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Mineral, Oil & Gas: New Regulations Are Out!
Op-ed, Tradeable | 18 September 2013
Related stocks:
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By: Raymond Leung
Articles (142) Profile

Recently, SGX announced additional admission and continuing listing requirements for companies in the mineral, oil and gas (MOG) sector on the Mainboard. These requirements were set to better regulate companies that are engaged in exploration. Companies that have yet to start production would likely be affected such as the recently listed KrisEnergy. New regulations will kick in on 27 September 2013. SGX will also be amending the relevant rules for MOG listed on Catalist.


Source: SGX.com, list of companies in MOG (including catalist listed)

What Are The New Requirements?
In addition to the existing listing requirements, all companies in MOG have to comply to the following requirements to be admitted into SGX’s Mainboard:

  • Market capitalisation of more than $300 million (issue price + post-invited share capital)
  • Disclosure of its plan, milestone and capital expenditure to production stage

All MOG companies regardless of stage (exploration or production etc.) have to comply with the following regulations:

  • Have at least achieved Indicated Resources (for Minerals) or Contingent Resources (for Oil & Gas)
  • Have at least 18 months of working capital from listing
  • Have at least one independent director with appropriate industry experience and expertise
  • Appoint an audit firm with the relevant industry experience

In effort to increase transparency in the sector, SGX requires all MOG companies to disclose the following:

  • A valuation report on its reserves in the prospectus
  • An independent qualified person to report on significant resource or reserve


Source: SGX.com, quantitative requirements for listing on Mainboard

Why The Change?
As Singapore move to develop itself into a commodities trading centre, SGX is more driven than ever to attract MOG companies. However, companies in this sector carry higher risks due to the nature of their business. From the start of exploration to production, it will take a lot of time and money. This will imply that the company will be deprived of income for a long period of time.

To ensure that companies are able to continue operation during the initial stage, SGX requires the companies to have at least a market capitalisation of $300 million and 18 months of working capital. In addition, companies will have to disclose its plan, milestones and capital expenditure to advance to production stage prior listing.

Due to the complexity of the industry, it may be hard for an outsider (not involved in MOG) to understand its business. In an effort to protect investors and improve on corporate governance, companies are now required to appoint at least one independent director and an audit firm with appropriate industry experience and expertise. Companies are also required to disclose a valuation report on its reserves in its offer documents and have an independent professional for reporting significant resources or reserves.

This move will put Singapore closer to being a commodities trading centre as they align closer to the international standard. Reports filed by the companies assets will have to meet the standard set by the Australasian Joint Ore Reserves Committee.

Transitional Arrangement
The new rules of MOG will be effective from 27 September 2013. Existing companies will have up to 12 months to comply for certain requirements while some are immediate. A detailed timeline can be found here.

SGX will provide transitional arrangement to existing MOG companies on the Mainboard to comply with the continuing listing requirements. In an email interview, SGX declined to comment on the details of these transitional arrangements.

KrisEnergy
Being newly listed, KrisEnergy has the most requirements to comply among the MOG companies on the Mainboard. KrisEnergy has to show that they have sufficient working capital for 18 months.

Looking at the financial statements of KrisEnergy, investors should be able to see how capital intensive the MOG sector is. Losses for the company surged for 2Q2013 and 1H2013, the first financial release of the company since listing. Based on the last three financial years as shown in the prospectus, KrisEnergy has been making significant losses.


Source: SGX, Unaudited Income Statement for KrisEnergy (1H2013 / 2Q2013)


Source: MAS, Income Statement for KrisEnergy (Prospectus)

How Does This Affect Retail Investors?
The new regulations are meant to protect retail investors against fraud with better corporate governance. It will ensure the quality of MOG companies that are listed in Singapore. At the same time, aligning regulations with international standards will enable more companies to list here with compliance made easier.

With better governance and a clearer breakdown, retail investors can understand the industry and the companies better. It will also increase the likelihood of investors to invest in the MOG sector. A bigger pool of investors will bring about higher liquidity which will in turn, attract more companies to list here. Surely, it will take Singapore a step closer to becoming a commodities trading hub.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

KrisEnergy  0.039 -0.001 -2.50%   
Business: An independent upstream Co focused on the exploration, devt, & pdtn of O&G in SEA. [FY18 Turnover] Crude oil (90%), gas (10%).

Insight: Feb-19, FY18 revenue rose 2.9% boosted by higher a... Read More
Singapore Exchange  7.870 -0.01 -0.13%   
Business: [FY18 Turnover] Equities & fixed income (48.2%), derivatives (40.2%), mkt data & connectivity (11.6%).

Insight: Jan-19, 1H19 operating revenue increased 5.7% to $... Read More


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The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

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