Positive on Sapura Energy’s seven big contract wins
Scheduled for five months, the work is expected to complete by the fourth quarter of 2021.
Sapura Energy
KUCHING: Analysts are positive as Sapura Energy Bhd (Sapura Energy) has secured seven major contract wins and job extensions in Malaysia and Thailand for its engineering and construction (E&C), operations and maintenance (O&M), and drilling segments, worth about RM1.2 billion in total.
One of the contracts received was through its subsidiary Sapura Offshore Sdn Bhd from PTTEP Sarawak Oil Ltd (PTTEP) and EnQuest Petroleum Production Malaysia Ltd (EnQuest).
The contract award from EnQuest is for the replacement of a ten-inch gas lift subsea pipeline and risers, it added.
“Scheduled for five months, the work is expected to complete by the fourth quarter of 2021,” said Sapura Energy in a statement.
As for the O&M business segment, the oil company’s subsidiary Sapura Fabrication Sdn Bhd secured contracts from EnQuest, Sarawak Shell Berhad (SSB) and Sabah Shell Petroleum Company Ltd (SSPC).
The contract awarded by EnQuest is for the provision of maintenance, construction, and modification works as part of the extension of a production sharing contract.
Researchers with Hong Leong Investment Bank Bhd’s (HLIB Research) believed that the recent flurry of drilling contract wins was a very positive leading indicator towards the recovery of the exploration oil and gas segment.
“Sapura currently has seven active tender drilling rigs and we expect its strong performance from its drilling segment to continue,” it said in its review. “We believe that Sapura would be able to capitalise on its contract wins with its improved operational efficiencies over the last few quarters as its financial year 2021 (FY21) operational expenses has decreased by 32 per cent y-o-y.
“We believe that Sapura will be in the black from FY22 onwards after being in the red for four consecutive years.”
MIDF Amanah Investment Bank Bhd (MIDF Research) noted that risks to Sapura Energy’s contracts would include the operational and commercial impacts of Covid-19 pandemic, and consequently the availability of skilled manpower and traded materials.
“Other risk factors, such as the volatility of the Brent crude oil in the coming months, the weather conditions in the offshore blocks where its rigs stand with the coming monsoon at year end, and the political and economic uncertainties in the near term,” it added.
“We believe these recent contracts awarded to Sapura Energy overshadows its recent asset sale to Jadestone. While asset sale will lead to loss of some of its income, this will be offset by its contract wins.
“The group has definitely established a successful track record with similar Oil and Gas operational and maintenance projects. We believe that the sector is poised for improved earnings.”
Following this, AmInvestment Bank Bhd (AmInvestment Bank) estimate that the group’s outstanding order book could increase by 10 per cent to RM13 billion, which may rise further from the group’s bids of RM53 billion currently, which is 4.1 times its current order book.
Additionally, the group is looking for prospective projects worth up to RM93 billion.
“Recall that Sapura’s 1QFY22 normalised loss of RM49 million could have turned around to a net profit of RM35 million with the removal of forex losses of RM43 million and Covid-19related costs of RM42 million from quarantine, tests and productivity losses,” it said in its analysis.
“Additionally, all four core operations were profitable in 1QFY22 with the drilling division rebounding to a pretax profit of RM22 million with only seven rigs in operation.”