Sapura Energy to carve out and list E&P arm?

FOLLOWING the recovery in crude oil prices, Sapura Energy Bhd is said to be mulling the listing of its exploration and production (E&P) arm, sources say.

According to the sources, the idea is being considered and if it does happen, would be an avenue for the company to monetise part of its assets.

Sapura Energy is an integrated oil and gas (O&G) company with exposure to the engineering and construction (E&C) and drilling divisions, besides E&P.

Of these divisions, E&P is the better-performing segment of its business that has been hard hit by the downturn in the O&G industry that started from mid-2014 until the third quarter of last year.

The E&P unit is the only segment that made an operating profit for the third quarter ended Oct 31, 2017.

For that quarter, Sapura Energy reported a net loss of RM274.4mil - a steep decline from the net profit of RM158.1mil made for the same quarter last year and the RM29.4mil in the preceding second quarter.

Revenue in the third quarter, meanwhile, fell 42% year-on-year to RM1.28bil following declines in revenue from the E&C and drilling divisions, plus a lower contribution from its share of profits from joint ventures.

TA Research in a recent report noted that the company’s E&P production was higher at 900,000 barrels of oil equivalent (boe) versus 800,000 in the second quarter.

Sapura Energy capitalised on the higher crude lifting price of US$58 per barrel (bbl) as opposed to the US$45/bbl level oil prices had trended in the corresponding period last year.

The Brent crude oil price recently breached the key psychological mark of US$60/bbl and at the time of writing, was trading at US$68/bbl.

Analysts’ oil price forecast for 2018 is at US$60-65/bbl.

Going by the view that oil prices have bottomed out, upstream players would be able to generate more cash from E&P.

“For now, the company makes sufficient money from its operations to service interest repayments.

“However, once the moratorium to pay its principal payment ends, it has to look for a longer-term solution on its debt repayment on the back of a dwindling cash pile,” says an industry source.

Sapura Energy’s borrowings were restructured early last year so that there were limited principal repayments over the next 18 months.

Sapura Energy’s cash and cash equivalents stood at RM1.89bil as of Oct 31 versus RM3.52bil as of Jan 31,

For the nine months to end-October, its net cash generated from operating activities was lower at RM585.51mil as opposed to RM2.21bil a year ago.

Total liabilities stood at RM22bil as at October last year, while interest payment amounts to some RM600mil a year.

Heavy capital expenditure largely for the B15 gas field and debt-servicing obligations brought the company’s net gearing to 1.26 times as at Oct 31.

This exceeded the company’s medi- um-term target of 1.1 times, which it had kept to.

Back to Sapura Energy’s E&P division, development of the SK310 B15 field off east Malaysia was completed in October last year, and production is to be progressively ramped up until it reaches optimum level this month.

Production from the PM323 oilfield may also improve now that the infill drilling at the East Belumut and West Belumut fields was completed last quarter.

While Sapura Energy is expected to be loss-making in financial year 2018 ending Jan 31 (FY18), some analysts believe that the earnings prospect from FY19 should improve on the potential of better-than-expected job flows, given the improved oil prices.

The company has an outstanding order book of RM15.1bil and has won contracts worth RM2.8bil year-to-date. Its tender book stands at US$5bil.

Shares of Sapura Energy were last done at 84 sen, up eight sen or 10.53%. However, this is still about half the value of what they were trading at the start of 2017.