGN’s domestic upstream oil and gas transactions, which are at the USD2.00/boe level. However, our channel check suggests that the gas field has already been strongly monetised, as seen from its current gas production, which rose a bit to 100m standard cu ft/day (mmscfd) from 70mmscfd. The eight Fasken wells (two drilled in late 2013 and six in 2014 YTD) are considered high-rate wells.
Maintain BUY, upgrade TP to IDR6,600 (from IDR6,400)
The USD175m deal only accounts for 15% of PGN’s 1Q14 cash position. Therefore, we see the impact to its balance sheet as minimal. Also, we see PGN’s upstream oil and gas acquisitions as a wise move, allowing it to secure gas supply for its pipeline distribution in the long run. Maintain BUY. We also upgrade our SOTP-based TP to IDR6,600 as we factor in the shale gas upstream asset to our valuation.
