SAPURA ENERGY BHD

By TA Research Sell Target price: 30 sen

THE monetisation of Sapura Energy’s fields in Australia will likely materialise from 2023 onwards.

This is after taking into account estimated planning and field development period of three years.

TA Research opined that the costs for exploration drilling programmes and seismic studies would not be a significant drag to the company’s balance sheet and cashflows.

To recap, for SK408 Phase 1 development, management expects to incur capex of US$200mil in 2018-2020.

Sapura Energy recently announced its foray into oil and gas (O&G) exploration and production (E&P) in Australia.

This is via farm-in agreements for three offshore exploration permits with Finder Exploration Pty Ltd.

Finder is a private O&G company based in West Perth that holds the said permits. Sapura Energy will assume operatorship and acquire 70% interest (Finder: 30%) in blocks EP 483 and TP/25, WA-412-P, as well as AC/P 61.

The farm-in agreement marked Sapura Energy’s third international E&P foray after recent inroads into New Zealand and Mexico.

Spending is expected to be marginally relative to Sapura Energy’s FY18 capex of about RM890mil, according to analysts.

The Sapura Energy-Finder joint venture will include two exploration wells in the Carnarvon Basin permits in 2019-2020 and the acquisition of seismic data in AC/P 61 permit in 2019.

The company is also in the midst of proposing a massive recapitalisation exercise. This entails rights issue with warrants and Islamic redeemable convertible preference shares. The exercise (excluding warrants proceeds) is targeted to raise capital up to RM4bil.

Analysts have maintained “sell” on Sapura Energy as they are concerned of heavy dilution following its massive recapitalisation exercise.

They believe that the latter will result in an estimated earnings per share dilution of 14%39% over FY20-FY21.