Muscat – Oman’s leading brokerage firms have recommended ‘subscribe’ to the initial public offering (IPO) of OQ Exploration & Production (OQEP) and estimate an upside of up to 17% to the upper range of the offer price.

The subscription period for the OQEP IPO opened on September 30, with the Category I offer closing on October 10 and the Category II offer closing on October 9. The subscription price for the Category I offer will be between 370bz and 390bz per share, with the final price to be set through a book-building exercise.

United Securities recommended investors to ‘subscribe’ for the IPO of OQEP and advised Category I investors to place their IPO bids based on their risk appetite. ‘Our 12-month target price is 433bz per share (showing an upside of 11% to the upper end of the offer price). The dividend yield at the higher end of the IPO price band is marginally lower than the current dividend yield of major recent listings on the MSX,’ United Securities said in an IPO research note.

The brokerage firm noted that, at fair value, OQEP offers an annual base dividend yield of 6.7%, lower than the yields offered by OQGN and Abraj Energy Services. ‘The premium reflects OQEP’s solid cash flow-generating capability and superior margins stemming from a low-cost exploration and production framework. We expect investors to focus on the continuous growth in OQEP’s natural gas production, which is expected to bring in revenue and earnings stability,’ United Securities added.

U Capital also recommended subscribing to the IPO of OQEP. According to its estimate, the fair value of the company is 442bz per share, implying an upside of 13% – 19% to the Category I IPO offer price of 370-390bz per share, and a 26% upside on the Category II offer price for Oman citizens. U Capital, in its IPO research note, said, ‘OQEP offers an attractive investment opportunity benefiting from exposure to the profitable upstream business operating in Oman.’

OQEP is one of the top three and the largest pure-play oil and gas producer and explorer in Oman. It has a portfolio of six actively producing assets with an average production of 227,000 barrels of oil equivalent per day (boed) on a working interest basis, three exploration assets, and five other smaller assets operating under service agreements.

United Securities also sees strong growth prospects in OQEP’s gas production, given Oman’s objective of replacing oil with gas consumption within the country. ‘Our investment case for OQEP is driven by the company’s (i) strong operating history of achieving 150% production growth from 2017 to 2023; (ii) consistent resource replenishment in excess of 100%; (iii) an efficient cost structure; (iv) industry-leading superior margins and cash flows; and a strong balance sheet supporting clear visibility for consistent dividend distributions,’ United Securities added.

Similarly, Vision Capital also recommended subscribing to the IPO. Its valuation indicates a fair value per share of 458bz with a 12-month dividend yield (inclusive of performance dividend) of 8.6%.

‘Our fair value indicates an upside of 23.8% to the lower end of the offer price (370bz) and 17.4% to the upper end (390bz) of the price band, respectively, for Category I investors, and an upside of 30.5% for Category II investors (local investors),’ Vision Capital said in its IPO note.

Furthermore, Ahlibank’s investment banking division initiate coverage on OQEP with a target price range of 424 – 450bz, implying an upside of 15.3% on the high end of the IPO price range based on the high-end target price.

‘We believe the stock is attractive due to the portfolio of highly valuable production assets and the low operating cost per barrel, allowing the company to produce returns despite fluctuations in oil and gas prices,’ ahlibank said in an IPO research note.

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