Monday, August 10

SapCrest, Kencana to see boost from shared FSPO contract

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KUCHING: SapuraCrest Petroleum Bhd (SapCrest) and Kencana Petroleum Bhd (Kencana) are forecasted to see boosted earnings from a shared floating, production, storage and offloading (FSPO) contract, possibly in the near term.

The two oil and gas players separately announced agreements with their Berantai marginal field partner Petrofac Energy Developments Sdn Bhd (Petrofac) to each acquire 24.5 per cent interest in Berantai Floating Production Ltd (BFPL) for US$85.7 million cash.

BFPL would invest in an FPSO that would be used for the project. Petrofac would retain 51 per cent of BFPL and each equity partner would also provide a shareholders’ loan to BFPL to finance the FPSO investment and conversion although BFPL would also likely secure external financing.

RHB Research Sdn Bhd (RHB Research) stated in a research note, “While we still like the prospects of the merger (SapCrest-Kencana) which will create a large and formidable competitor for regional oilfield services (and especially for projects in Malaysia), we believe there could be some profit taking in the near term.

“Expected to be operational by the second quarter (2Q) of this year, the FPSO will add a third earnings stream to SapuraCrest and Kencana, other than development (such as production) of the project, and contracting works.

“We expect the FPSO charter rate to be linked to the Berantai project duration of eight years, which implies there may be a possible premium compared to other FPSO charter contracts.”

The research house gathered that overall, the project (Phase 1 development and FPSO charter rates) could yield net profits of around RM150 million to RM160 million per annum for the merged entity.

This implied around RM75 to RM80 million per annum each for Sapuracrest and Kencana, which was higher than RHB Research’s assumed RM66.8 million per annum for each company.

Whilst the FPSO would start to contribute in 2Q of this year, RHB Research believe Kencana’s earnings would be largely captured in the marginal field contributions that should only impact the company in its financial year 2013 ending July (FY7/13) earnings.

The companies would only start accounting for development phase profits once the 18-well commitment (expected by December 2012) had been completed. With this in mind, the research house assumed seven months contribution in FY7/13, and a full-year contribution in FY7/14 for Kencana.

The research house increased its FY13 to FY14 net profit estimates by 1.1 per cent and 1.7 per cent respectively as it upgraded its assumptions for Kencana on the marginal field contract to RM75 million per annum.

The listed risks to the forecast included delays in contracts if global economic conditions turned increasingly negative and integration issues with merger partner SapCrest which could affect the amount of synergy gains from the merger.

Based on an implied 18.3 times 2012 price earnings ratio (PER), the earnings forecast changes prompted RHB Research to increase the fair value of Kencana up one sen to RM2.95 per share.

Concurrently, the fair value for SapCrest was bumped up to RM4.52 per share (from RM4.50 per share), based on implied 17.3 times 2012 PER.