Ramba Energy Initiation of coverage

2 September 2014

Ramba Energy is a research client of Edison Investment Research Limited

Following significant exploration success, Ramba has built the beginnings of a substantial oil and gas company from its three Indonesian oil and gas licences: Lemang (51% WI), Jatirarangon (70% WI) and West Jambi (100% WI). The group’s near-term priority remains funding the development of its Akatara discovery within the Lemang licence, in addition to further exploration at West Jambi, where it has two material exploration prospects identified and ready to drill. We value the combined Ramba group at S$0.60/share (risked), with S$0.50/share attributed to Akatara alone. On this basis we see the group’s multiple exploration prospects and potential upside to resources at Akatara itself as underrepresented in the shares.

Year end Revenue (S$m)

PBT* (S$m)

EPS* (c)

Net (debt)/ cash (S$m)

Capex (S$m)

Debt (S$m)

12/12 71.6 (5.0) (3.1) 2.5 (8.6) (2.8) 12/13 72.9 (14.0) (4.7) 2.2 (17.1) (4.3) 12/14e 85.6 (13.2) (3.8) (44.3) (37.1) (44.3) 12/15e 88.9 (13.9) (4.0) (78.6) (23.6) (78.6)

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.

Akatara-Selong resources underestimated? Despite being accelerated to the development stage, the group’s successful discovery at Lemang, Akatara-Selong, being defined by 800m spaced 2D seismic and just three wells, could benefit from further appraisal in our view. The completion of a 3D seismic survey, currently underway and expected to be completed by year end, coupled with the drilling of additional wells has potential to increase resource estimates well beyond the mid-case of 52mmbbl and 129bcf, on which our economics and S$0.50 per share valuation for the field are based.

Exploration in Indonesia: Drill, find oil, repeat Ramba has prioritised three key exploration prospects for drilling near term in the dozens of potential targets at its three licences: West Jambi (100% WI), Lemang (51% WI) and Jatirarangon (70% WI). Within the Lemang block, the group continues to progress the Wajik prospect to drill-ready status, with current estimates suggesting the target could hold 97.7mmbbl of resources. At West Jambi, prospects Tuba Obi and North REWJ, estimated at 24.1mmbbl and 242bcf of combined resource potential, are expected to be tested by mid-2015.

Valuation: Akatara worth S$0.91/share unrisked We suggest a value for Ramba’s oil and gas business of S$0.57/share, with the Akatara-Selong field representing S$0.50/share, or 88% of this value. This valuation of Akatara-Selong reflects our discounting to reflect geological uncertainty and commercial risks to the project. On an unrisked basis, we assess the value of Akatara-Selong at S$0.91 per share and S$1.33/share for Ramba’s oil and gas business as a whole. For Richland Logistics, we estimate a value of S$0.03/share, representing 5x 2015e EBITDA, based on a mid-cycle multiple for the logistics industry. This suggests a combined value of S$0.60/share for the Ramba group.

Ramba Energy Initiation of coverage

Indonesian explorer offers low-risk upside

Price S$0.47 Market cap S$162m

US$0.80/S$ Net cash at 31 March 2014 S$5.6m

Shares in issue 344.9m

Free float 75%

Code R14

Primary exchange SGX

Secondary exchange N/A

Share price performance

% 1m 3m 12m

Abs (2.1) (6.1) (25.6)

Rel (local) (1.2) (6.4) (31.4)

52-week high/low S$0.67 S$0.47

Business description

Ramba Energy is a Singapore-listed company with two key business units: Ramba oil & gas, focused on exploration and development activities in three onshore licences in Indonesia, and Richland Logistics, providing end-to-end logistics solutions across the Asia-Pacific region.

Next event

Akatara-Selong financing Q414

Analysts

Peter Lynch +44 (0)20 3077 5731

Ian McLelland +44 (0)20 3077 5756

Will Forbes +44 (0)20 3077 5749

Elaine Reynolds +44 (0)20 3077 5713

[email protected]

Edison profile page

Oil & gas

http://www.edisoninvestmentresearch.com/research/company/Ramba-Energy

Ramba Energy | 2 September 2014 2

Investment summary

Company description: Accelerated development Ramba Energy is comprised of two businesses: Richland Logistics, a provider of logistics solutions across the Asia-Pacific region, and Ramba oil & gas, an exploration and production company holding three licences, Lemang, West Jambi and Jatirarangon in Indonesia. Since 2010 Ramba oil & gas has drilled three successful exploration wells at its Lemang licence. Via these three wells the group has discovered commercial quantities of oil and gas while defining the bulk of the Akatara-Selong reservoir structure. Given this exploration success, the Indonesian government has mandated the acceleration of Ramba’s activity at Akatara-Selong to the development phase, requiring the company to submit a formal development plan and, separately, secure the funding to execute it. In addition to the discovered Akatara field, the group holds a number of material exploration prospects within its West Jambi licence, two of which (Tuba Obi and North REWJ) are funded and scheduled for drilling prior to year end.

Valuation: Energy assets dominate Our analysis suggests a value for Ramba Energy of S$0.60 per share. For Ramba oil & gas, we estimate a value of S$0.57/share; this valuation incorporates geologic risking for both assets at Lemang and West Jambi, reflecting further appraisal risk in the case of Akatara-Selong (Lemang) and exploration risk at Tuba Obi and North REWJ (West Jambi). In addition to this risking, the estimated value of both assets has been further discounted under commercial risking reflecting their unfunded status and potential delays to the development schedule. For Richland Logistics, where we estimate a value of S$0.03/share, we have applied a multiple of 5x EBITDA (mid-cycle global logistics sector multiple) to the estimated S$2m EBITDA the group expects to deliver in 2015.

Financials: Funding Akatara-Selong options under review Ramba’s near-term funding requirements appear covered given the group’s cash balance of S$5.6m remaining from a S$19.4m rights issue successfully completed in early 2013. In the longer term, the accelerated development of Ramba’s Akatara-Selong discovery creates a need for additional funding. Among the many options, including corporate debt, equity issue and farm-down of working interests, we believe a long-term debt facility, currently in negotiation by the group, would be the most appropriate source of funding at this point in the company’s development. Given Ramba’s phased development plan at Akatara-Selong, with the bulk of development drilling scheduled to take place post installation of processing facilities, we anticipate the group will be able to at least part fund this development from future field cash flows. Hence an initial slug of capital from a debt facility would be enough to kick-start this development.

Sensitivities: Akatara-Selong resources: Refining the range The bulk of our valuation for the Ramba group (S$0.60/share) sits in its oil and gas discovery, Akatara-Selong (S$0.50/share). Given the nature of the reservoir at Akatara-Selong, being thin bed stacked channel sands currently defined by just three wells and 800m spaced seismic, we highlight the risk for the mid-case prospective resources (52mmbbl and 129bcf) used as the basis for economic assessment in this report to be materially higher or lower than this estimate.

Having been accelerated to the development stage by the Indonesian government at Akatara-Selong, both Ramba and its partner Sugih Energy face a material near-term challenge in securing funding for this development. Ramba’s current plans to secure debt are obviously favourable, though we highlight should a farm out of interest to fund development be required, both Sugih and Ramba could offer a material equity interest in the project as an incentive.


Company description: E&P strategy to dominate

Ramba Energy comprises two main business units: Richland Logistics, a provider of logistics solutions across the Asia-Pacific region, including warehousing, terminal handling and project logistics; and oil & gas, an E&P company based solely in Indonesia, with three onshore licences, Lemang (51% WI), West Jambi (100% WI) and Jatirarangon (70% WI).

Despite Richland having generated 85% of group revenues a year, we expect a reduced emphasis on logistics as management focuses on working its existing oil and gas opportunities to become a material energy producer within Indonesia.

Ramba oil & gas Indonesian focus

Ramba oil & gas consists of three key licences, as shown in Exhibit 1; all three are located within Indonesia: Jatirarangon (70% WI), West Jambi (100% WI) and Lemang (51% WI). Key assets within these licences are a mature production asset at Jatirarangon, an appraisal and development asset at Lemang and a high number of pure exploration prospects at West Jambi. Following significant exploration success the immediate focus of the company’s attention is the Akatara-Selong discovery within the Lemang block (shown in Exhibit 2), where the drilling of three successful wells has meant a government mandated acceleration of field activity to the development stage.

Exhibit 1: Indonesia focus Exhibit 2: Lemang block, key discovery

Source: Ramba Energy Source: Ramba Energy

Lemang block: Numerous targets identified

The Lemang PSC covers 4,238km2 and is located in a highly prospective area directly adjacent to the PetroChina-operated Jabung block, with current production of around 53,000boe/d. In June 2011, a CPR commissioned by Ramba and carried out by DeGolyer and MacNaughton (D&M) outlined the significant exploration potential at Lemang, highlighting 10 prospects with a combined gross prospective resource of 511mmbbl and 468bcf. Within these 10 targets assessed by D&M, the company prioritised the Akatara structure, located at the south-east extremities of the Lemang block, as the first prospect to be drilled.


Akatara proves successful as first exploration target The selection of Akatara as the first target proved to be the right decision for Ramba, as between December 2012 and August 2013 the company drilled three successful wells at the field – Akatara-1, Akatara-2 and Selong-1 – discovering oil, gas and condensate. Individual test rates from these wells were impressive and are shown in Exhibit 3; notably the combined flow rate from all three wells reached an impressive 9,500boe/d.

Beneath this combined rate, the individual well results demonstrated a high degree of variability, although it would appear feasible that where a well intercepted a hydrocarbon-bearing zone, oil production of 500-1,000b/d has been achieved. As a channel sand reservoir this variable oil output is likely driven by intercepted sand thickness and localised connectivity. Of note is the high oil production observed from the Akatara-2 well, where this well intersected three producible horizons.

In terms of the variable gas production from these wells, the crude oil produced was observed to exhibit a wide range of gas-oil ratios (GOR), notably from 785-6,300scf/bbl from Akatara-2; this variance in associated gas is driving the variability in gas produced from each zone.

As a general positive point, the reservoirs intercepted at Akatara-Selong have been shown to be highly producible, exhibiting high porosity and permeability, with the drainage radius of some wells being as much as 1.5km as observed in testing. This high deliverability is a marked commercial benefit for Akatara-Selong in reducing the number of development wells, and hence development capex, ultimately required to fully exploit the field.

Exhibit 3: Akatara-Selong well test summary Date Well name Gas (mmscf/d) Oil (b/d) Boe/d December 2012 Selong-1 16.8 790 3,853 May 2013 Akatara-1 11.0 380 2,385 February 2014 Akatara-2 5.4 2,300 3,284 Total 33.2 3,470 9,522 Source: Ramba Energy

Based on the success of these three wells, the government of Indonesia mandated that Ramba move from an exploration phase to development of the Akatara-Selong structure. As part of working up a development plan for Akatara, Ramba commissioned a new CPR covering all three of its Indonesian blocks; this was carried out by RISC in April 2014. As part of this study RISC assessed mid-case prospective recoverable resources at Akatara-Selong of 52mmbbl of oil and 129bcf of gas. This estimate forms the basis of the group’s development plan for Akatara-Selong, which is expected to be submitted in H214, with government approval anticipated by H115. Key parameters of this development scenario are highlighted in Exhibit 4.

Exhibit 4: Lemang field development scenario, key parameters Key parameters and timing Key operational assumptions Capex schedule US$m, Mid-case Development plan completed H214 Well productivity oil 1,200b/d 2014 8 POD Approval H115 Well productivity gas 4mmcf/d 2015 46 Permitting/EPF construction H115 Peak oil production 18mb/d 2016 33 First oil production H215 Peak gas production 33mmcf/d 2017 39 First gas production H216 No. of wells 17 2018 5 Drilling programmes 2015 and 2016 Processing capacity Reserves produced Oil 25mbbl/d Oil 52.6mmbbl Gas 50mmcf/d Gas 129.2bcf Source: Ramba Energy estimates

Given the group’s limited cash balance, Ramba is planning to employ a phased development schedule at Akatara. As shown in Exhibit 5, Ramba’s development plan schedule shows two major drilling campaigns for completion subsequent to the installation of early production facilities (EPFs)


for both oil and gas. Hence beyond an initial capital injection, which the company hopes will come from debt, we see early cash flows as able to at least part fund the field’s development.

Exhibit 5: Akatara-Selong, staggered development schedule

Source: Ramba Energy

One issue that drives the wide range of resource estimates for Akatara, from 7.2mmbbl (P90-oil only) to 195mmbl (P90-oil only), is the irregular location, distribution and connectivity of the reservoirs that comprise the structure. The key formations at Akatara-Selong are the Upper Talang Akar (UTAF) and the Lower Talang Akar (LTAF); a stratigraphic column illustrating the relative position and age of both the UTAF and LTAF formations is shown in Exhibit 7. The UTAF is gas prone and characterised by deltaic sands alternating with siltstones, hence irregular in quantity and location. The LTAF is oil prone and is a deltaic plain of stacked sandstones interbedded with shale and thin coals; these sands again are irregular in size and location.

Despite being accelerated to the development phase, the process of defining the Akatara-Selong structure is very firmly in its nascent stages; as shown in Exhibit 6, current 2D seismic coverage at Lemang is spaced at roughly 800m. Typically such irregular reservoir distributions require denser 3D seismic coverage to adequately map sand distribution, estimate reserves and effectively place development wells. On this note, the company is in the process of acquiring 110km2 of 3D data across the field and expects completion of this survey by year-end 2014.

Exhibit 6: Lemang PSC, 2D seismic coverage Exhibit 7: Akatara-Selong, local stratigraphy



Given this compartmentalisation, irregular reservoir distribution and limited number of wells, it is accepted the structure would benefit from further appraisal. It is our view the 110km2 3D survey coupled with further wells to appraise the areal extent of the field have the potential to increase estimated resources at the Akatara-Selong field towards the high-case estimate of 195mmbbl of oil and 350bcf of gas, from the current mid-case estimate of 52mmbbl oil and 129bcf gas upon which our field economics are based.

Beyond Akatara success, Wajik the next target at Lemang Of the 10 exploration prospects at Lemang outlined by DeGolyer and MacNaughton in the 2011 CPR, Ramba has selected the Wajik prospect as the next target to be drilled following full appraisal and development at Akatara-Selong.

Exhibit 8: D&M 2011 CPR, Lemang prospectivity as assessed in 2011 No. Prospect Prospective hydrocarbon Mean estimate (mmbbl) High estimate (mmbbl) GCoS % 1 Wajik Oil 323 583 27 2 Ampyang Oil 34 60 26 3 Sagon Oil 6 10 16 Prospective hydrocarbon Mean estimate (bcf) High estimate (bcf) GCoS % 4 Arem Arem Gas 86 193 20 5 SMD-1 Gas 239 539 17 6 CMP-1 Gas 22 39 17 7 Ampyang Gas 73 130 23 8 Sagon Gas 34 59 11 9 Wajik Gas 15 30 15 Source: DeGolyer and MacNaughton

In a follow up to DeGolyer and MacNaughton’s analysis in 2010, RISC carried out a further CPR on behalf of Ramba in 2014, analysing the Wajik prospect in detail. The group assessed three prospective horizons at Wajik – UTAF, LTAF and GUF – as offering a combined 98mmbbl of prospective resource potential.

Exhibit 9: Wajik exploration prospect, RISC CPR highlights three horizons STOIIP

(mmbbl) Resources

(mmbbl) Trap

(%) Reservoir

(%) Seal (%)

Source (%)

GCoS (%)

UTAF 107 23.7 70 80 30 75 13% LTAF 148 33.0 70 80 30 75 13% GUF 185 41.0 70 80 65 65 24% Total 440 97.7 Source: RISC April 2014 CPR

The key reservoir issues affecting Akatara-Selong are also present in Wajik, ie the main reservoirs, the UTAF and LTAF and further reservoir Gumai (GUF), are expected to be thin stacked sand sections with uncertain connectivity. However, as a distinct positive, unlike Akatara-Selong, all three reservoirs at Wajik are assessed as prospective for oil.

Over and above these ‘thin-bed’ reservoir concerns, the issue of fault seal risk is an overriding factor that affects the presence of hydrocarbons at all three targeted intervals at Wajik. The main Tungkal fault that bounds the prospect to the East has been observed as having failed to seal at both the UTAF and LTAF level by the historic well, Tungkal-1, located at the crest of the targeted structure.

However, since the Tungkal-1 well did not intercept the shallower GUF formation, the Tungkal fault is assumed as sealing at this level. The company continues to assess the prospectivity and potential resources at Wajik in relation to the fault seal issue.


West Jambi: Tuba discovery and North REWJ prospect

Ramba holds 100% of the West Jambi block located in the north of the Sumatra Basin. The company signed a KSO (Kontrak Kerjasama Operasi) with the Indonesian government in June 2011 giving it the right to explore for and produce hydrocarbons within the licence for the next 20 years. As shown in Exhibit 101, the block is divided into two areas: the north-eastern block, containing the Tuba Obi oil field together with a number of prospects and leads, and the south-western block, containing several leads that have yet to be assessed. As interpreted by Ramba, the block is considered to contain two main prospective formations, the Air Benakat formation (ABF) prospective for oil, and the Talang Akar formation (TAF) prospective for gas.

Exhibit 10: West Jambi location map Exhibit 11: West Jambi, Tuba Obi field plus prospects


Tuba Obi – a historic discovery from the 1940s The Tuba Obi oilfield is an existing discovery lying to the north of the West Jambi block that was first drilled back in the 1940s. Given Tuba Obi never reached commercial production the field represents a priority target for Ramba, containing estimated recoverable resources of 7.9mmbbl and negligible exploration risk.

Exhibit 12: Tuba Obi oilfield, proven structure Case P90 P50 P10 STOIIP (mmbbl) 18.0 54.4 119 Recovery factor (%) 10 15 20 Reserves oil (mmbbl) 2.4 7.9 18.5 Source: RISC April 2014 CPR

It is our understanding the company is in receipt of a number of historic well logs relating to the Tuba Obi field and is using them to hone its approach in developing the field and particularly in placing the first well. In terms of prospectivity we understand these well logs confirm oil and gas as present in the ABF and TAF horizons respectively.

West Jambi exploration potential: Nine firm prospects and eight leads The potential size and associated chance of success of the nine exploration prospects and eight leads, assessed in detail by RISC in its 2014 CPR, are illustrated graphically in Exhibit 13.


Exhibit 13: West Jambi prospectivity, nine prospects plus eight leads


Of the prospects and leads assessed by RISC, REWJ ABF/TAF and North REWJ ABF/TAF stand out as priority targets given their relative resource potential. Exhibit 14 details the size of all nine prospects, which in total represent 22.1mmbbl and 459bcf of prospective potential.

Exhibit 14: West Jambi prospects Prospects STOIIP

(mmbbl) GIIP (bcf)

Recovery factor (%)

Prospective recoverable GCoS (%) (mmbbl) (bcf)

REWJ ABF 17.5 x 15 2.6 x 36% REWJ TAF x 165 70 x 113 32% North REWJ-ABF 92.90 x 15 13.6 x 22% North REWJ-TAF x 187.0 85 x 129 28%

ESE REWJ-ABF 28.4 x 15 4.1 x 23% ESE REWJ-TAF x 94.6 70 x 66 23%

S REWJ-1 - ABF 12.6 x 15 1.8 x 7% REWJ TAF x 165 70 x 113 32%

SE REWJ-TAF x 55.2 70% x 38 24% Total 22.1 459 Source: RISC CPR, April 2014

Ramba plans to drill three exploration wells in the near term at West Jambi, targeting the four prospects listed at the top of Exhibit 14. Two of these wells are planned for the historic structure, Tuba Obi. The first Tuba Obi wells will target the known accumulation previously drilled in the 1940s, estimated at 7.9mmbbl of prospective resources (as previously highlighted in Exhibit 12), whereas the second well will step out to the east, across a north-south running fault, targeting the smaller REWJ-ABF exploration prospect, estimated at 2.6mmbbl and shown in Exhibit 14.

In addition to targeting oil in the ABF formation, both Tuba Obi wells will additionally target gas in the TAF formation. The gas prospect at Tuba Obi is shown as REWJ TAF in Exhibit 14 and is estimated at 113bcf of prospective gas resources. Subsequent to the two wells at Tuba Obi, Ramba targets a third well at exploration prospect North REWJ, shown in Exhibit 14, targeting both oil in the ABF formation (13.6mmbbl) and gas in the TAF formation (129bcf).

The company estimates each of the three wells will cost around US$2-2.5m and expects to have completed at least two by mid-2015 (Tuba Obi and North REWJ). Should these wells prove successful we anticipate rapid commercialisation given the fully operational Caltex export pipeline runs directly through the centre of the block.


Jatirarangon: Production plus eastern prospect

The Jatirarangon block has been commercially producing gas since 2004, with Ramba acquiring its 70% stake in 2010. Production currently comes from four producing zones located in the western section of the field. The field is mature and in steady decline with current output of 1.8mmcf/d and 18b/d. In terms of achieved pricing in the area, gas produced from Jatirarangon is currently supplied to Indonesian gas distribution firm PT Perusahaan Gas Negara, at US$4.59/mmbtu. However, this agreement will end in October 2014, at which point the company expects to negotiate an increase in this gas price to at least US$6/mmbtu.

Exhibit 15: Jatirarangon location


In terms of future exploration potential at Jatirarangon, there exists a separate undrilled prospect to the east of the pool already in production. The east Jatirarangon prospect is small, having been assessed by RISC in its 2014 CPR at 15mmboe of resource potential contained across seven separate reservoirs.

Indonesian oil demand, facing a domestic supply gap

The backdrop to Ramba’s activities in Indonesia is one of declining oil production, rising domestic demand and, by necessity, increasing imports of refined fuel products. Since 1981 Indonesian oil production has fallen 55% from 1.7mmb/d to 0.94mmb/d in 2013 (shown in Exhibit 16), whereas total energy consumption has grown by 44% over the same period. This drop in output, coupled with the increase in domestic demand, led to the country leaving OPEC in 2009, reflecting its reduced influence as an exporter of crude oil.

Behind this energy demand growth is the strong Indonesian economy, which survived the global recession in good form, having booked just under 6% GDP growth since 2008. This economic growth is driven by an expanding population combined with the government’s fuel subsidy. This fuel subsidy is a contentious political issue, having cost the government around 7% of its annual budget since 2005, costing around US$17.5 bn in 2013 and expected to reach US$21bn in 2014. On 22 July, Joko Widodo, the reformist Jakarta governor, was officially declared the new president of Indonesia. In terms of economic agenda, it is widely expected that cutting fuel subsidies to control the widening budget deficit will be a priority.


Exhibit 16: Indonesian oil supply vs demand Exhibit 17: Indonesian natural gas supply vs demand

Source: Energy Information Administration Source: Energy Information Administration

However, despite this potential for a reduction in fuel subsidies, the supply gap for crude oil is expected to continue, largely due to the country’s ageing infrastructure and mature producing asset base. In terms of the outlook for oil production in Indonesia, we expect the market to remain undersupplied, with the government maintaining a dedicated approach to increasing output and the promotion of indigenous oil and gas activity generally.

In contrast to oil, natural gas production in Indonesia has increased by almost 25% between 2002 and 2012. While Indonesia exports around half its natural gas (Indonesia was the fourth-largest LNG exporter in 2013), domestic consumption continues to increase in tandem with production. Sustained growth in natural gas demand has led the government to pursue policies to stimulate domestic production and secure adequate natural gas supplies for the local market.

On this basis we see Ramba’s plans to become a significant oil and gas producer within Indonesia as aligned with those of the newly elected government, whose attempts to reduce the budget deficit will require an increase in domestic production to offset the country’s growing reliance on imported fuels.

Richland Logistics: Efficiency from scale

Ramba acquired Richland Logistics (RL) in 2008 with a view to expanding the business across the Asia-Pacific region, as at the time of acquisition the business was almost solely focused on the Singapore market. Since acquisition, management has been successful in diversifying Richland, both geographically and operationally, as the group now generates over 40% of revenue from the Indonesian market while offering services in new business areas such as chemical transportation, warehouse leasing and drilling rig mobilisation.

Exhibit 18: Logistics and rental division earnings and estimates US$000s FY12 FY13 FY14e FY15e Revenue 52,877 55,145 63,721 65,282 EBITDA 2,008 (970) 2,388 2,084 Source: Ramba Energy estimates. Note: Negative result affected by one-off flood impairment and provision for bad debts.

Richland’s main business is the provision of transportation and warehousing solutions. Specific services include customised end-to-end logistics planning, with specialisations in transportation and distribution management, warehousing, airport terminal handling, container haulage, bulk liquid transportation and project logistics. The group employs 900 staff, operates a transport fleet of 500 trucks and 500 chemical transportation ISO-tanks and, in addition, controls more than 1.2m square feet of warehousing capacity.


With annual revenues of US$55m (2013), as shown in Exhibit 18, RL has been broadly break-even in recent years, with the loss in 2013 being due to one-off issues such as a flood in Indonesia that restricted the group’s activities and a large provision for bad debts. Ramba’s long-term outlook for RL targets continued growth in revenue to over S$100m, mainly through acquisition. We expect the resultant increase in scale and efficiency to deliver an improvement in EBITDA margins towards the 6-8% range.

Management

Mr David Aditya Soeryadjaya (CEO): appointed in 2007, Mr Soeryadjaya is a qualified accountant with a degree in accounting from the University of Southern California. Before joining Ramba, David worked for Ernst & Young in New York. Before this, he founded a real estate and mortgage brokerage company that was acquired by a major real estate brokerage.

Mr Lee Seck Hwee (CFO): appointed in 2008, Mr Lee is a chartered accountant and holds a master of applied finance from Macquarie University in Australia. Mr Lee has 25 years of finance experience, which includes serving as head of finance at the group level of SMOE, Sembcorp Engineers & Constructors, Trans Eurokars and Beloit Asia Pacific.

Mr Daniel Jol (Commercial Director): appointed in 2008, Mr Jol has a BSc degree in civil engineering from Purdue University Indiana and an MBA from the University of Singapore. Daniel is responsible for the group’s strategic direction in both logistics and oil and gas, in addition to driving M&A activity, fund-raising and budget preparation.

Mr Colin Moran (Logistics Director): appointed in 2010, Mr Moran holds qualifications in leadership and supply chain management and has 25 years of experience in the logistics and supply chain industry gained in Australia, Indonesia, Singapore and across the Asia-Pacific region.

Bambang Satya Murti (Head of Exploration): appointed in 2009. Mr Murti has a degree in geology from Gadjah Mada University, Indonesia and is a geoscientist with over 20 years’ experience in the petroleum industry. Mr Murti has worked for ConocoPhillips, and Halliburton.

Bambang Nugroho (Technical Director): appointed in 2008, Mr Nugroho has a degree in petroleum engineering from Bandung Institute of Technology, Indonesia. Mr Nugroho is also a veteran of state-owned oil and gas company Pertamina, having headed its upstream business.

Sutikno Yudi (Technical Expert): appointed in 2007, Mr Yudi holds a master’s degree in petroleum engineering from Tulsa University and has 30 years’ experience of the Indonesian oil and gas industry. Mr Yudi has worked for Asamera Oil, Gulf Resources and ConocoPhillips.

Valuation: S$0.60/share risked, S$1.33/share unrisked

We value Ramba Energy using an asset-by-asset NAV derived from detailed DCF modelling. Our valuation includes an assessment of the Lemang field under appraisal and exploration prospects at Lemang and West Jambi. We apply a risking factor to the resultant field NPV values to take account of geological, technical and commercial uncertainties, in addition to any required dilution the company may experience due to the funding requirements of field development.

Our assumptions applied in this valuation include a 12% discount rate, in line with our assessment of country risk in Indonesia. For commodity pricing, we assume US$80/bbl long-term for Brent (after a fade from current levels), while we use local gas prices where appropriate, in this case US$6/mmbtu being a representative price for Indonesia.

Indonesian PSC terms involve an initial first tranche petroleum (FTP) royalty of 10% be paid to the government, followed by full cost recovery for the contractor. Equity barrels are then split between


the contractor and the government in the ratio of 62.3%/35.7% in the government’s favour for oil, and 71.4%/28.6% in the contractor’s favour for gas. The contractor then pays 44% in corporation tax on the profit from its equity share (35.7% oil/71.4% gas). This tax regime results in a considerable net tax take for the government of 82.9% for oil and 34.4% for gas.

Exhibit 19: Valuation summary Asset Country Diluted WI CoS Gross Net NPV/boe Value Risked Unrisked % % mmboe mmboe S$/boe S$m S$/share S$/share Net (debt)/cash 100% 100% 5 0.02 0.02 SG&A 100% 100% (7) (0.03) (0.03) Richland Logistics 12 0.03 0.03 Appraisal/development Akatara-Selong Indonesia 51% 55% 76.7 39.1 6.3 136 0.50 0.91 NAV 146 0.53 0.93 Exploration Tuba Obi/North REWJ Indonesia 100% 18% 38.0 38.0 2.8 19 0.07 0.39 Exploration NAV 19 0.07 0.39 RENAV 165 0.60 1.33 Source: Edison Investment Research

As shown in Exhibit 19, our analysis suggests a value for the Ramba group of S$0.60 per share. Beneath this total we estimate a value of S$0.57/share for Ramba oil & gas. This valuation incorporates geologic risking for both assets at Lemang and West Jambi, reflecting further appraisal risk in the case of Akatara (Lemang) and exploration risk at Tuba Obi and North REWJ (West Jambi). In addition to this risking, we have applied commercial risking to reflect its unfunded status and any potential delays to development schedule.

For Richland Logistics, where we estimate a value of S$0.03/share, we have applied a multiple of 5x EBITDA (mid-cycle multiple for the logistics sector) to the estimated S$2m EBITDA the group expects to deliver in 2015.

Valuation sensitivities: Refining the range The bulk of our S$0.60/share group valuation for Ramba sits in its oil and gas discovery, Akatara-Selong, which we value at S$136m or S$0.50 per share. Current mid-case resource estimates for Akatara-Selong of 52mmbl oil and 129bcf gas (on which our field economics are based) sit within a large range, as estimated by RISC in its 2014 CPR, and highlighted in Exhibit 20.

Exhibit 20: Akatara-Selong resource estimates, low, mid and high case Oil (mmbbl) Gas (bcf) High case 196 349 Mid case 52 129 Low case 7 25 Source: RISC 2014 CPR

This range in possible resource potential at Akatara is driven by the lack of definition around the distribution, size and connectivity of Akatara-Selong’s thin bed, channel sand, stacked reservoirs. Resource estimates for the field therefore, and by consequence the company’s value, are highly sensitive to the outcome of the process of better defining these structures. As a key part of the process, a 3D seismic survey is currently underway at Akatara-Selong, analysis of which will allow better definition of the channel sand beds, and hence refine the range of resources for the field.

In terms of our valuation’s sensitivity to the movement in this range, from our analysis and shown in Exhibit 21, an uplift in oil resources beyond the 52mmbbl mid-case by 10% would increase the NAV by 7% versus only 3% for the same increase in natural gas resources. We have limited the variance of resources to 10% in this analysis as a larger increase would likely involve an upward revision to the assumed development scenario and required capital investment.


Exhibit 21: Valuation sensitivity to a 10% resources increase above mid-case Oil (mmbbl) Gas (bcf) Reserves increase 10% 10% Resultant NAV uplift 7% 3% Source: Edison Investment Research

In terms of this sensitivity, we highlight the potential upside in our valuation from continued appraisal at Akatara-Selong, with uplift towards the high case resource estimates being particularly beneficial to the company in the case of oil, and less so for gas.

Exhibit 22: Akatara-Selong valuation (net unrisked) macro sensitivity (US$m) Oil price US$/bbl 60 80 100 120

Gas price US$/mmbtu

5 196 235 274 314 6 209 248 287 326 7 222 261 300 339 8 234 273 313 352

Source: Edison Investment Research

In Exhibit 22 we assess the impact to our valuation of Akatara-Selong, shown in bold at US$248m (unrisked), of variance in both crude oil and natural gas prices. As expected in a PSC regime where the government’s net take from oil activity is over 80%, the field NPV for Akatara-Selong shows a moderate sensitivity to oil price movements, while sensitivity to gas prices is almost benign. Hence in place resources at Akatara remain the critical driver of ultimate value for the company.

Sensitivities

Ramba oil & gas is exposed to the normal geological and technical risks inherent in oil and gas exploration. Apart from these, we highlight the following as major risks:

Funding risk: Ramba faces a material funding gap in 2014 and 2015 if its main field, Akatara-Selong, is to be developed. Work to secure a debt facility is underway by the company, though we highlight, in the absence of this facility being secured, the less attractive options of an equity issue or farm-out of working interest at Lemang (51% WI) may become a reality.

Reservoir risk: Given the nature of the reservoir at Akatara-Selong, being thin bed stacked channel sands varying in size and connectivity, there is potential for the prospective resources contained at Akatara-Selong to be materially higher or lower than the mid-case resource estimate used as the basis for economic evaluation in this report.

Counterparty risk: Ramba’s partner at Akatara-Selong, Sugih Energy, holds the remaining 49% interest in the Lemang block containing the Akatara-Selong discovery. Given Sugih’s similarly moderate balance sheet, we highlight the risk of ‘partner drag’ for Ramba, in that both owners of this asset require additional capital to advance to the development stage.

Financials: Funding options at Lemang under review

At the end of March 2014 Ramba held cash of S$5.6m (US$4.4m); this remains from a S$19.4m successful rights issue carried out by the group in early 2013. Given this limited cash balance, the group is evaluating additional sources of finance to fund its activities, particularly the development of the Akatara-Selong field. In our view, the group’s phased development at Akatara-Selong, coupled with the full cost recovery shelter available from prior exploration wells (US$50m) should allow the company to at least part fund the field development from future cash flows.

To support this theory, in our economic model of Akatara-Selong we estimate a peak unfunded capital requirement of US$45m (net to Ramba) from the development of this field, occurring in


2015. We understand the company is currently assessing all options to secure development funding for Akatara-Selong, including a farm out of equity, an equity issuance and debt. In our view a debt facility would be the favoured option given the short-term funding gap to be covered, with the retention of equity in the project resulting in the greatest value accruing to existing Ramba shareholders.


Exhibit 23: Financial summary S$000s 2010 2011 2012 2013 2014e 2015e Year-end December IFRS IFRS IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue 47,092 64,515 71,566 72,872 85,592 88,868 Cost of Sales (23,687) (35,458) (42,250) (44,364) (52,236) (57,727) Gross Profit 23,405 29,057 29,316 28,508 33,356 31,141 EBITDA 2,894 (5,631) (458) (10,080) (9,455) (10,023) Operating Profit (before amort. and except.) 61 (8,635) (4,427) (13,316) (12,622) (13,223) Intangible Amortisation 0 0 0 0 0 0 Exceptionals 0 0 0 0 0 0 Other 0 0 0 0 0 0 Operating Profit 61 (8,635) (4,427) (13,316) (12,622) (13,223) Net Interest (428) (489) (535) (696) (528) (682) Profit Before Tax (norm) (367) (9,124) (4,962) (14,012) (13,150) (13,904) Profit Before Tax (FRS 3) (367) (9,124) (4,962) (14,012) (13,150) (13,904) Tax (729) (1,382) (2,502) (1,655) 78 0 Profit After Tax (norm) (1,096) (10,506) (7,464) (15,667) (13,072) (13,904) Profit After Tax (FRS 3) (1,096) (10,506) (7,464) (15,667) (13,072) (13,904) Average Number of Shares Outstanding (m) 199.1 239.7 242.1 336.6 344.9 344.9 EPS - normalised (cents) (0.6) (4.4) (3.1) (4.7) (3.8) (4.0) EPS - normalised and fully diluted (cents) (0.6) (4.4) (3.1) (4.7) (3.8) (4.0) EPS - (IFRS) (cents) (0.6) (4.4) (3.1) (4.7) (3.8) (4.0) Dividend per share (cents) 0.0 0.0 0.0 0.0 0.0 0.0 Gross Margin (%) 49.7 45.0 41.0 39.1 39.0 35.0 EBITDA Margin (%) 6.1 -8.7 -0.6 -13.8 -11.0 -11.3 Operating Margin (before GW and except.) (%) 0.1 -13.4 -6.2 -18.3 -14.7 -14.9 BALANCE SHEET Fixed Assets 42,445 48,204 62,453 80,893 115,322 135,722 Intangible Assets 18,708 25,676 23,564 27,009 57,676 77,641 Tangible Assets 9,020 7,988 11,819 9,702 11,134 11,569 Investments 14,717 14,540 27,070 44,182 46,512 46,512 Current Assets 31,293 41,528 29,653 26,115 21,708 21,708 Stocks 40 203 84 121 154 154 Debtors 18,093 24,584 23,013 18,553 20,123 20,123 Cash 8,546 12,800 5,252 6,483 0 0 Other 4,614 3,941 1,304 958 1,431 1,431 Current Liabilities (14,207) (22,916) (28,635) (34,801) (38,130) (38,130) Creditors (11,782) (20,491) (26,523) (30,491) (31,813) (31,813) Short term borrowings (2,425) (2,425) (2,112) (4,310) (6,317) (6,317) Long Term Liabilities (9,817) (7,982) (12,618) (13,547) (52,272) (86,577) Long term borrowings (5,322) (2,798) (685) 0 (38,005) (72,310) Other long term liabilities (4,495) (5,184) (11,933) (13,547) (14,267) (14,267) Net Assets 49,714 58,834 50,853 58,660 46,628 32,723 CASH FLOW Operating Cash Flow (822) 1,286 4,209 (1,113) (10,121) (10,704) Net Interest 0 0 0 0 0 0 Tax 0 0 0 0 0 0 Capex (16,696) (13,906) (8,610) (17,125) (37,084) (23,600) Acquisitions/disposals 0 0 0 0 0 0 Financing 14,584 20,108 (1,529) 18,021 0 0 Dividends 0 0 0 0 0 0 Net Cash Flow (2,934) 7,488 (5,930) (217) (47,205) (34,304) Opening net debt/(cash) 0 (799) (7,577) (2,455) (2,173) 44,322 HP finance leases initiated 0 0 0 0 0 0 Other 3,733 (710) 808 (65) 710 0 Closing net debt/(cash) (799) (7,577) (2,455) (2,173) 44,322 78,627 Source: Ramba Energy accounts, Edison Investment Research


Contact details Revenue by geography Ramba Energy Limited 29A Club Street 069414 Singapore +65 6223 8022 www.ramba.com

CAGR metrics Profitability metrics Balance sheet metrics Sensitivities evaluation EPS 2012-16e N/A EPS 2014-16e N/A EBITDA 2012-16e N/A EBITDA 2014-16e N/A Sales 2012-16e 5.6% Sales 2014-16e 1.9%

ROCE 15e N/A Avg ROCE 2012-16e N/A ROE 15e N/A Gross margin 15e 35.0% Operating margin 15e N/A Gr mgn / Op mgn 15e N/A

Gearing 15e N/A Interest cover 15e N/A CA/CL 15e N/A Stock days 15e N/A Debtor days 15e 82.6 Creditor days 15e 122.0

Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices

Management team CEO: Mr David Aditya Soeryadjaya CFO: Mr Lee Seck Hwee Appointed in 2007, Mr Soeryadjaya is a qualified accountant with a degree in accounting from the University of Southern California. Before joining Ramba, David worked for Ernst & Young in New York. Before this he founded a real estate and mortgage brokerage company that was acquired by a major real estate brokerage.

Appointed in 2008, Mr Lee is a chartered accountant and holds a master of applied finance from Macquarie University in Australia. Mr Lee has 25 years of finance experience, which includes serving as head of finance at the group level of SMOE, Sembcorp Engineers & Constructors, Trans Eurokars and Beloit Asia Pacific.

Commercial Director: Mr Daniel Jol Head of Exploration: Mr Bambang Satya Murti Appointed in 2008, Mr Jol has a BSc degree in civil engineering from Purdue University Indiana and an MBA from the University of Singapore. Daniel is responsible for the group’s strategic direction in both logistics and oil and gas, in addition to driving M&A activity, fund-raising and budget preparation.

Appointed in 2009, Mr Murti has a degree in geology from Gadjah Mada University, Indonesia, and is a geoscientist with over 20 years’ experience in the petroleum industry. Mr Murti has worked for ConocoPhillips and Halliburton.

Principal shareholders (%) Redmount Holdings 31.27 Summit Gain Consultants 6.09 Lau, Chee Heong 4.87 Cottew, Timothy Stephen 2.84 Soeryadjaya, Aditya 1.58 Jol, Daniel 0.59 Ganadjaja, Lanymarta 0.54

Companies named in this report N/A

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com DISCLAIMER Copyright 2014 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Ramba Energy and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2014. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960 Schumannstrasse 34b 60325 Frankfurt Germany

London +44 (0)20 3077 5700 280 High Holborn London, WC1V 7EE United Kingdom

New York +1 646 653 7026 245 Park Avenue, 39th Floor 10167, New York US

Sydney +61 (0)2 9258 1161 Level 25, Aurora Place 88 Phillip St, Sydney NSW 2000, Australia

Wellington +64 (0)48 948 555 Level 15, 171 Featherston St Wellington 6011 New Zealand

100%%

South-East Asia

http://www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584

http://www.edisongroup.com/

Ramba Energy Initiation of coverage

Documents

Transcript of Ramba Energy Initiation of coverage