Coastal Contracts secures RM318.9 mln gas sweetening extension in Mexico

Integrated oil and gas services infrastructure solutions provider Coastal Contracts Bhd’s (Coastal) 50 per cent owned Mexican Joint Venture (JV) has secured a 22-month contract extension from Mexican stateowned petroleum company Petroleos Mexicanos (Pemex) for its gas sweetening services contract at Perdiz Plant.

The gas sweetening process refers to the removal of hydrogen sulphide (H2S) or carbon dioxide (CO2) from natural gas.

In a filing with Bursa Malaysia on Feb 6, Coastal announced that the maximum contract value of the gas sweetening services contract had increased by 1.1 billion Mexican Pesos or RM318.9 million to a total of RM2.8 billion Mexican Pesos.

The original Perdiz gas sweetening contract was set to expire on Feb 29 but with the extension it will now end on Dec 31, 2025.

In a recent company update report, research house TA Securities Holdings Bhd (TA Research) reported that the contract extension came as no surprise as Coastal had previously alluded that its Mexican JV was negotiating with Pemex about a potential contract extension.

They estimate that the gas processing tariff for the contract extension will sit around 9.4k Mexican pesos or RM2.6k per million standard cubic feet (mmscf).

Comparatively, the Papan Plant which is also owned by Coastal is estimated to see tariffs sitting at around RM3.5k to RM3.6k per mmscf.

The higher rates are due to Papan Plant’s additional ability to recovery naphtha and liquefied petroleum gas (LPG) said TA Research.

Overall, the research house guided that they were positive on the new development as the contract extension would provide Coastal with recurring earnings up to FY25 and also increase the likelihood of them also securing another 5-year contract extension with LPG processing capability added to the Perdiz Plant.

“Note that Ixachi field only has 2 gas processing plants, Perdiz Plant and Papan Plant, both operated by Coastal’s Mexican JV.

“As Ixachi field’s gas production capacity ramps up, we expect both plants to achieve maximum utilisation rate by end-2024,” the research house added.

TA Research maintains a ‘Buy’ call on Coastal with an unchanged target price of RM1.90 that is based on a sum-of-parts valuation.