Petrogas – Francis Chang, CEO – Singapore
Francis Chang, CEO of RH Petrogas, discusses his priorities since becoming CEO earlier this year, the company’s varying stakes in five PSCs with NOC partners and RH Petrogas’ E&P activity regionally, particularly in Myanmar and Malaysia.
With the retirement of Dr Tan you became CEO of RH Petrogas in January 2014. What are the most exciting and challenging aspects of the role?
On a daily basis I spend over 50 percent of my time meeting and talking with the investment community. Such meetings – by their nature – can be challenging and probing but it is something that is both expected and exciting. As CEO, one is the face of the company and it is important to be on the frontline to give clarity and confidence to the investors and all our stakeholders.
At present, I continue to manage the company’s E&P operations. Though this role compounds workload, it provides detailed information to the targeted operational questions when asked by investors and analysts. I have found when meeting with investment community, more than 80 percent of the questions are operationally oriented. Financial performance is tied to operational success. I am tremendously fortunate that I can leverage my geological and geophysical background, and relay, with confidence, the necessary technical nuances to the analysts
What is the management philosophy of the company and the values you and it seeks to uphold?
I believe people are the most important assets to a company. I encourage and practice an environment conducive to openness in the work place. You will be surprised how much people can accomplish when empowered to make decisions but held accountable.
We have an exceptional team at RH Petrogas. Our management team in Singapore are made up of industry veterans with extensive experience in the upstream oil and gas sector, and every member of the technical team has over 20 years’ experience working for international oil and gas companies. Our business model revolves around utilizing local contents, and we have four local offices outside of Singapore: Indonesia, China, Malaysia and Myanmar. Every local office is predominately staffed with local employees, all of whom have vast technical experience. Majority have worked for national oil companies (NOCs) and built up local knowledge, contacts and connections which are essential to our operations.
As a geologist by trade, which parts of Asia Pacific have you earmarked as areas of good hydrocarbon potential?
The traditional hydrocarbon titan Indonesia remains a country of considerable potential and a perfect market for a company of our size. Unfortunately, uncertain political and fiscal policies have resulted in a lot of missed opportunities in Indonesia. The country’s fiscal terms rank amongst the most severe in the region and such uncertainty has stymied crucial foreign direct investment (FDI) and the long-term development of the country’s hydrocarbon sources. Nonetheless, there are a lot of mature assets that need rekindling and we are well poised to extract that value.
Malaysia is another country which has good hydrocarbon potential. We are already in Malaysia and will continue to explore new opportunities, including marginal field development, in the country.
In recent years, Myanmar has embarked on a steady path of economic liberalism, embracing international support and technology. In 2013, I was fortunate enough to be in Myanmar a number of times to cooperate with Myanma Oil and Gas Enterprise (MOGE). We are particularly interested in Myanmar’s onshore capacity and last year we submitted 3 bids to participate in the second onshore bid round. Even though we were not successful in securing new blocks, Myanmar continues to be our strategic focus in the near future.
Having assembled an assortment of different E&P assets, what type of portfolio is RH Petrogas trying to nurture?
Our team came together in June 2010. For the last three and a half years we have assembled 5 very interesting assets with strong reserve base and steady production. Our market capitalization is approaching SGD $500 million. Our aim is to grow organically with the existing assets and acquire additional high quality, low-to-medium risk assets with focus in Asia-Pacific.
In 2013, we achieved a 160 percent reserve replacement rate. Today, our proved and probable reserves stand at 12 million barrels of oil equivalent (MMBOE). With several field development plans expected to be approved this year by host governments, I anticipate our reserves base will continue to grow in 2014. Our current production stands at 4,300 BOEPD where 90% is oil. This allows us to capture the benefit of high oil price. We anticipate production to ramp up substantially this year with very active development drilling program. Consequently, the company’s underlying fundamentals are strong and on the right trajectory with our existing assets.
Nonetheless, in order to catapult the company to the next tier, we need an anchor project – something that will generate a steady stream of income for the company. I have been looking meticulously for such a project but am yet to secure one.
You have entered a number of production sharing contracts (PSC). Partnerships are clearly vital for the company. When choosing an investment partner, what traits and synergies do you seek?
We have varying stakes in five PSCs and within these, all our partners are NOCs, such as: CNPC, Petrochina, Pertamina and Petronas. We have forged excellent relations with such companies and consequently established a strong track record. All of them are very courteous in working with us and ultimately to work so closely with major companies can only elevate our position. In the long run, I would like to cement partnerships with companies of a similar stature to us. This would allow us to pool our resources and work on a level playing field.
The E&P industry is fraught with varying risks. What key steps in your investment strategy do you abide by before acquiring stakes in assets?
On annual basis, we assess a range of deals. Last year we had reviewed 60 deals, evenly split between brownfield and greenfield. In fields of great interest to us, we engage in a scrupulous and assiduous due-diligence process.
We prefer to identify an asset and directly approach the company because it negates a bidding war. The first step towards assessing attractive investment proposals is to send a technical team for data room visit to analyze all available subsurface data. Once we get a buy-in from the team, we will run cash flow model under the specific PSC regime based on the internally generated production and cost profiles. If the result passes our economic threshold, we then initiate deal negotiation and further financial and legal due-diligence, as well as the surface facility inspection. Once all angles have been covered, we execute a final deal.
In production sharing contracts, what synergies does RH Petrogas bring to the table?
We have a flat management structure. We are nimble and can move fast on deals. We have a balanced and diversified portfolio with full exposure to the E&P value chain. Additionally, our major shareholder, Mr. Tiong, has provided instrumental financial and business support to the company. He is a very shrewd entrepreneur, with strong local bonds and government connections in markets all over Asia Pacific. Ultimately, his unflinching support gives us and our partner’s access to a diverse set of markets. Finally, we have a highly experienced management team with good knowledge and access to opportunities in the region.
In December 2012, RH Petrogas expanded its geographical footprint into Malaysia with the signing of a new PSC for Block SK331, located onshore Sarawak. The aerogravity/magnetic survey was completed in early August 2013 and the results were being evaluated. How have the results materialized?
Block SK331 is a very large onshore concession encompassing over 11,000 km2. Although some discoveries were made by previous operators, the block is considered lightly explored. With its enormous size, we need to determine where to focus our exploration effort. The Full Tensor Gravity Gradiometry (FTG) survey is usually conducted in frontier areas. It provides high resolution definition of density distribution below the surface at fairly low cost. This allows us to see the highs and lows in the subsurface, particularly the potential hydrocarbon generating basin in the block. During 2013, we acquired more than 12,000 line kilometers of FTG data in SK331. The result clearly shows the prolific Balingian Basin where many oil and gas fields are located offshore extends into our block. We are very excited about the finding because oil and gas fields do not stop at coastline. This result has helped to direct our seismic program layout in 2014.
As a geologist, what common traits sum up Southeast Asia’s upstream geological environment?
Petroleum geology in Southeast Asia is a history of Tertiary rift basin development. This basin evolution can stretch from Pearl River Mouth Basin in offshore south China all the way to Indonesia. In a nutshell, rifting started in lower Tertiary (45 million years ago) with deposition of thick lacustrine shale which formed the most important source rock where hydrocarbon could be generated. This was followed by fluvial clastic deposits and limestone of lower to upper Tertiary which formed the important reservoirs and seals assemblage.
Rift basins are one of the most common petroleum provenances around the world. Other notable areas are east Africa, offshore South America and West Africa, to name a few.
Singapore’s capital market has been widely criticized for a lack of investor education, leading investors to be reactionary and participate in a short term game when O&G is a marathon. How do you respond to this sentiment?
The city-state has a fantastic business ecosystem. In the past year we see several new oil and gas companies come to the market. Despite a surge in sector IPO to the SGX, the exchange for listed O&G companies is still a fledgling and rather immature home. In order to catalyze market capitalization and IPO activities, the SGX was asking for industry opinions for the new Mining, Oil and Gas (MOG) rules which were enacted early this year. We were approached and our insight was submitted, but I do not think much of this was taken in. I would like there to be more proper, two way dialogue between the SGX and listed O&G companies.
The investor market in Singapore is relatively new to the oil and gas arena. The traditional investment culture in Singapore has a short term horizon which focuses on a company’s bottom line. Moreover, there is little tolerance for risk. This investment mentality is ill-suited to the long term and occasionally volatile nature of the oil and gas industry. Investors need to be educated about the sector as it is a long term play. Return of capital investment may take years from discovery to first production. Patience and sector understanding are traits that competent oil investors should align to and we are trying to educate our stakeholders to be with us for the long term. That is the challenge we face in Singapore: educating the investor market.
What is your vision for the company for the next three years?
RH Petrogas is a young and vibrant company. Since we came together three and a half years ago, we have worked hard to mold a balanced and diversified portfolio. Today, we have a stream of projects in the pipeline and we expect them to add to our 2P reserves in 2014. With an active and aggressive development drilling program and potential brownfield acquisition, we are confident that we are looking to double our production base over the course of the next two years. With very low gearing we are robust financially and are determined to maintain a strong, prudent investment discipline and balance sheet. We are on the right path and have every reason to be bullish about our future.