(EnergyAsia, May 5 2011, Thursday) — Norway’s DnB NOR Markets has issued a buy rating on RH Petrogas, a Singapore Exchange-listed upstream oil and gas company with asset exposure to China and Indonesia.

Calling the company a “heavy hitter”, DnB NOR has set a price target of S$1.12 on the stock from its recent level of S$0.85, implying a 32% potential return, assuming no dividend is declared for 2011. (US$1=S$1.23). RH Petrogas has a book value of S$0.34 with a price-earning ration of 2.52 and a market capitalisation of S$387.4 million based on a 455.8 million shares.

Analysts Lucas Huang and Simon Jong said:

“We like RH Petrogas for its relatively stable baseload earnings from mature producing assets in Indonesia, significant earnings power expansion as its Chinese asset kicks into commercial production, and potential reserves and resources upgrade from maturing multiple leads and prospects. Strategically, management is also well placed to make value accretive acquisitions.”

The company’s stable baseload earnings come from two producing assets in Indonesia. The Island and Basin production-sharing contracts (PSCs) are expected to produce a combined 4,800 b/d of oil for 2011, generating cash flow of SG$27.4 million after interest and tax payments.

This, together with payments from cost recovery, is more than sufficient for RH Petrogas to finance its work programme for 2011, said DnB NOR.

The company’s development block in China will be a major growth driver. The approval of its Fuyu 1 block development will add significantly to net production levels and raise margin sales.

DnB NOR said the company has a strong management team under Tony Tan, who has more than 30 years experience in the oil and gas industry.