REACH TO DIVERSIFY DOWNSTREAM
Company to venture into refining petroleum and crude oil as well as processing and purifying raw natural gas
OIL and gas (O&G) exploration and production company Reach Energy Bhd is seeking to diversify into downstream business and increasing oil production in Kazakhstan starting next year.
Chief executive officer Shahul Hamid Mohd Ismail said it was timely for the company to venture into downstream business, given that the its only asset, Emir Oil LLP, was involved in the upstream segment.
“The reason why I used the word diversify is because I have a vision of making the company venture into the hydrocarbon value chain,” he told NST Business in an interview, here, recently.
Reach Energy is currently focused on exploration and production of oil and gas.
Shahul said venturing into downstream activities would mean the company getting involved in the refining of petroleum and crude oil as well as the processing and purifying of raw natural gas.
Reach Energy has full control of Emir Oil, a 850.3 sq km onshore oil and gas exploration and production field located in Mangystau region, Kazakhstan, since May last year.
The company bought 60 per cent stake of its first and only asset in Palaeontol BV, the previous owner of Emir Oil, for US$175.9 million (RM733.5 million).
The remaining 40 per cent stake is owned by MIE Holdings, a listed company in Hong Kong.
Shahul said Reach Energy has no plans to venture into offshore activities as they present a major risk and high cost for the company.
Instead, he said the company was gearing to increase its oil production to 8,000 barrels per day (bpd) by next year, and up to 20,000 bpd by 2021. Currently, Emir Oil produces 3,500 bpd.
Shahul said 30 per cent of the company’s oil was sold to the local Kazakhstan market while 70 per cent was exported to Europe by an international oil trader.
He said Reach Energy expects to be profitable in the current financial year ending December 31, given Emir Oil’s projection of increasing oil production as well as the current Brent Crude Oil price of between US$70 and US$80 a barrel,
“Our operating cost is very low, it is all in Kazakhstani Tenge while our revenue is in US dollars. So that is good for us.
“With that and the current oil price as well as an increase in our oil production, I see positive future in the coming quarters and years,” said Shahul, adding that the company’s cash flow was positive.
In the second quarter ended June 30 this year, Reach Energy posted a net profit of RM11.22 million on the back of RM67.67 million revenue.
In the same period last year, the company recorded a net loss of RM14.53 million on the back of RM40.73 million revenue.
Since January until October this year, Reach Energy’s share price has been hovering between 48 sen and 40 sen. Last Friday, its share price closed at 40 sen on Bursa Malaysia.
The challenge for Shahul is to gain shareholders’ confidence.
He said many shareholders are not familiar with the exploration and production industry as well as the oil and gas business in Kazakhstan.
“I give briefings and talks at shareholder sessions to make them aware that we must venture out and make them realise the potential and value of the business,” said Shahul, adding that Kazakhstan has the 12th largest oil reserves in the world.