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Download PDF of this article here: https://docdro.id/6eLgUPo
In light of the recent fall in oil prices due to the Saudi-Russian dispute and dampening demand for oil due to the lockdowns implemented globally, O&G stocks have taken a severe beating, falling approximately 50% from their highs at the beginning of the year. Not spared from this onslaught is Hibiscus Petroleum Berhad (Hibiscus), a listed oil and gas (O&G) exploration and production (E&P) company.
Why invest in O&G stocks in this particularly uncertain period? For one, valuations of these stocks have fallen to multi-year lows, bringing the potential ROI on these stocks to attractive levels. Oil prices are cyclical, and are bound to return to the mean given a sufficiently long time horizon. The trick is to find those companies who can survive through this downturn and emerge into “normal” profitability once oil prices rebound.
In this article, I will explore the upsides and downsides of investing in Hibiscus. I will do my best to cater this report to newcomers to the O&G industry – rather than address exclusively experts and veterans of the O&G sector. As an equity analyst, I aim to provide a view on the company primarily, and will generally refrain from providing macro views on oil or opinions about secular trends of the sector. I hope you enjoy reading it!
Stock code: 5199.KL
Stock name: Hibiscus Petroleum Berhad
Financial information and financial reports: https://www.malaysiastock.biz/Corporate-Infomation.aspx?securityCode=5199
Company website: https://www.hibiscuspetroleum.com/
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Company Snapshot

Hibiscus Petroleum Berhad (5199.KL) is an oil and gas (O&G) upstream exploration and production (E&P) company located in Malaysia. As an E&P company, their business can be basically described as:
· looking for oil,
· drawing it out of the ground, and
· selling it on global oil markets.
This means Hibiscus’s profits are particularly exposed to fluctuating oil prices. With oil prices falling to sub-$30 from about $60 at the beginning of the year, Hibiscus’s stock price has also fallen by about 50% YTD – from around RM 1.00 to RM 0.45 (as of 5 April 2020).
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While the company is domiciled in Malaysia, its two main oil producing fields are located in both Malaysia and the UK. The Malaysian oil field is commonly referred to as the North Sabah field, while the UK oil field is commonly referred to as the Anasuria oil field. Hibiscus has licenses to other oil fields in different parts of the world, notably the Marigold/Sunflower oil fields in the UK and the VIC cluster in Australia, but its revenues and profits mainly stem from the former two oil producing fields.
Given that it’s a small player and has only two primary producing oil fields, it’s not surprising that Hibiscus sells its oil to a concentrated pool of customers, with 2 of them representing 80% of its revenues (i.e. Petronas and BP). Fortunately, both these customers are oil supermajors, and are unlikely to default on their obligations despite low oil prices.
At RM 0.45 per share, the market capitalization is RM 714.7m and it has a trailing PE ratio of about 5x. It doesn’t carry any debt, and it hasn’t paid a dividend in its listing history. The MD, Mr. Kenneth Gerard Pereira, owns about 10% of the company’s outstanding shares.
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Reserves (Total recoverable oil) & Production (bbl/day)

To begin analyzing the company, it’s necessary to understand a little of the industry jargon. We’ll start with Reserves and Production.
In general, there are three types of categories for a company’s recoverable oil volumes – Reserves, Contingent Resources and Prospective Resources. Reserves are those oil fields which are “commercial”, which is defined as below:
^{As defined by the SPE PRMS, Reserves are “… quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions.” Therefore, Reserves must be discovered (by drilling}, recoverable (with current technology), remaining in the subsurface (at the effective date of the evaluation) and “commercial” based on the development project proposed.)
^{Note that Reserves are associated with development projects. To be considered as “commercial”, there must be a firm intention to proceed with the project in a reasonable time frame (typically 5 years}, and such intention must be based upon all of the following criteria:)
^{- A reasonable assessment of the future economics of the development project meeting defined investment and operating criteria; - A reasonable expectation that there will be a market for all or at least the expected sales quantities of production required to justify development; - Evidence that the necessary production and transportation facilities are available or can be made available; and - Evidence that legal, contractual, environmental and other social and economic concerns will allow for the actual implementation of the recovery project being evaluated.}
Contingent Resources and Prospective Resources are further defined as below:
^{- Contingent Resources: potentially recoverable volumes associated with a development plan that targets discovered volumes but is not (yet} commercial (as defined above); and) ^{- Prospective Resources: potentially recoverable volumes associated with a development plan that targets as yet undiscovered volumes.}
In the industry lingo, we generally refer to Reserves as ‘P’ and Contingent Resources as ‘C’. These ‘P’ and ‘C’ resources can be further categorized into 1P/2P/3P resources and 1C/2C/3C resources, each referring to a low/medium/high estimate of the company’s potential recoverable oil volumes:
^{- Low/1C/1P estimate: there should be reasonable certainty that volumes actually recovered will equal or exceed the estimate; - Best/2C/2P estimate: there should be an equal likelihood of the actual volumes of petroleum being larger or smaller than the estimate; and - High/3C/3P estimate: there is a low probability that the estimate will be exceeded.}
Hence in the E&P industry, it is easy to see why most investors and analysts refer to the 2P estimate as the best estimate for a company’s actual recoverable oil volumes. This is because 2P reserves (‘2P’ referring to ‘Proved and Probable’) are a middle estimate of the recoverable oil volumes legally recognized as “commercial”.
However, there’s nothing stopping you from including 2C resources (riskier) or utilizing 1P resources (conservative) as your estimate for total recoverable oil volumes, depending on your risk appetite. In this instance, the company has provided a snapshot of its 2P and 2C resources in its analyst presentation:
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Basically, what the company is saying here is that by 2021, it will have classified as 2P reserves at least 23.7 million bbl from its Anasuria field and 20.5 million bbl from its North Sabah field – for total 2P reserves of 44.2 million bbl (we are ignoring the Australian VIC cluster as it is only estimated to reach first oil by 2022).
Furthermore, the company is stating that they have discovered (but not yet legally classified as “commercial”) a further 71 million bbl of oil from both the Anasuria and North Sabah fields, as well as the Marigold/Sunflower fields. If we include these 2C resources, the total potential recoverable oil volumes could exceed 100 million bbl.
In this report, we shall explore all valuation scenarios giving consideration to both 2P and 2C resources.
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The company further targets a 2021 production rate of 20,000 bbl (LTM: 8,000 bbl), which includes 5,000 bbl from its Anasuria field (LTM: 2,500 bbl) and 7,000 bbl from its North Sabah field (LTM: 5,300 bbl).
This is a substantial increase in forecasted production from both existing and prospective oil fields. If it materializes, annual production rate could be as high as 7,300 mmbbl, and 2021 revenues (given FY20 USD/bbl of $60) could exceed RM 1.5 billion (FY20: RM 988 million).
However, this targeted forecast is quite a stretch from current production levels. Nevertheless, we shall consider all provided information in estimating a valuation for Hibiscus.
To understand Hibiscus’s oil production capacity and forecast its revenues and profits, we need to have a better appreciation of the performance of its two main cash-generating assets – the North Sabah field and the Anasuria field.
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North Sabah oil field
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Hibiscus owns a 50% interest in the North Sabah field together with its partner Petronas, and has production rights over the field up to year 2040. The asset contains 4 oil fields, namely the St Joseph field, South Furious field, SF 30 field and Barton field.
For the sake of brevity, we shall not delve deep into the operational aspects of the fields or the contractual nature of its production sharing contract (PSC). We’ll just focus on the factors which relate to its financial performance. These are:
· Average uptime
· Total oil sold
· Average realized oil price
· Average OPEX per bbl
With regards to average uptime, we can see that the company maintains relative high facility availability, exceeding 90% uptime in all quarters of the LTM with exception of Jul-Sep 2019. The dip in average uptime was due to production enhancement projects and maintenance activities undertaken to improve the production capacity of the St Joseph and SF30 oil fields.
Hence, we can conclude that management has a good handle on operational performance. It also implies that there is little room for further improvement in production resulting from increased uptime.
As North Sabah is under a production sharing contract (PSC), there is a distinction between gross oil production and net oil production. The former relates to total oil drawn out of the ground, whereas the latter refers to Hibiscus’s share of oil production after taxes, royalties and expenses are accounted for. In this case, we want to pay attention to net oil production, not gross.
We can arrive at Hibiscus’s total oil sold for the last twelve months (LTM) by adding up the total oil sold for each of the last 4 quarters. Summing up the figures yields total oil sold for the LTM of approximately 2,075,305 bbl.
Then, we can arrive at an average realized oil price over the LTM by averaging the average realized oil price for the last 4 quarters, giving us an average realized oil price over the LTM of USD 68.57/bbl. We can do the same for average OPEX per bbl, giving us an average OPEX per bbl over the LTM of USD 13.23/bbl.
Thus, we can sum up the above financial performance of the North Sabah field with the following figures:
· Total oil sold: 2,075,305 bbl
· Average realized oil price: USD 68.57/bbl
· Average OPEX per bbl: USD 13.23/bbl
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Anasuria oil field
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Doing the same exercise as above for the Anasuria field, we arrive at the following financial performance for the Anasuria field:
· Total oil sold: 1,073,304 bbl
· Average realized oil price: USD 63.57/bbl
· Average OPEX per bbl: USD 23.22/bbl
As gas production is relatively immaterial, and to be conservative, we shall only consider the crude oil production from the Anasuria field in forecasting revenues.
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Valuation (Method 1)

Putting the figures from both oil fields together, we get the following data:
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Given that we have determined LTM EBITDA of RM 632m, the next step would be to subtract ITDA (interest, tax, depreciation & amortization) from it to obtain estimated LTM Net Profit. Using FY2020’s ITDA of approximately RM 318m as a guideline, we arrive at an estimated LTM Net Profit of RM 314m (FY20: 230m). Given the current market capitalization of RM 714.7m, this implies a trailing LTM PE of 2.3x.
Performing a sensitivity analysis given different oil prices, we arrive at the following net profit table for the company under different oil price scenarios, assuming oil production rate and ITDA remain constant:
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From the above exercise, it becomes apparent that Hibiscus has a breakeven oil price of about USD 41.8863/bbl, and has a lot of operating leverage given the exponential rate of increase in its Net Profit with each consequent increase in oil prices.
Considering that the oil production rate (EBITDA) is likely to increase faster than ITDA’s proportion to revenues (fixed costs), at an implied PE of 4.33x, it seems likely that an investment in Hibiscus will be profitable over the next 10 years (with the assumption that oil prices will revert to the mean in the long-term).
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Valuation (Method 2)

Of course, there are a lot of assumptions behind the above method of valuation. Hence, it would be prudent to perform multiple methods of valuation and compare the figures to one another.
As opposed to the profit/loss assessment in Valuation (Method 1), another way of performing a valuation would be to estimate its balance sheet value, i.e. total revenues from 2P Reserves, and assign a reasonable margin to it.
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From the above, we understand that Hibiscus’s 2P reserves from the North Sabah and Anasuria fields alone are approximately 44.2 mmbbl (we ignore contribution from Australia’s VIC cluster as it hasn’t been developed yet).
Doing a similar sensitivity analysis of different oil prices as above, we arrive at the following estimated total revenues and accumulated net profit:
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Let’s assume that the above average of RM 9.68 billion in total realizable revenues from current 2P reserves holds true. If we assign a conservative Net Profit margin of 15% (FY20: 23%; past 5 years average: 16%), we arrive at estimated accumulated Net Profit from 2P Reserves of RM 1.452 billion. Given the current market capitalization of RM 714 million, we might be able to say that the equity is worth about twice the current share price.
However, it is understandable that some readers might feel that the figures used in the above estimate (e.g. net profit margin of 15%) were randomly plucked from the sky. So how do we reconcile them with figures from the financial statements? Fortunately, there appears to be a way to do just that.
Intangible Assets
I refer you to a figure in the financial statements which provides a shortcut to the valuation of 2P Reserves. This is the carrying value of Intangible Assets on the Balance Sheet.
As of 2QFY21, that amount was RM 1,468,860,000 (i.e. RM 1.468 billion).
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Quite coincidentally, one might observe that this figure is dangerously close to the estimated accumulated Net Profit from 2P Reserves of RM 1.452 billion we calculated earlier. But why would this amount matter at all?
To answer that, I refer you to the notes of the Annual Report FY20 (AR20). On page 148 of the AR20, we find the following two paragraphs:
^{E&E assets comprise of rights and concession and conventional studies. Following the acquisition of a concession right to explore a licensed area, the costs incurred such as geological and geophysical surveys, drilling, commercial appraisal costs and other directly attributable costs of exploration and appraisal including technical and administrative costs, are capitalised as conventional studies, presented as intangible assets.
E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an E&E asset may exceed its recoverable amount. The Group will allocate E&E assets to cash generating unit (“CGU”}s or groups of CGUs for the purpose of assessing such assets for impairment. Each CGU or group of units to which an E&E asset is allocated will not be larger than an operating segment as disclosed in Note 39 to the financial statements.)
Hence, we can determine that firstly, the intangible asset value represents capitalized costs of acquisition of the oil fields, including technical exploration costs and costs of acquiring the relevant licenses. Secondly, an impairment review will be carried out when “the carrying amount of an E&E asset may exceed its recoverable amount”, with E&E assets being allocated to “cash generating units” (CGU) for the purposes of assessment.
On page 169 of the AR20, we find the following:
^{Carrying amounts of the Group’s intangible assets, oil and gas assets and FPSO are reviewed for possible impairment annually including any indicators of impairment. For the purpose of assessing impairment, assets are grouped at the lowest level CGUs for which there is a separately identifiable cash flow available. These CGUs are based on operating areas, represented by the 2011 North Sabah EOR PSC (“North Sabah”}, the Anasuria Cluster, the Marigold and Sunflower fields, the VIC/P57 exploration permit (“VIC/P57”) and the VIC/L31 production license (“VIC/L31”).)
So apparently, the CGUs that have been assigned refer to the respective oil producing fields, two of which include the North Sabah field and the Anasuria field. In order to perform the impairment review, estimates of future cash flow will be made by management to assess the “recoverable amount” (as described above), subject to assumptions and an appropriate discount rate.
Hence, what we can gather up to now is that management will estimate future recoverable cash flows from a CGU (i.e. the North Sabah and Anasuria oil fields), compare that to their carrying value, and perform an impairment if their future recoverable cash flows are less than their carrying value. In other words, if estimated accumulated profits from the North Sabah and Anasuria oil fields are less than their carrying value, an impairment is required.
So where do we find the carrying values for the North Sabah and Anasuria oil fields? Further down on page 184 in the AR20, we see the following:
^{Included in rights and concession are the carrying amounts of producing field licenses in the Anasuria Cluster amounting to RM668,211,518 (2018: RM687,664,530}, producing field licenses in North Sabah amounting to RM471,031,008 (2018: RM414,333,116))
Hence, we can determine that the carrying values for the North Sabah and Anasuria oil fields are RM 471m and RM 668m respectively. But where do we find the future recoverable cash flows of the fields as estimated by management, and what are the assumptions used in that calculation?
Fortunately, we find just that on page 185:
^{17 INTANGIBLE ASSETS (CONTINUED})
^(a Anasuria Cluster)
^{The Directors have concluded that there is no impairment indicator for Anasuria Cluster during the current financial year. In the previous financial year, due to uncertainties in crude oil prices, the Group has assessed the recoverable amount of the intangible assets, oil and gas assets and FPSO relating to the Anasuria Cluster. The recoverable amount is determined using the FVLCTS model based on discounted cash flows (“DCF”} derived from the expected cash in/outflow pattern over the production lives.)
^{The key assumptions used to determine the recoverable amount for the Anasuria Cluster were as follows:
(i} Discount rate of 10%;)
⁽ⁱⁱ Future cost inflation factor of 2% per annum;)
⁽ⁱⁱⁱ Oil price forecast based on the oil price forward curve from independent parties; and,)
^(iv Oil production profile based on the assessment by independent oil and gas reserve experts.)
^{Based on the assessments performed, the Directors concluded that the recoverable amount calculated based on the valuation model is higher than the carrying amount.
(b} North Sabah)
^{The acquisition of the North Sabah assets was completed in the previous financial year. Details of the acquisition are as disclosed in Note 15 to the financial statements.
The Directors have concluded that there is no impairment indicator for North Sabah during the current financial year.}
Here, we can see that the recoverable amount of the Anasuria field was estimated based on a DCF of expected future cash flows over the production life of the asset. The key assumptions used by management all seem appropriate, including a discount rate of 10% and oil price and oil production estimates based on independent assessment. From there, management concludes that the recoverable amount of the Anasuria field is higher than its carrying amount (i.e. no impairment required). Likewise, for the North Sabah field.
How do we interpret this? Basically, what management is saying is that given a 10% discount rate and independent oil price and oil production estimates, the accumulated profits (i.e. recoverable amount) from both the North Sabah and the Anasuria fields exceed their carrying amounts of RM 471m and RM 668m respectively.
In other words, according to management’s own estimates, the carrying value of the Intangible Assets of RM 1.468 billion approximates the accumulated Net Profit recoverable from 2P reserves.
To conclude Valuation (Method 2), we arrive at the following:
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	Our estimates	Management estimates
Accumulated Net Profit from 2P Reserves	RM 1.452 billion	RM 1.468 billion

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Financials

By now, we have established the basic economics of Hibiscus’s business, including its revenues (i.e. oil production and oil price scenarios), costs (OPEX, ITDA), profitability (breakeven, future earnings potential) and balance sheet value (2P reserves, valuation). Moving on, we want to gain a deeper understanding of the 3 statements to anticipate any blind spots and risks. We’ll refer to the financial statements of both the FY20 annual report and the 2Q21 quarterly report in this analysis.
For the sake of brevity, I’ll only point out those line items which need extra attention, and skip over the rest. Feel free to go through the financial statements on your own to gain a better familiarity of the business.
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Income Statement
First, we’ll start with the Income Statement on page 135 of the AR20. Revenues are straightforward, as we’ve discussed above. Cost of Sales and Administrative Expenses fall under the jurisdiction of OPEX, which we’ve also seen earlier. Other Expenses are mostly made up of Depreciation & Amortization of RM 115m.
Finance Costs are where things start to get tricky. Why does a company which carries no debt have such huge amounts of finance costs? The reason can be found in Note 8, where it is revealed that the bulk of finance costs relate to the unwinding of discount of provision for decommissioning costs of RM 25m (Note 32).
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This actually refers to the expected future costs of restoring the Anasuria and North Sabah fields to their original condition once the oil reserves have been depleted. Accounting standards require the company to provide for these decommissioning costs as they are estimable and probable. The way the decommissioning costs are accounted for is the same as an amortized loan, where the initial carrying value is recognized as a liability and the discount rate applied is reversed each year as an expense on the Income Statement. However, these expenses are largely non-cash in nature and do not necessitate a cash outflow every year (FY20: RM 69m).
Unwinding of discount on non-current other payables of RM 12m relate to contractual payments to the North Sabah sellers. We will discuss it later.
Taxation is another tricky subject, and is even more significant than Finance Costs at RM 161m. In gist, Hibiscus is subject to the 38% PITA (Petroleum Income Tax Act) under Malaysian jurisdiction, and the 30% Petroleum tax + 10% Supplementary tax under UK jurisdiction. Of the RM 161m, RM 41m of it relates to deferred tax which originates from the difference between tax treatment and accounting treatment on capitalized assets (accelerated depreciation vs straight-line depreciation). Nonetheless, what you should take away from this is that the tax expense is a tangible expense and material to breakeven analysis.
Fortunately, tax is a variable expense, and should not materially impact the cash flow of Hibiscus in today’s low oil price environment.
Note: Cash outflows for Tax Paid in FY20 was RM 97m, substantially below the RM 161m tax expense.
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Balance Sheet
The balance sheet of Hibiscus is unexciting; I’ll just bring your attention to those line items which need additional scrutiny. I’ll use the figures in the latest 2Q21 quarterly report (2Q21) and refer to the notes in AR20 for clarity.
We’ve already discussed Intangible Assets in the section above, so I won’t dwell on it again.
Moving on, the company has Equipment of RM 582m, largely relating to O&G assets (e.g. the Anasuria FPSO vessel and CAPEX incurred on production enhancement projects). Restricted cash and bank balances represent contractual obligations for decommissioning costs of the Anasuria Cluster, and are inaccessible for use in operations.
Inventories are relatively low, despite Hibiscus being an E&P company, so forex fluctuations on carrying value of inventories are relatively immaterial. Trade receivables largely relate to entitlements from Petronas and BP (both oil supermajors), and are hence quite safe from impairment. Other receivables, deposits and prepayments are significant as they relate to security deposits placed with sellers of the oil fields acquired; these should be ignored for cash flow purposes.
^{Note: Total cash and bank balances do not include approximately RM 105 m proceeds from the North Sabah December 2019 offtake (which was received in January 2020})
Cash and bank balances of RM 90m do not include RM 105m of proceeds from offtake received in 3Q21 (Jan 2020). Hence, the actual cash and bank balances as of 2Q21 approximate RM 200m.
Liabilities are a little more interesting. First, I’ll draw your attention to the significant Deferred tax liabilities of RM 457m. These largely relate to the amortization of CAPEX (i.e. Equipment and capitalized E&E expenses), which is given an accelerated depreciation treatment for tax purposes.
The way this works is that the government gives Hibiscus a favorable tax treatment on capital expenditures incurred via an accelerated depreciation schedule, so that the taxable income is less than usual. However, this leads to the taxable depreciation being utilized quicker than accounting depreciation, hence the tax payable merely deferred to a later period – when the tax depreciation runs out but accounting depreciation remains. Given the capital intensive nature of the business, it is understandable why Deferred tax liabilities are so large.
We’ve discussed Provision for decommissioning costs under the Finance Costs section earlier. They are also quite significant at RM 266m.
Notably, the Other Payables and Accruals are a hefty RM 431m. What do they relate to? Basically, they are contractual obligations to the sellers of the oil fields which are only payable upon oil prices reaching certain thresholds. Hence, while they are current in nature, they will only become payable when oil prices recover to previous highs, and are hence not an immediate cash outflow concern given today’s low oil prices.
Cash Flow Statement
There is nothing in the cash flow statement which warrants concern.
Notably, the company generated OCF of approximately RM 500m in FY20 and RM 116m in 2Q21. It further incurred RM 330m and RM 234m of CAPEX in FY20 and 2Q21 respectively, largely owing to production enhancement projects to increase the production rate of the Anasuria and North Sabah fields, which according to management estimates are accretive to ROI.
Tax paid was RM 97m in FY20 and RM 61m in 2Q21 (tax expense: RM 161m and RM 62m respectively).
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Risks

There are a few obvious and not-so-obvious risks that one should be aware of before investing in Hibiscus. We shall not consider operational risks (e.g. uptime, OPEX) as they are outside the jurisdiction of the equity analyst. Instead, we shall focus on the financial and strategic risks largely outside the control of management. The main ones are:
· Oil prices remaining subdued for long periods of time
· Fluctuation of exchange rates
· Customer concentration risk
· 2P Reserves being less than estimated
· Significant current and non-current liabilities
· Potential issuance of equity
Oil prices remaining subdued
Of topmost concern in the minds of most analysts is whether Hibiscus has the wherewithal to sustain itself through this period of low oil prices (sub-$30). A quick and dirty estimate of annual cash outflow (i.e. burn rate) assuming a $20 oil world and historical production rates is between RM 50m-70m per year, which considering the RM 200m cash balance implies about 3-4 years of sustainability before the company runs out of cash and has to rely on external assistance for financing.
Table 1: Hibiscus EBITDA at different oil price and exchange rates
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The above table shows different EBITDA scenarios (RM ‘m) given different oil prices (left column) and USD:MYR exchange rates (top row). Currently, oil prices are $27 and USD:MYR is 1:4.36.
Given conservative assumptions of average OPEX/bbl of $20 (current: $15), we can safely say that the company will be loss-making as long as oil remains at $20 or below (red). However, we can see that once oil prices hit $25, the company can tank the lower-end estimate of the annual burn rate of RM 50m (orange), while at RM $27 it can sufficiently muddle through the higher-end estimate of the annual burn rate of RM 70m (green).
Hence, we can assume that as long as the average oil price over the next 3-4 years remains above $25, Hibiscus should come out of this fine without the need for any external financing.
Customer Concentration Risk
With regards to customer concentration risk, there is not much the analyst or investor can do except to accept the risk. Fortunately, 80% of revenues can be attributed to two oil supermajors (Petronas and BP), hence the risk of default on contractual obligations and trade receivables seems to be quite diminished.
2P Reserves being less than estimated
2P Reserves being less than estimated is another risk that one should keep in mind. Fortunately, the current market cap is merely RM 714m – at half of estimated recoverable amounts of RM 1.468 billion – so there’s a decent margin of safety. In addition, there are other mitigating factors which shall be discussed in the next section (‘Opportunities’).
Significant non-current and current liabilities
The significant non-current and current liabilities have been addressed in the previous section. It has been determined that they pose no threat to immediate cash flow due to them being long-term in nature (e.g. decommissioning costs, deferred tax, etc). Hence, for the purpose of assessing going concern, their amounts should not be a cause for concern.
Potential issuance of equity
Finally, we come to the possibility of external financing being required in this low oil price environment. While the company should last 3-4 years on existing cash reserves, there is always the risk of other black swan events materializing (e.g. coronavirus) or simply oil prices remaining muted for longer than 4 years.
Furthermore, management has hinted that they wish to acquire new oil assets at presently depressed prices to increase daily production rate to a targeted 20,000 bbl by end-2021. They have room to acquire debt, but they may also wish to issue equity for this purpose. Hence, the possibility of dilution to existing shareholders cannot be entirely ruled out.
However, given management’s historical track record of prioritizing ROI and optimal capital allocation, and in consideration of the fact that the MD owns 10% of outstanding shares, there is some assurance that any potential acquisitions will be accretive to EPS and therefore valuations.
​

Opportunities

As with the existence of risk, the presence of material opportunities also looms over the company. Some of them are discussed below:
· Increased Daily Oil Production Rate
· Inclusion of 2C Resources
· Future oil prices exceeding $50 and effects from coronavirus dissipating
Increased Daily Oil Production Rate
The first and most obvious opportunity is the potential for increased production rate. We’ve seen in the last quarter (2Q21) that the North Sabah field increased its daily production rate by approximately 20% as a result of production enhancement projects (infill drilling), lowering OPEX/bbl as a result. To vastly oversimplify, infill drilling is the process of maximizing well density by drilling in the spaces between existing wells to improve oil production.
The same improvements are being undertaken at the Anasuria field via infill drilling, subsea debottlenecking, water injection and sidetracking of existing wells. Without boring you with industry jargon, this basically means future production rate is likely to improve going forward.
By how much can the oil production rate be improved by? Management estimates in their analyst presentation that enhancements in the Anasuria field will be able to yield 5,000 bbl/day by 2021 (current: 2,500 bbl/day).
Similarly, improvements in the North Sabah field is expected to yield 7,000 bbl/day by 2021 (current: 5,300 bbl/day).
This implies a total 2021 expected daily production rate from the two fields alone of 12,000 bbl/day (current: 8,000 bbl/day). That’s a 50% increase in yields which we haven’t factored into our valuation yet.
Furthermore, we haven’t considered any production from existing 2C resources (e.g. Marigold/Sunflower) or any potential acquisitions which may occur in the future. By management estimates, this can potentially increase production by another 8,000 bbl/day, bringing total production to 20,000 bbl/day.
While this seems like a stretch of the imagination, it pays to keep them in mind when forecasting future revenues and valuations.
Just to play around with the numbers, I’ve come up with a sensitivity analysis of possible annual EBITDA at different oil prices and daily oil production rates:
Table 2: Hibiscus EBITDA at different oil price and daily oil production rates
https://preview.redd.it/jnpfhr5n9br41.png?width=814&format=png&auto=webp&s=bbe4b512bc17f576d87529651140cc74cde3d159
The left column represents different oil prices while the top row represents different daily oil production rates.
The green column represents EBITDA at current daily production rate of 8,000 bbl/day; the orange column represents EBITDA at targeted daily production rate of 12,000 bbl/day; while the purple column represents EBITDA at maximum daily production rate of 20,000 bbl/day.
Even conservatively assuming increased estimated annual ITDA of RM 500m (FY20: RM 318m), and long-term average oil prices of $50 (FY20: $60), the estimated Net Profit and P/E ratio is potentially lucrative at daily oil production rates of 12,000 bbl/day and above.
2C Resources
Since we’re on the topic of improved daily oil production rate, it bears to pay in mind the relatively enormous potential from Hibiscus’s 2C Resources. North Sabah’s 2C Resources alone exceed 30 mmbbl; while those from the yet undiagnosed Marigold/Sunflower fields also reach 30 mmbbl. Altogether, 2C Resources exceed 70 mmbbl, which dwarfs the 44 mmbbl of 2P Reserves we have considered up to this point in our valuation estimates.
To refresh your memory, 2C Resources represents oil volumes which have been discovered but are not yet classified as “commercial”. This means that there is reasonable certainty of the oil being recoverable, as opposed to simply being in the very early stages of exploration. So, to be conservative, we will imagine that only 50% of 2C Resources are eligible for reclassification to 2P reserves, i.e. 35 mmbbl of oil.
https://preview.redd.it/mto11iz7abr41.png?width=375&format=png&auto=webp&s=e9028ab0816b3d3e25067447f2c70acd3ebfc41a
This additional 35 mmbbl of oil represents an 80% increase to existing 2P reserves. Assuming the daily oil production rate increases similarly by 80%, we will arrive at 14,400 bbl/day of oil production. According to Table 2 above, this would yield an EBITDA of roughly RM 630m assuming $50 oil.
Comparing that estimated EBITDA to FY20’s actual EBITDA:

	FY20	FY21 (incl. 2C)	Difference
Daily oil production (bbl/day)	8,626	14,400	+66%
Average oil price (USD/bbl)	$68.57	$50	-27%
Average OPEX/bbl (USD)	$16.64	$20	+20%
EBITDA (RM ‘m)	632	630	-

Hence, even conservatively assuming lower oil prices and higher OPEX/bbl (which should decrease in the presence of higher oil volumes) than last year, we get approximately the same EBITDA as FY20.
For the sake of completeness, let’s assume that Hibiscus issues twice the no. of existing shares over the next 10 years, effectively diluting shareholders by 50%. Even without accounting for the possibility of the acquisition of new oil fields, at the current market capitalization of RM 714m, the prospective P/E would be about 10x. Not too shabby.
Future oil prices exceeding $50 and effects from coronavirus dissipating
Hibiscus shares have recently been hit by a one-two punch from oil prices cratering from $60 to $30, as a result of both the Saudi-Russian dispute and depressed demand for oil due to coronavirus. This has massively increased supply and at the same time hugely depressed demand for oil (due to the globally coordinated lockdowns being implemented).
Given a long enough timeframe, I fully expect OPEC+ to come to an agreement and the economic effects from the coronavirus to dissipate, allowing oil prices to rebound. As we equity investors are aware, oil prices are cyclical and are bound to recover over the next 10 years.
When it does, valuations of O&G stocks (including Hibiscus’s) are likely to improve as investors overshoot expectations and begin to forecast higher oil prices into perpetuity, as they always tend to do in good times. When that time arrives, Hibiscus’s valuations are likely to become overoptimistic as all O&G stocks tend to do during oil upcycles, resulting in valuations far exceeding reasonable estimates of future earnings. If you can hold the shares up until then, it’s likely you will make much more on your investment than what we’ve been estimating.

Conclusion

Wrapping up what we’ve discussed so far, we can conclude that Hibiscus’s market capitalization of RM 714m far undershoots reasonable estimates of fair value even under conservative assumptions of recoverable oil volumes and long-term average oil prices. As a value investor, I hesitate to assign a target share price, but it’s safe to say that this stock is worth at least RM 1.00 (current: RM 0.45). Risk is relatively contained and the upside far exceeds the downside. While I have no opinion on the short-term trajectory of oil prices, I can safely recommend this stock as a long-term Buy based on fundamental research.

Period: 76.83 days

	Submissions	Comments
Total	982	5230
Rate (per day)	12.78	67.37
Unique Redditors	702	946
Combined Score	5730	16211

Top Submitters' Top Submissions

1. 366 points, 45 submissions: benjaminikuta
   
   1. So, what's the difference between this new trade deal with Mexico and Canada and the old one, and what are the implications? (68 points, 12 comments)
   2. Do powerful unions increase wages above the optimal level, or do firms with market power cause imperfect competition in the labor market, causing sub optimal wages? (Or both?) (29 points, 2 comments)
   3. How do the salaries of high paid professionals compare between the US and various other developed countries? (28 points, 1 comment)
   4. Just how much more expensive is it to build on mountainous terrain than on flat land? How much more expensive would housing have to be before it's economical to develop the mountains of Hong Kong? (27 points, 5 comments)
   5. When it is said that someone in a third world country lives on a dollar a day, what does that actually mean? (25 points, 19 comments)
   6. How do economists measure unpaid work? (23 points, 8 comments)
   7. What's the economic effect of legal vs illegal immigration? (22 points, 10 comments)
   8. If someone saved enough money to live on investment income, could their descendants live off it indefinitely? (Assuming they don't spend the principle, reinvest to account for inflation, etc, of course.) (20 points, 46 comments)
   9. How effectively can negative externalities be quantified? (11 points, 7 comments)
   10. What are some common misconceptions about economics? (11 points, 19 comments)
2. 134 points, 11 submissions: Fart_Gas
   
   1. Is free public transport a good idea? (42 points, 20 comments)
   2. What caused the 1997 Asian Financial Crisis? (31 points, 13 comments)
   3. Would it be more economical for supermarkets to slightly under-stock? (21 points, 12 comments)
   4. Will Venezuela's plummeting economy make it a good choice for low-wage industries? (20 points, 8 comments)
   5. What might cause sudden inflation? (7 points, 2 comments)
   6. Why do some countries without hyperinflation use a foreign currency in everyday life? (7 points, 3 comments)
   7. Has any country tried reducing the minimum wage, and ended up with a good result from it? (4 points, 8 comments)
   8. Is Ordoliberalism feasible for most poor and recently war-torn countries? (1 point, 0 comments)
   9. Why do some businesses sponsor sporting teams in countries they don't operate in, and that they don't plan to expand to in the foreseeable future? (1 point, 1 comment)
   10. Is it inevitable that certain areas will never recover from a war? If so, why? (0 points, 0 comments)
3. 96 points, 5 submissions: MrZer
   
   1. Why do countries like France or Japan have a high debt to GDP but aren't in shambles like Greece? (43 points, 16 comments)
   2. Milton Friedman is well respected by many economists, why aren't there more Libertarians? (22 points, 18 comments)
   3. I've heard Marxists claim that central planning is good because the military and corporations do it. (20 points, 38 comments)
   4. Someone once said "Interest is what actually creates money. Without debt and interest, our economies would collapse." (7 points, 5 comments)
   5. What does it mean when people say China manipulates currency? (4 points, 7 comments)
4. 83 points, 17 submissions: Whynvme
   
   1. Do economists actually calculate consumer surplus empirically, or is it more of s theoretical concept? (19 points, 5 comments)
   2. If we have cobb douglas preferences, my demand for x is not a function of the price of y. How do substitution effects arise then? (13 points, 6 comments)
   3. Is me making more money than I would necessarily require to work( so more than my 'opportunity wage') for a job an economic inefficiency? or is ineffiency in labor markets a wedge between my marginal revenue product and my wage? (11 points, 3 comments)
   4. some basic macro questions (6 points, 5 comments)
   5. understanding equilibrium in a dynamic context? (6 points, 1 comment)
   6. Trying to understand economies of scale, e.g. costco (5 points, 5 comments)
   7. Why does inflation necessarily mean wages will be increasing too? (5 points, 3 comments)
   8. question about equilibrium tax incidence (3 points, 1 comment)
   9. trying to understand the utility of theoretical models (3 points, 3 comments)
   10. when firms are earning short run economic profit, does that just mean all factors of production are earning more than their opportunity cost? so firms entering the industry = labor and capital reallocating towards that industry by forming new firms? (3 points, 1 comment)
5. 65 points, 1 submission: imadeadinside
   
   1. If Bruce Wayne was revealed as Batman, would stock prices and sales skyrocket or plummet for Wayne Enterprises (65 points, 16 comments)
6. 57 points, 2 submissions: csObsession
   
   1. Do most economists think political and economic freedoms are intrinsically tied together? How do they explain the success of extremely authoritarian capitalist governments (Singapore, China, South Korea, Chile)? (37 points, 25 comments)
   2. Why are salaries for professionals so much higher in the United States than other developed countries? (20 points, 34 comments)
7. 53 points, 13 submissions: Experimentalphone
   
   1. Why do Information Technology workers are so high in demand and earn so much in Western countries but doesn't even get sustenance wage in Bangladesh? (30 points, 10 comments)
   2. Anyone know of a comprehensive list of all the sub disciplines one can do a PhD in Economics, Finance and Business? (6 points, 4 comments)
   3. Which PhD sub disciplines have the least math but still good employability prospects in academia and industry? (5 points, 19 comments)
   4. What is the best website to publish your working papers in Economics? (3 points, 4 comments)
   5. Do I have to prove factual assertions before providing my arguments on economic policy suggestions for a journal article? (2 points, 4 comments)
   6. Why is the Ready Made Garments industry of Bangladesh declining due to withdrawal of trade privileges of Western countries when prices are already competitive in the world market? (2 points, 1 comment)
   7. Are qualitative policy prescription papers accepted by most journals or are they better of in blog posts? (1 point, 7 comments)
   8. What is the best free website for working papers in Economics? (1 point, 3 comments)
   9. Where can I find data on work conditions and how hard is the work of foreign students who work alongside their studies legally or illegally? (1 point, 0 comments)
   10. Which metrics do I need, to find out the effects of outward remittance on a poor economy? (1 point, 5 comments)
8. 52 points, 6 submissions: FrankVillain
   
   1. Is China still considered a centrally planned economy? (16 points, 4 comments)
   2. Ressources on the Soviet industrial failures due to poor economics? (15 points, 2 comments)
   3. What is the reason behind France's high unemployment rate? (10 points, 13 comments)
   4. About Land Value Tax & Single Tax: how would it affect farmers and those of them who own their land? (9 points, 3 comments)
   5. Does welfare policies contribute to inflation? (2 points, 1 comment)
   6. If a Bitcoin is worth $1 000 000 and some persons like Satoshi have one or more millions of it... what power do they have? Can they disrupt the financial system with the huge amount of dollars that they have? (0 points, 8 comments)
9. 49 points, 9 submissions: Chumbaka
   
   1. Can someone explain M0 , M1 and M2 to me? (13 points, 2 comments)
   2. Why is inflation and deflation bad? (13 points, 8 comments)
   3. Can anyone explain why this happens and what it means? (10 points, 3 comments)
   4. Stupid question but : Why does printing lots of money lead to inflation? (5 points, 14 comments)
   5. Why aren't all banks Full Reserve Banking? (5 points, 3 comments)
   6. What does this stock market fall mean to the economy as a whole? (3 points, 4 comments)
   7. How do I pick an economist ideology to support? (0 points, 3 comments)
   8. Is investing in Forex worth it? (0 points, 15 comments)
   9. What is Fractional Reserve Banking? (0 points, 4 comments)
10. 47 points, 1 submission: furikakebabe
    
    1. The Tax Bill of 2017 reduced corporate tax rate from 35% to 21%. Tax haven countries have rates as low as 15%. Why would companies be more likely to move money back to the US if they still aren’t getting a better rate? (47 points, 6 comments)
11. 47 points, 1 submission: gh0bs
    
    1. Why does the economy have to be a series of bubbles and bursts/corrections, rather than a sustained gradual growth? (47 points, 32 comments)
12. 45 points, 1 submission: wcoleman22
    
    1. For all the economists out there that got advanced degrees, what were your most influential assigned readings? (45 points, 23 comments)
13. 43 points, 1 submission: Crane_Train
    
    1. How could Venezuela fix its economy? (43 points, 17 comments)
14. 42 points, 4 submissions: Jollygood156
    
    1. Why didn't quantitative easing + low interest rates raise inflation high? (20 points, 36 comments)
    2. How do we actually refute MMT? (12 points, 69 comments)
    3. What is Nominal GDP targeting and why do so many people advocate for it? (6 points, 16 comments)
    4. How exactly are land value taxes calculated? (4 points, 3 comments)
15. 42 points, 1 submission: kornork
    
    1. With Soybeans piling up and a 12 Billion bailout from the trade war, how come tofu isn’t super cheap right now? (42 points, 3 comments)
16. 41 points, 1 submission: TheHoleInMoi
    
    1. Are there any papers/solid arguments about the benefits of having more local business as opposed to corporate consolidation? (41 points, 2 comments)
17. 39 points, 1 submission: infernomedia
    
    1. What are some of the most interesting results in economics that are widely well regarded by the academic community to come out in the last decade? (39 points, 7 comments)
18. 38 points, 1 submission: -reasonable-person-
    
    1. From an Economic Perspective What is the Most Effective Way for Mexico to end its Violent Organized Crime Problem? (38 points, 13 comments)
19. 38 points, 1 submission: ajsox22
    
    1. Does culture impact the growth and development of a nation's economy? (38 points, 15 comments)
20. 37 points, 8 submissions: MedStudent-96
    
    1. Quasi-convexity of the Indirect Utility Function? (12 points, 14 comments)
    2. Is my textbook wrong? (9 points, 8 comments)
    3. Interpretation of Lagrange Multipliers for Consumer (5 points, 4 comments)
    4. Consumer Demand Interpretation for Cobb Douglas-Non Convex to Origin. (4 points, 6 comments)
    5. Do monopolies produce the same as a competitive firm in the long run? (4 points, 8 comments)
    6. In some circumstances can a monopoly leave the consumer better off? (1 point, 3 comments)
    7. Two Period Consumption Savings Model (1 point, 3 comments)
    8. [General Equilibrium] Proving that in the limit case the core shrinks to the set of competitive equilibrium. (1 point, 0 comments)

Top Commenters

1. BainCapitalist (2255 points, 571 comments)
2. smalleconomist (1053 points, 307 comments)
3. RobThorpe (853 points, 247 comments)
4. Calvo_fairy (721 points, 146 comments)
5. Cross_Keynesian (527 points, 126 comments)
6. zzzzz94 (468 points, 83 comments)
7. raptorman556 (334 points, 91 comments)
8. Integralds (323 points, 51 comments)
9. whyrat (298 points, 56 comments)
10. MrDannyOcean (290 points, 48 comments)
11. isntanywhere (263 points, 84 comments)
12. benjaminikuta (249 points, 133 comments)
13. penguin_rider222 (158 points, 40 comments)
14. daokedao4 (148 points, 23 comments)
15. lawrencekhoo (132 points, 13 comments)
16. ecolonomist (129 points, 45 comments)
17. RegulatoryCapture (126 points, 29 comments)
18. intowilde (114 points, 28 comments)
19. VineFynn (113 points, 30 comments)
20. MedStudent-96 (103 points, 48 comments)

Top Submissions

1. So, what's the difference between this new trade deal with Mexico and Canada and the old one, and what are the implications? by benjaminikuta (68 points, 12 comments)
2. If Bruce Wayne was revealed as Batman, would stock prices and sales skyrocket or plummet for Wayne Enterprises by imadeadinside (65 points, 16 comments)
3. Why does the economy have to be a series of bubbles and bursts/corrections, rather than a sustained gradual growth? by gh0bs (47 points, 32 comments)
4. The Tax Bill of 2017 reduced corporate tax rate from 35% to 21%. Tax haven countries have rates as low as 15%. Why would companies be more likely to move money back to the US if they still aren’t getting a better rate? by furikakebabe (47 points, 6 comments)
5. For all the economists out there that got advanced degrees, what were your most influential assigned readings? by wcoleman22 (45 points, 23 comments)
6. How could Venezuela fix its economy? by Crane_Train (43 points, 17 comments)
7. Why do countries like France or Japan have a high debt to GDP but aren't in shambles like Greece? by MrZer (43 points, 16 comments)
8. Is free public transport a good idea? by Fart_Gas (42 points, 20 comments)
9. With Soybeans piling up and a 12 Billion bailout from the trade war, how come tofu isn’t super cheap right now? by kornork (42 points, 3 comments)
10. Are there any papers/solid arguments about the benefits of having more local business as opposed to corporate consolidation? by TheHoleInMoi (41 points, 2 comments)

Top Comments

1. 68 points: Calvo_fairy's comment in Milton Friedman is well respected by many economists, why aren't there more Libertarians?
2. 62 points: Calvo_fairy's comment in Milton Friedman is well respected by many economists, why aren't there more Libertarians?
3. 54 points: Calvo_fairy's comment in If Bruce Wayne was revealed as Batman, would stock prices and sales skyrocket or plummet for Wayne Enterprises
4. 52 points: Qwernakus's comment in What is the difference between GDP (Nominal), GDP (PPP), and Real GDP ?
5. 50 points: TheoryOfSomething's comment in Which parts of Marxism are theoretically dependent on the labor theory of value and which are not?
6. 47 points: Lucid-Crow's comment in I've heard Marxists claim that central planning is good because the military and corporations do it.
7. 46 points: Integralds's comment in Milton Friedman is well respected by many economists, why aren't there more Libertarians?
8. 44 points: Yankee9204's comment in If Bruce Wayne was revealed as Batman, would stock prices and sales skyrocket or plummet for Wayne Enterprises
9. 43 points: lawrencekhoo's comment in With Soybeans piling up and a 12 Billion bailout from the trade war, how come tofu isn’t super cheap right now?
10. 42 points: Cross_Keynesian's comment in Does income inequality really matter?

Generated with BBoe's Subreddit Stats

Period: 82.02 days

	Submissions	Comments
Total	979	6319
Rate (per day)	11.94	76.69
Unique Redditors	688	1060
Combined Score	5907	19076

Top Submitters' Top Submissions

1. 322 points, 37 submissions: benjaminikuta
   
   1. So, what's the difference between this new trade deal with Mexico and Canada and the old one, and what are the implications? (71 points, 12 comments)
   2. The EU is considering making product life expectancy a mandatory piece of info for consumer electronics. What would the economic implications of that be? (64 points, 24 comments)
   3. Do powerful unions increase wages above the optimal level, or do firms with market power cause imperfect competition in the labor market, causing sub optimal wages? (Or both?) (27 points, 3 comments)
   4. How do economists measure unpaid work? (24 points, 8 comments)
   5. When it is said that someone in a third world country lives on a dollar a day, what does that actually mean? (22 points, 19 comments)
   6. What are some common misconceptions about economics? (14 points, 19 comments)
   7. What would be a better alternative to Bernie's proposal to tax employers of welfare recipients? (14 points, 65 comments)
   8. How effectively can negative externalities be quantified? (10 points, 7 comments)
   9. To what degree has the internet increased the liquidity of the labor market? (7 points, 3 comments)
   10. What happened with the Greek economic crisis? (7 points, 5 comments)
2. 146 points, 30 submissions: Whynvme
   
   1. When economists refer to industrialization, does it mean a move from agricultural to manufacturing economy? Is the growth in services a different term? (22 points, 6 comments)
   2. Do economists actually calculate consumer surplus empirically, or is it more of s theoretical concept? (20 points, 5 comments)
   3. If we have cobb douglas preferences, my demand for x is not a function of the price of y. How do substitution effects arise then? (11 points, 6 comments)
   4. Is me making more money than I would necessarily require to work( so more than my 'opportunity wage') for a job an economic inefficiency? or is ineffiency in labor markets a wedge between my marginal revenue product and my wage? (11 points, 3 comments)
   5. why is ceteris paribus important for analyzing/thinking about the world? (11 points, 7 comments)
   6. Why does inflation necessarily mean wages will be increasing too? (6 points, 3 comments)
   7. some basic macro questions (6 points, 2 comments)
   8. what is meant by value added? (6 points, 3 comments)
   9. Trying to understand economies of scale, e.g. costco (5 points, 5 comments)
   10. Why would an economy implode long term if there are decreasing returns to scale? (5 points, 15 comments)
3. 95 points, 2 submissions: MrDannyOcean
   
   1. Announcing a new policy direction for /AskEconomics (75 points, 135 comments)
   2. The new rules for AskEconomics are now in place. Please see the details within. (20 points, 20 comments)
4. 79 points, 7 submissions: Fart_Gas
   
   1. Is free public transport a good idea? (41 points, 20 comments)
   2. Will Venezuela's plummeting economy make it a good choice for low-wage industries? (17 points, 8 comments)
   3. What might cause sudden inflation? (8 points, 2 comments)
   4. Why do some countries without hyperinflation use a foreign currency in everyday life? (8 points, 3 comments)
   5. Has any country tried reducing the minimum wage, and ended up with a good result from it? (3 points, 8 comments)
   6. Do boycotts really work? (1 point, 3 comments)
   7. Why do some businesses sponsor sporting teams in countries they don't operate in, and that they don't plan to expand to in the foreseeable future? (1 point, 1 comment)
5. 66 points, 7 submissions: FrankVillain
   
   1. Can the Euro become the global currency for trade? (17 points, 3 comments)
   2. Is China still considered a centrally planned economy? (16 points, 4 comments)
   3. Ressources on the Soviet industrial failures due to poor economics? (14 points, 2 comments)
   4. What is the reason behind France's high unemployment rate? (9 points, 14 comments)
   5. About Land Value Tax & Single Tax: how would it affect farmers and those of them who own their land? (7 points, 3 comments)
   6. Does welfare policies contribute to inflation? (2 points, 1 comment)
   7. If a Bitcoin is worth $1 000 000 and some persons like Satoshi have one or more millions of it... what power do they have? Can they disrupt the financial system with the huge amount of dollars that they have? (1 point, 8 comments)
6. 66 points, 1 submission: imadeadinside
   
   1. If Bruce Wayne was revealed as Batman, would stock prices and sales skyrocket or plummet for Wayne Enterprises (66 points, 16 comments)
7. 64 points, 6 submissions: Serpenthrope
   
   1. Have there been any serious proposals for economic systems that don't use money? (23 points, 67 comments)
   2. Could a company ever become quality-control for a market in which they're competing, assuming no government interference? (16 points, 4 comments)
   3. Is there a formal name for this? (15 points, 6 comments)
   4. Why are second-hand clothing donations fundamentally different from other types of imports? (5 points, 1 comment)
   5. I saw this article on a UN report calling for the dismantling of Capitalism to stop Global Warming, and was wondering what most economists think of the claims? (3 points, 4 comments)
   6. Peter Navarro and Lyndon Larouche? (2 points, 1 comment)
8. 62 points, 2 submissions: JeffGotSwags
   
   1. What are the most commonly held misconceptions about economics among people with at least some background? (36 points, 38 comments)
   2. How did the financial crisis affect the demand for economists? (26 points, 5 comments)
9. 61 points, 11 submissions: Chumbaka
   
   1. Can someone explain M0 , M1 and M2 to me? (13 points, 2 comments)
   2. Can anyone explain why this happens and what it means? (11 points, 3 comments)
   3. Can a monopoly also be a monopsony? (10 points, 13 comments)
   4. Why is inflation and deflation bad? (10 points, 8 comments)
   5. Stupid question but : Why does printing lots of money lead to inflation? (5 points, 14 comments)
   6. Why aren't all banks Full Reserve Banking? (5 points, 3 comments)
   7. What does this stock market fall mean to the economy as a whole? (4 points, 4 comments)
   8. How would an universal free market deal with situations like NK? (3 points, 21 comments)
   9. How do I pick an economist ideology to support? (0 points, 3 comments)
   10. Is investing in Forex worth it? (0 points, 15 comments)
10. 60 points, 6 submissions: Jollygood156
    
    1. Why didn't quantitative easing + low interest rates raise inflation high? (20 points, 36 comments)
    2. How do we actually refute MMT? (14 points, 68 comments)
    3. Tax Cuts boost Consumption, but the growth is short term while investments are long term. Why? (12 points, 7 comments)
    4. How exactly are land value taxes calculated? (6 points, 3 comments)
    5. What is Nominal GDP targeting and why do so many people advocate for it? (5 points, 16 comments)
    6. What even is Austerity? (3 points, 3 comments)
11. 49 points, 1 submission: Akehc99
    
    1. Those who went into the job market after an Econ Undergrad, what do you do and briefly what does it entail? (49 points, 27 comments)
12. 48 points, 1 submission: Traveledfarwestward
    
    1. What do most Economists think about The Economist? (48 points, 26 comments)
13. 48 points, 1 submission: piltonpfizerwallace
    
    1. What would happen if the US printed $12.3 trillion tomorrow and paid off all of its debt? (48 points, 31 comments)
14. 47 points, 6 submissions: lalze123
    
    1. Will Bernie's "STOP BEZOS" plan lower the opportunity cost of hiring non-poor workers, thereby harming poor workers? (19 points, 15 comments)
    2. What does the current economic literature say about the effects of net neutrality? (14 points, 0 comments)
    3. What government programs have been empirically proven to help displaced workers from import competition? (8 points, 0 comments)
    4. By how much does lowering the budget deficit lower the trade deficit? (5 points, 4 comments)
    5. What are some good studies analyzing the difference in efficiency between markets and central planning? (1 point, 1 comment)
    6. Is the study below reliable? (0 points, 3 comments)
15. 45 points, 1 submission: gh0bs
    
    1. Why does the economy have to be a series of bubbles and bursts/corrections, rather than a sustained gradual growth? (45 points, 32 comments)
16. 42 points, 1 submission: Turnt_Up_For_What
    
    1. You've just been declared supreme potentate of Venezuela. Now how do you fix the economy? (42 points, 24 comments)
17. 41 points, 1 submission: Crane_Train
    
    1. How could Venezuela fix its economy? (41 points, 19 comments)
18. 41 points, 1 submission: TheHoleInMoi
    
    1. Are there any papers/solid arguments about the benefits of having more local business as opposed to corporate consolidation? (41 points, 2 comments)
19. 39 points, 5 submissions: UyhAEqbnp
    
    1. Does income inequality really matter? (19 points, 39 comments)
    2. What happens when there's a surplus of labour? Can there ever be a point where the wages earned are less than the cost of living? (10 points, 2 comments)
    3. Several questions (4 points, 4 comments)
    4. "Keeping seniors from retiring does not boost wages via aggregate demand" (3 points, 5 comments)
    5. Is Okun's Law valid? (3 points, 3 comments)
20. 39 points, 4 submissions: justinVOLuntary
    
    1. Best resource on the financial crisis of 2008 (17 points, 7 comments)
    2. Blogs? (11 points, 5 comments)
    3. Econ Internship (7 points, 5 comments)
    4. Not sure if this is the kind of question I should be asking here. I’m an Undergrad Econ major and I’m looking for reading recommendations. Anything from economic theory, history, current research, etc. Main interest is Macro. Thanks (4 points, 5 comments)
21. 39 points, 2 submissions: ConditionalDew
    
    1. How much would the iPhone be if it was made in the US? (37 points, 15 comments)
    2. Who are some famous people/celebrities that were economics majors? (2 points, 2 comments)
22. 39 points, 1 submission: rangerlinks
    
    1. Who are the best economist to follow on Twitter? (39 points, 16 comments)
23. 36 points, 5 submissions: CanadianAsshole1
    
    1. If free trade is so good, then why do countries insist on making trade deals? Why can't we just abolish all tariffs? (18 points, 11 comments)
    2. If climate change is such a huge problem, then why aren't countries utilizing nuclear energy more? (8 points, 17 comments)
    3. Do I understand the problem with"trickle-down" economics correctly? (6 points, 38 comments)
    4. How much of the Reagan administration's deficits could be attributed to increased defense spending? (3 points, 3 comments)
    5. If automation will result in less jobs, then shouldn't the government stop incentivizing childbirth through tax credits and stop immigration? (1 point, 12 comments)
24. 35 points, 7 submissions: MedStudent-96
    
    1. Is my textbook wrong? (11 points, 8 comments)
    2. Quasi-convexity of the Indirect Utility Function? (9 points, 14 comments)
    3. Consumer Demand Interpretation for Cobb Douglas-Non Convex to Origin. (4 points, 6 comments)
    4. Do monopolies produce the same as a competitive firm in the long run? (4 points, 8 comments)
    5. Interpretation of Lagrange Multipliers for Consumer (4 points, 4 comments)
    6. Optimisation when MRTS > price ratio (2 points, 7 comments)
    7. Help with the Partial Derivative of the Marginal Cost Function. (1 point, 10 comments)
25. 35 points, 1 submission: grate1438
    
    1. Why do Croatians receieve so much more through their pension than their working wage? (35 points, 8 comments)

Top Commenters

1. BainCapitalist (2626 points, 648 comments)
2. Calvo_fairy (947 points, 232 comments)
3. smalleconomist (885 points, 255 comments)
4. RobThorpe (776 points, 259 comments)
5. zzzzz94 (577 points, 111 comments)
6. Cross_Keynesian (520 points, 108 comments)
7. Integralds (418 points, 68 comments)
8. penguin_rider222 (395 points, 116 comments)
9. whyrat (362 points, 69 comments)
10. bbqroast (319 points, 74 comments)
11. MrDannyOcean (314 points, 54 comments)
12. isntanywhere (207 points, 63 comments)
13. RedditUser91805 (189 points, 28 comments)
14. CapitalismAndFreedom (176 points, 68 comments)
15. benjaminikuta (171 points, 112 comments)
16. LucasCritique (162 points, 33 comments)
17. raptorman556 (157 points, 44 comments)
18. lawrencekhoo (156 points, 22 comments)
19. daokedao4 (131 points, 16 comments)
20. Yankee9204 (121 points, 15 comments)
21. roboczar (112 points, 20 comments)
22. RegulatoryCapture (109 points, 23 comments)
23. ecolonomist (105 points, 45 comments)
24. TheoryOfSomething (102 points, 9 comments)
25. Forgot_the_Jacobian (97 points, 31 comments)

Top Submissions

1. Announcing a new policy direction for /AskEconomics by MrDannyOcean (75 points, 135 comments)
2. So, what's the difference between this new trade deal with Mexico and Canada and the old one, and what are the implications? by benjaminikuta (71 points, 12 comments)
3. If Bruce Wayne was revealed as Batman, would stock prices and sales skyrocket or plummet for Wayne Enterprises by imadeadinside (66 points, 16 comments)
4. The EU is considering making product life expectancy a mandatory piece of info for consumer electronics. What would the economic implications of that be? by benjaminikuta (64 points, 24 comments)
5. Those who went into the job market after an Econ Undergrad, what do you do and briefly what does it entail? by Akehc99 (49 points, 27 comments)
6. What would happen if the US printed $12.3 trillion tomorrow and paid off all of its debt? by piltonpfizerwallace (48 points, 31 comments)
7. What do most Economists think about The Economist? by Traveledfarwestward (48 points, 26 comments)
8. Why does the economy have to be a series of bubbles and bursts/corrections, rather than a sustained gradual growth? by gh0bs (45 points, 32 comments)
9. What is the difference in knowledge between academic economists(Krugman, Acemoglu, Mankiw etc) and hedge fund managers and the like(Soros, James Simons)? by deleted (43 points, 5 comments)
10. You've just been declared supreme potentate of Venezuela. Now how do you fix the economy? by Turnt_Up_For_What (42 points, 24 comments)

Top Comments

1. 62 points: Calvo_fairy's comment in Milton Friedman is well respected by many economists, why aren't there more Libertarians?
2. 62 points: Calvo_fairy's comment in Milton Friedman is well respected by many economists, why aren't there more Libertarians?
3. 59 points: RedditUser91805's comment in The EU is considering making product life expectancy a mandatory piece of info for consumer electronics. What would the economic implications of that be?
4. 58 points: arctigos's comment in What do most Economists think about The Economist?
5. 55 points: hbtn's comment in Why are Little Caesar's cheese pizzas the same price as its pepperoni pizzas?
6. 54 points: Calvo_fairy's comment in Could someone explain the wage gap and whether it's a myth or not.
7. 51 points: Calvo_fairy's comment in If Bruce Wayne was revealed as Batman, would stock prices and sales skyrocket or plummet for Wayne Enterprises
8. 51 points: RedditUser91805's comment in You've just been declared supreme potentate of Venezuela. Now how do you fix the economy?
9. 51 points: smalleconomist's comment in What are the most commonly held misconceptions about economics among people with at least some background?
10. 49 points: TheoryOfSomething's comment in Which parts of Marxism are theoretically dependent on the labor theory of value and which are not?

Generated with BBoe's Subreddit Stats

Hey guys! I found a super cool list of everything a new forex trader would need to get started! Originally made by to nate1357. Link to original thread http://redd.it/328cjr
Free Resources
Education:
www.babypips.com/school
www.informedtrades.com/f7
www.forex4noobs.com/forex-education
www.en.tradimo.com/learn/forex-trading
www.youtube.com/useTheTradeitsimple
www.traderscalm.com
www.orderflowtrading.com/LearnOrderFlow.aspx
www.profitube.com
Calendars:
www.forexfactory.com/calendar.php
www.dailyfx.com/calendar
www.fxstreet.com/economic-calendar
www.forexlive.com/EconomicCalendar
www.myfxbook.com/forex-economic-calendar
www.investing.com/economic-calendar
Free News Websites:
www.forexlive.com - Daily live news, analysis and resources
www.financemagnates.com - FX industry news and updates
www.fxstreet.com - Daily news, analysis and resources
www.forextell.com
www.forexcup.com/news
www.bloomberg.com/markets
Forums:
www.reddit.com/forex
www.forums.babypips.com/
www.forexfactory.com/forum.php
www.elitetrader.com/et/index.php
www.forex-tsd.com/
www.fxgears.com/forum/index.php
www.trade2win.com/boards
Margin / pip / position size calculators
www.myfxbook.com/forex-calculators
Brokerages:
There are many factors to consider when choosing a brokerage. Regulations typically force US traders to only trade at US brokerages, while international traders have more choice. After considering location you need to consider how much capital you will start trading with as many have minimum deposit levels. Once you’ve narrowed that down you can compared spreads and execution. ECN brokers execute your orders straight through to their liquidity providers, while market maker brokers may pair up your trades with other clients. Market maker brokers typically will partially hedge your positions on the interbank market. Many consider this to be a conflict of interest and prefer to trade at an ECN broker who would have an active motive to see you succeed. Lastly, brokers run inherently risky business models so it is important to consider the risk of bankruptcy.
www.forexpeacearmy.com - Aggregates broker reviews. Be warned though that people only seem to make bad reviews.
www.myfxbook.com/forex-broker-spreads - Live comparison of executable spreads
United States & International-
-Interactive Brokers

• ECN. Used most by professional traders. Difficult platform for beginners
• Tight spreads
• Minimum deposit $10000 (or $3,000 if under 25yo) * Well diversified -Oanda
• Market maker. Second largest retail FX brokerage in the US. Easy platform for beginners.
• Fair spreads
• No minimum deposit
• Not well diversified, but well capitalized -Gain Capital (whitelabel forex.com) *Market Maker *Fair spreads *Minimum deposit $250 *Well diversified -FXCM Inc
• ECN. Largest retail FX brokerage in the US
• Tight spreads
• Minimum deposit $2000
• Not well diversified. CAUTION: FXCM nearly went bankrupt in Jan-2015 due to a lack of diversification and low capitalisation. As a result FXCM LLC was bailed out with a large loan which may prove difficult to pay back. Be warned that their business may not be sustainable in the long term. -MBTrading
• ECN. Mid-sized retail FX brokerage
• Fair spreads
• Minimum deposit $400
• Well diversified.

International Only-
-LMAX (whitelabel DarwinEx)
*DMA broker based in the UK. Note that as a DMA broker LMAX eliminates the ability for LPs to last-look transactions. This may result in reduced liquidity during volatile times as liquidity providers would be likely not to risk posting liquidity to LMAX's pool. *Tight spreads *Minimum deposit $10,000 *Fairly well diversified
-Dukascopy
*ECN based in Switzerland, but available elsewhere depending on local regulations.
*Tight spreads *Minimum deposit $100 *Fairly well diversified
-IC Markets *ECN based in Australia *Fair spreads on standard account, tight spreads on professional accounts. *Minimum deposit $200 *Fairly well diversified
-Pepperstone
*ECN broker based in Australia. *Fair spreads on standard account, tight spreads on professional accounts. *Minimum deposit $200 *Not well diversified
Software / Apps:
Desktop/mobile

• Apps are typically broker dependent. Some brokers have their own proprietary software, while others lease common software like Metatrader or NinjaTrader. Some software has a large development community for indicators and EAs.
  
• https://www.tradingview.com/ - Great for HTML5 browser based charting and alerts
  

Terminology/Acronyms:
www.forexlive.com/ForexJargon - Common terms and acronyms
FAQ:
I need to exchange money, how do I do it?
This isn’t what this sub is for. Your best bet is using your bank or an online exchange service. Be prepared to pay a hefty fee.
I have money in one currency and need to exchange it into another sometime in the future, should I wait?
Don’t ask us this. We speculate intraday in FX and shouldn’t be relied on to tell you what’s best for you. Exchange the money when you need it.
I have an FX account, should I start trading demo or live?
This is highly debatable. You should definitely demo trade until you have mastered how to use the trading platform on desktop and mobile. After that it’s up to you. Many think that the psychology of trading live vs demo trading is massively different. So it may pay to learn to trade live. Just be warned that most FX traders lose almost their entire first account so start with a low affordable balance.
What’s money management?
Money management is a form of risk management and is arguably the most important aspect of your trading when it comes to long term survival. You should always enter trades with a stop loss - the distance of the stop allows you to calculate how large of a percent of your account balance will be lost if your trade stops out. You can run a monte carlo simulation to figure out the risk of having a number of trades go against you in a row to drain your account. The general rule is that you should only risk losing 1-4% of your account per trade entered.
More on this here: www.investopedia.com/articles/forex/06/fxmoneymgmt.asp[35]
www.swing-trade-stocks.com/money-management.html[36]
What about automated trading?
Retail FX traders have been known to program “Expert Advisors” (EAs) to automate trading. It’s generally advisable to stay away from that until you’re very experienced. Never buy an EA from a developer because the vast majority of them are scams.
What indicators are best?
That’s up to you to test and find out. Many in this forum dislike oscillating indicators since they fail to capture the essence of what moves price. With experience you will discover what works best for you. In my experience indicators that are most popular with professional traders are those that provide trading “levels” such as pivot points, fibonacci, moving averages, trendlines, etc.
What timeframe should I trade?
Price action can vary in different timeframes. In longer term timeframes the price action and fundamentals are much more clear. Unfortunately it would take a very long time to figure out whether or not what you’re doing is successful on longer timeframes. In shorter timeframes you can often tell very quickly if what you’re doing is profitable. Unfortunately there’s a lot more “noise” on these levels which can prove deceptive for those trying to learn. Therefore the best bet is to use a multi-timeframe analysis, working from top-down to come up with trades.
Should I trade using fundamental analysis (FA) of technical analysis (TA)?
This is a long standing argument in these forums and elsewhere. I’ll settle it here - you should have an understanding of both. Yes there are traders who blindly ignore one of the other but a truly well rounded trader should understand and implement both into the analysis. The market is driven in the longer term through FA. But TA is necessary to give traders a place to enter and exit trades from a psychological risk/reward standpoint.
I’ve heard trading Binary Options is an easy way to make money?
The general advice is to stay away from binaries. The structure of binary options is so that when you lose the broker wins. This incentive has created a very scammy industry where there are few legitimate binary options brokers. In addition in order to be profitable in binaries you have to win 55-65% of the time. That’s a much higher premium over spot FX.
Am I actually exchanging currencies?
Yes and no. Your broker handles spot FX is currency pairs. Although they make an exchange at the settlement date they treat your position in your account as a virtual currency pair. Think of it like a contract where you can only buy or sell it as a pair. In this sense you are always long one currency while short another. You are merely speculating that one currency will appreciate or depreciate vs another.
Why didn't my order fill?
Even if price appears to cross over a line on your chart it does not guarantee a fill. Different charting platforms chart different prices - some chart the bid price, some the ask price and some the midpoint price. To fill a limit order price needs to cross your limit's price plus the spread at the time that it is crossing. If it does not equal or exceed the spread then it will not fill. Be wary that in general spreads are not fixed. So what may fill at one time may not at another.