Ninth gas discovery offshore Sarawak will enhance SK408’s viability

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KUCHING: Sapura Energy Bhd (Sapura Energy) and partners Sarawak Shell Bhd (Sarawak Shell) and Petronas Carigali Sdn Bhd’s (Petronas Carigali) ninth gas discovery offshore Sarawak is expected by analysts to further enhance the viability of the SK408 project cluster by leveraging on the common infrastructure, pipelines and facilities .

In a filing on Bursa Malaysia, Sapura Energy through wholly-owned subsidiary, Sapura Exploration and Production (Sarawak) Inc (Sapura E&P) and the group’s partners Sarawak Shell and Petronas Carigal announced its ninth gas discovery offshore Sarawak, following the completion of its 2017 drilling campaign within the SK408 Production Sharing Contract (PSC).

Sapura Energy announced that the Pepulut-1 exploration well located offshore Bintulu, Sarawak in Block SK408 was drilled and encountered high quality reservoir.

“The Pepulut-1 exploration well was drilled and encountered high quality reservoir. The well is located offshore Bintulu, Sarawak in Block SK408.

“This discovery is a continuation of Sapura E&P’s exploration successes in the highly prolific area of SK408,” Sapura Energy said.

Sapura Energy added that the discovery is another significant milestone for the group following the recent announcement of its development plans for Gorek, Larak and Bakong fields as phase 1 in the SK408 PSC.

According to AmInvestment Bank Bhd (AmInvestment Bank), eventhough the estimated reserve for Pepulut has not been revealed yet, pending the signing of a gas sales agreement with Petroliam Nasional Bhd (Petronas) which underpins project feasibility, any estimate is likely to be categorised as 2C, not 2P at this juncture.

“Given that this field is in the vicinity of the Gorek, Larak and Bakong fields of phase 1 in the SK408 PSC, which achieved final investment decision in April this year, we expect this discovery to further enhance the viability of this project cluster by leveraging on the common infrastructure, pipelines and facilities,” the research firm said.

As the first three fields will be developed as three separate wellhead platforms tied back to the existing processing facility and to the MLNG complex in Bintulu, AmInvestment Bank expected Sapura Energy’s fabrication yard utilisation to improve significantly towards the end of the year.

“The group already secured two Hess wellhead platforms and the Pegaga central processing platform from Mubadala Petroleum.”

Sapura Energy noted in its press release that the SK408 gas fields will be Sapura E&P’s second major upstream gas development project in East Malaysia, after the successful development and commencement of production from the SK310 B15 gas field.

The group further noted that Sapura E&P’s financial year 2020 forecast (FY20F) production is expected to fall by 12 per cent year on year (y-o-y) from natural decline.

“However, the Gorek, Larak and Bakong gas fields in the US$200 million Phase 1 of the SK408 PSC are targeted to commence production in FY21F, radically transforming annual gas output from two million barrel of oil equivalent (boe) by 10-fold to 12 million boe and propel overall hydrocarbon production to 13.4 million boe, up 3.8-fold from 3.5 million in FY18.”

Overall, with crude oil prices now trading above US$75 per barrel, AmInvestment Bank observed that the limelight has returned to Sapura Energy’s E&P operation.

The research firm noted that Sapura Energy’s proposed listing is becoming much more likely, reinvigorating the group’s overall re-rating process.

Hence, AmInvestment Bank believed that the stock is trading at an unjustified 0.2-fold of the research firm’s sum of parts (SOP) of RM2.76 and 0.4-fold book value, versus 0.9-fold for Bumi Armada Bhd.